The Bowdoin Endowment, with Paula Volent and Stan Druckenmiller
Transcript
Bob: Hello friends, welcome to today’s discussion with Paula Volent and Stan Druckenmiller. I’m Bob White, and I’m going to make some brief introductions and then hand it over to Paula and Stan. But before I do that, just a couple of minor administrative things. First, closed captioning is available — you’ll see that option at the bottom of your screen. Today we have the live Q&A. You can submit any questions you’d like to ask Stan or Paula at any time through the Q&A function. Finally, this event is being recorded and will be posted in the reunion and alumni relations sites.
Bob: So again, thank you for joining us. Let me give a little bit of brief background on Paula and on Stan. First, with Paula — Paula came to Bowdoin 21 years ago in July 2000, soon became the Vice President for Investments, and currently serves as our Senior Vice President and Chief Investment Officer of the college. When Paula came, the endowment was $465 million. Through the generous donations from you alums and family and friends, and the incredible investment performance under Paula’s leadership, the endowment is well over two billion dollars today. Bowdoin’s endowment has achieved top decile growth performance over the short-term and long-term horizons under her guidance.
Bob: As we all know, Paula will soon be stepping down from her role — we’ll miss her — and be joining Rockefeller University in August as the Vice President and Chief Investment Officer. We wish her good luck in that exciting new chapter. Prior to investment management, she ran her own business as an art conservator. She also worked at the National Gallery of Arts in Washington, the Los Angeles County Museum, the Palace of Fine Arts in San Francisco, and the New York Historical Society, so she has quite a varied background. She currently serves as a director on the MSCI board, board advisors of the Yale School of Management, member of the investment committee of a family foundation, member of the advisory committee of Girls Who Invest, trustee of the Skowhegan School of Art and Painting, and investment committee member of the Rockefeller Foundation. She graduated from the University of New Hampshire, received a master’s degree in art history from the Institute of Fine Arts at New York University, and an MBA from the Yale School of Management, and trained prior to joining Bowdoin under David Swensen at the Yale Investment Office. In 2020, Barron’s named Paula one of the 100 most influential women in U.S. finance. Paula, thanks for taking time to be with us today.
Bob: Now let me go on to give a background on Stan. Stan needs no introduction, but I’ll do it anyway. He’s obviously a legendary investor — class of Bowdoin 1975. Stan started at Dreyfus, moved to Soros Fund Management where he would ultimately have responsibility to run the world’s largest hedge fund. He went on to found Duquesne Management and currently is a private investor, widely regarded as one of the preeminent money managers in the world. Stan has been a loyal son of Bowdoin and has never forgotten the place that he loves so much. In 1991 he joined the board and served until 2002 as an active member of the board of trustees, also joining the investment committee, on which he has served for the last 30 years. He chaired the investment committee from 1997 to 2002, and again from 2015 through today. Through his treasure he has supported and become the major benefactor of the college. He has been an incredible and trusted advisor and confidant for three Bowdoin presidents. His success in business is matched by his incredible and remarkable record of philanthropy. He is a major benefactor and chairman of the board of trustees of Harlem Children’s Zone, the Center for Strategic and International Studies, the Environmental Defense Fund, and Memorial Sloan Kettering Cancer Center. He was recognized by the Chronicle of Philanthropy as the most charitable man in America, giving hundreds of millions of dollars to organizations that support medical research, education, the environment, anti-poverty, and others. In 2007, Dr. Druckenmiller was awarded an honorary degree by the college, and in 2015 he was the co-recipient of the Bowdoin Prize with Jeff Canada — Bowdoin’s highest honor, awarded every five years to the graduate or former member of the college who has made the most distinctive contribution in any field of human endeavor. Stan, thank you for all that you’ve done for the college and for so many others. Thanks for joining us today.
Druckenmiller: Thanks, Bob, and welcome everybody — and all the Polar Bears out there. I want to start by thanking Paula. It’s just hard to overstate what an achievement this remarkable woman has handed us over the last 20 years. Bowdoin just hasn’t been decile — she’s been number one many times, and most of the time. My guess is throughout that period the difference that makes for the college is immeasurable. To have an endowment go from the 400s to well over two billion changes the landscape of what we can do with financial aid; it changes the landscape of our competitive position relative to others. And Bob’s right — I served under three great presidents — I have to say that no one has had more of a transformational effect on Bowdoin than Paula Volent.
Druckenmiller: I’m often asked what makes her so good, because the numbers really are outstanding. The first thing I would say — and I’ll say this affectionately, and it’s not an insult, Paula, because I’ve heard the term used on me — she’s a workaholic. She has a work ethic like nothing I’ve ever seen. Sometimes when I call her to say hello, I can’t get done with the second syllable before she’s into the investment talk. She just loves our business with a passion and she works at it like no one I’ve ever seen. Bob mentioned that she has an art history background and had a conservator business. I strongly believe the diversity in her background gives her an ability to think out of the box and innovate that you just don’t get much in the financial industry. People tend to go through finance; they are consensus thinkers. Paula, coming from such a varied background — and it didn’t hurt to have a mentor like David Swensen — has innovated and had a bunch of ideas at Bowdoin that by hindsight look easy, but they were not easy, and they were very aggressive. Which is the other thing I’ll say about her: she’s not afraid to swing the bat. And you don’t get the kind of performance she’s had without taking enormous risks, and it’s hard to explain — I’ve been in the business for over 40 years — how taxing that is emotionally, how traumatizing it is. And she’s done it time after time with great success. Finally, a lot of the places she’s invested with were not easy to get into, but the work ethic — and I don’t know whether it’s relentlessness where they just want to get her off the phone and they can’t take it anymore, or they’re in love with her, or whatever — but we’ve gotten into so many closed funds and held those relationships because of Paula. All of this to me has been a great mixture as to why Paula has achieved the stunning results she’s achieved.
Druckenmiller: Now, Paula, I know that the format is you’re supposed to interview me, but I have one question for you — because no aspect of our investment performance has been more transformational to our returns than our venture capital portfolio, and I’m sad to say I had absolutely nothing to do with going into that field and pushing that level of investment that we have there. Could you just walk us through what exactly went into that decision, how you pulled the trigger, and what you’ve done since? Because it wasn’t obvious.
Volent: Yeah. I want to be brief because this is about you, Stan, and thank you everyone — I am going to miss Bowdoin so much. It’s been such an honor, and I’m a Polar Bear even though I didn’t go to Bowdoin. As you know, I joined in 2000, right in the teeth of when the dot-com bubble was bursting. Bowdoin at that time had very little in VC. It’s funny — when I came to Hubbard House and worked under Kent Chaitar, I opened my drawer and there was a letter from a trustee. It introduced me to Matrix, Kleiner Perkins, and Greylock, and someone wrote on the bottom, “Too risky for a college.” So Bowdoin did not invest in venture capital when Yale and some of the others did — in some ways that protected the college in 2000 from the downturn, although the college did, with poor timing, invest in a fund of funds in VC right in March 2000.
Volent: One of the things that I did at Yale with David Swensen was I helped him write his book Pioneering Portfolio Management. David was a real pioneer in alternative asset classes, and he showed how you had to find the best managers. There was only a handful of them, but they had great deal flow, innovation, and creativity. And also what you talk about is the courage to be non-conventional. So the first year at Bowdoin I did very little change in the portfolio, but I went around — no one from Bowdoin had ever met with an investment manager except at the trustee investment committee meetings, really briefly — so I started traveling to Silicon Valley, and I started selling the Bowdoin brand. And now Bowdoin has an amazing brand. We’re known as really good investors, as thoughtful, good, loyal investors. The story of Bowdoin is very compelling — financial aid, the common good, and all that. So it took a while, and as you said, I was relentless. People a lot of times gave me a tiny little bit thinking that I would turn away and be insulted, but I took it. So I’m very proud of that.
Volent: Let’s move into talking about you, because in many ways you are a legend at Bowdoin. During your undergrad years particularly, there are many stories about you. You were not in a fraternity, although some people claim you were because there’s a picture of you in a fraternity. You ran the game room and through that you got to meet lots of different people at Bowdoin — students from all different backgrounds. You ran casinos, you walked dogs to make money, and you and Larry Lindsey — who many people know — ran a hot dog stand. Summers you worked construction, and you worked maintenance on a golf course. And you thought you were going to be an English professor. And then, like me, you had some great mentors. What about Bowdoin — particularly during that time — influenced you to where you are today?
Druckenmiller: Well, thank you for those kind words. You’re right — I started off as an English major. I actually completed the major, but we didn’t have A’s, B’s, and C’s — we had “honors” and “high honors.” And no matter how hard I worked, I couldn’t get above one of those H’s in English. And I don’t like to lose; it just wasn’t working. My junior year I took a course in economics just so I felt I could read the paper properly, because I didn’t really understand the world and how it worked. I took a class from Bill Shipman, and it was literally like the lights came on. The concept of the invisible hand, thinking on the margin, marginal cost — I was just in love with it. And strangely I was also very good at it. I was a mediocre student in English; I excelled in economics.
Druckenmiller: Then I met another professor, Myrick Freeman, who taught microeconomics and environmental economics, and he became a very incredible mentor to me. I can remember many times going over to his house by the fireplace — so it’s the traditional, romantic story about a liberal arts education, but in this case it’s true. He and Professor Shipman guided me to go get a PhD in economics. I wanted to be a professor. I went to Michigan, and after about one month I figured out this wasn’t for me. These guys were into these models that they were trying to jam the world into, and to me you can’t do that — and more importantly, they believed in them, which I found really frightening. I stayed there about a semester and a half, left, went back, and got a job in construction in Vermont. I had a practice marriage to a Bowdoin girl that lasted about a year and a half, went to Pittsburgh with her, and got a job at Pittsburgh National Bank. That’s sort of the background of Bowdoin. Interesting thing about Bowdoin — I was a very sheltered kid from Virginia, which in 1971 is really sheltered because they were still living in the 18th century. And in the game room I met everybody: I met hockey players, I met African Americans — I met the whole range of the college. They would go through that game room, and I spent a lot of time there. That was pretty much my fraternity or my social experience.
Volent: So when you went to Pittsburgh National Bank and were very successful — I think your interest in games and playing games, and your big football fandom as well — after only one year you became the head of the bank’s equity research group, and then Dreyfus asked you in for consulting, and you joined Dreyfus in 1985. You launched one of the best-performing mutual funds — a record for all time — which brought you to the attention of George Soros. And George Soros is also legendary. I think you read his book The Alchemy of Finance, you requested a meeting in October 1987, and if you look back on markets, 1987 was a big time in markets. You were actually trading against Soros in the big drawdown and you were profitable, and I think he was very impressed. Can you look back on that period? And also — you’re probably most famous for taking down the Bank of England by shorting sterling in 1992, which is later — but when you found out that the giant, the elephant in the market, was him, what was that like?
Druckenmiller: Okay, so most of that is correct. I was really promoted too early at Pittsburgh National. I was made the boss of a bunch of 40-year-olds when I was 25, and I had never had a course in accounting or business. Like you, I came from a completely different background. I had some economics obviously, and because I didn’t get formal balance-sheet training, I kind of morphed early on into trading currencies. I also started looking at bonds, liquidity, currencies, and trading all sorts of asset classes. The only one who was really doing that at the time and was well-known was Soros. Yes, I read his book, The Alchemy of Finance — which I wouldn’t recommend to anybody as a first read; it doesn’t make a lot of sense. But there was one chapter in there that really caught my eye, on currencies. So I did call him up, and we started talking two weeks before the crash.
Druckenmiller: I’ll just say that that quarter ended up being the best quarter in my history — I think I was up like 60% for the quarter, and he got killed. It turned out the Thursday morning after the crash, the reason I was able to cover my short position so well was someone at Salomon Brothers told me there was an elephant in the marketplace that was dumping. So I covered everything. And when I talked to Soros on Friday, I said, “Some idiot blew out five thousand contracts,” and I covered everything. I was very embarrassed when I read in Barron’s on Sunday that the idiot was George Soros — maybe arguably at the time the greatest investor of all time. But that’s a funny fact.
Volent: That’s great. I won’t go into the Bank of England shorting, but that was amazing. And one of the things that underlines it is what you sort of learned with George Soros: that when you have great conviction on something and you know — or feel — that you’re right, you should put money to it. And your risk management is famous, because if you don’t know or you’re unsure, you take your exposure down. Your risk management has been really instrumental in you having one of the best — if not the best — track record of any investor over the past 30 to 40 years. Was that scary? I interviewed Bernanke once, and he was telling me that one of the scariest parts was sitting at his desk when you did the Bank of England trade.
Druckenmiller: It actually wasn’t scary, and I don’t say that cavalierly, because I’ve been scared to death many times in my career. But the background I gave very shortly — it was August of ‘92. Our housing analyst, Scott Bessent, who was in London at the time, told me that housing was collapsing in England. At the same time, Germany had reunited — West Germany and East Germany — so their economy was booming and they had an inflation problem, so they wanted rates high. After the Weimar Republic, Germans have always been obsessed with inflation. The British wanted rates low because housing was collapsing, but their currencies were linked. So I thought this was unsustainable.
Druckenmiller: In August of ‘92, I think the Soros Fund was $7 billion — I shorted a billion and a half pounds against the deutschmark. Frankly, the reason it wasn’t scary, Paula, is I knew that if the currency broke, it could only break one way. So my risk was the carry, which was 50 basis points over a year — that’s all I could lose. But if it broke, I would make 20%. Fast forward about a month later: I opened up the Financial Times and the head of the Bundesbank, in very flowery terms, was essentially saying the relationship was unsustainable and that he didn’t think Britain and Germany should have their currencies linked because of their two very different economic situations.
Druckenmiller: Soros was rarely in the office — he was off in Eastern Europe doing philanthropy — but he came in that afternoon. I went in to him and said, “I’m going to increase my pound bet from a billion and a half to 100% of the fund,” and I explained my whole thesis and rationale to him. He had sort of a disgusted look on his face, and I was thinking — while he’s looking at me — “How can he not get this?” And he says, “Look, you shouldn’t put 100% of the fund in this. You should put 200% of the fund in this, because this is a one-way bet. You only get it maybe two or three times in your career where you can’t lose and you might make a lot.” So I totally agreed with him. Instead of trying to get to $7 billion, I decided to get to $15 billion overnight. We ran out at about $7 billion, which is where I wanted to go in the first place, and the thing broke. It wasn’t scary because I knew I couldn’t lose — I knew I might not win, but I knew I couldn’t lose. But I’ll tell you, the high I got, the exhilaration the next morning, was almost indescribable. But then it got in the press, and that wasn’t so fun.
Volent: That’s investing for you. I know we’re running out of time, and I want people to ask questions — so please go into the Q&A. In 1991, you re-engaged with Bowdoin at the suggestion of Bill Torrey and President Bob Edwards, and you joined the board of overseers. I thought it was interesting because I went back and read part of Kent Chaitar’s year-end report for the year that you joined, and it was not a happy report. The college was in a bit of financial struggle. He notes positions have been eliminated, salary increases minimized, department budgets diminished, yet many challenges remain on the road to a balanced budget. At that point, the endowment spend was 8%, which is above where it was supposed to be, and I think they froze it right after that. Kent ends his brief summary with, “In short, the financial watchword for the 1990s at Bowdoin College should be: ‘hopeful, but cautious.‘” In the 1990s, when you did take over and became chair of the investment committee, you were one of the first to put a college endowment into hedge funds. It’s interesting because in 1981, when you started founding Duquesne, the five-year treasury rate was 15%, there were a total of eight hedge funds with assets under management of $57 million. Today there is over $4 trillion in hedge funds and the five-year treasury is below 1%. How has the market changed since you started Duquesne?
Druckenmiller: Oh my God. I think one of the reasons for my success was that in 1976, when I entered the business, we had been in a bear market for eight years. I’ll never forget my first father-in-law saying, “Well, it’s a very intellectually stimulating business and you’ll have fun, but you’re not going to make any money in it.” So the best and the brightest were becoming doctors and going into other professions — you didn’t have that much talent coming into the financial industry. Which was great for me, because every time you buy something you’re buying it from somebody who’s selling, and vice versa. So the competitive landscape wasn’t that strong. By the early 2000s it was the opposite. I was hiring kids who had at least 50 IQ points on me, and it was — in my mind — the biggest waste, because they should have been out writing algorithms or inventing vaccines or things like that. The business has just gotten much, much more competitive. And then the last lurch was with the internet — it’s become information overload. When I started, you had to dig for information; the information was hard to find. Now all the information is there, and the problem is distilling it. So the business has changed dramatically.
Volent: And you’ve been very vocal on the Fed and quantitative easing. A few years ago, you and Jeff Canada — both alums — came to Bowdoin and spoke to students about the entitlement issues that they were going to have to face, which I think have only become worse since that talk. So what future for our children and grandchildren are you expecting if something isn’t done?
Druckenmiller: I’m scared to death, and it may be beyond the point where something can be done — which is why Jeff and I were going around on this 10 years ago. Every metric we talked about is worse. Obama didn’t address it. Trump didn’t address it. Biden didn’t address it. Trump actually started spending dramatically on other stuff, and Biden has as well — with the exception of one thing: I was assuming interest rates would be 4% and that would be the cost of the debt. The fact that interest rates have been below 1% means the debt has gone from, I think, $9 trillion back then to now like $28 trillion. Actually, if you present-value the liabilities, it’s like $200 trillion.
Druckenmiller: So I don’t know — my guess is we’ve reached the point of no return. At some point we’re going to either have to raise taxes dramatically, or we’re just going to have to cut back on the benefits, which is the more likely outcome for our future generations — or what you’re calling our children and grandchildren. I think my children and grandchildren will be fine. I’m a little bit worried about — actually, I’m very worried about — the rest of the kids in our society and where we’re headed.
Volent: After this question, I am going to open it up to the audience. One of the things you’ve been quoted as saying is that giving money away properly is a way to satisfy the soul. You and Fiona have been extremely devoted to philanthropy, particularly in medical research, education, and the fight against poverty. I was looking back on what you and Jeff Canada did at Harlem Children’s Zone, which when you originally went there was the Rheedlen Center. Can you tell us a little bit about Harlem Children’s Zone — how does it go forward, and what’s your vision for it?
Druckenmiller: Yeah, I’m meeting Jeff Canada — who I did not meet when I was at Bowdoin, which is funny, because we had all sorts of tangential friends we found out later that we knew. But meeting Jeff is like hitting the lottery for a philanthropist. Philanthropy is really rewarding because making a difference — I like winning on trades, but winning where you’ve actually moved the needle, particularly in a generational area like Harlem, is quite exciting.
Druckenmiller: While I was chair — I stepped down as chair a year ago — I had to constantly resist the suggestion of board members to go into other cities, because we had 100 square blocks in Harlem and I thought we had to stick to our knitting in that job. Since then, particularly in the pandemic, when the plight of people in these kinds of neighborhoods was exposed to the extent that it was, funding has opened up nationally. The other thing that has happened is Jeff also stepped down a few years ago, and I hit the lottery when I met Jeff — I didn’t think you could hit the lottery twice in the same lifetime — but he’s mentored this kid who, while he didn’t go to Bowdoin, went to this little school called Harvard, and is from the same kind of background, which is a tough circumstance — single mom. He’s just one of the most extraordinary, amazing leaders I’ve ever seen. So the combination of Harlem Children’s Zone being imitated in like 200 communities around the country and the globe, and having this extraordinary new leader, and now funding coming into the space — I just think the sky’s the limit for HCZ, and I’m as excited about it as I’ve ever been.
Volent: Great. All right, I’m going to open it up — we have lots of questions that have just come in. I’ll start with one about younger alums: what are your thoughts on the younger participation in the equity market and crypto market these days, given the recent news like GameStop, AMC, and Bitcoin, and where are we heading in the investment world given these phenomena?
Druckenmiller: Well, first, I don’t know — one of my comparative advantages is knowing when to change my mind, so you can take anything I say, no matter how convicted I am at the time, with a grain of salt. But I will say meme stocks like GameStop and AMC are not the road to riches long-term. I would suggest that you buy great companies early in their life cycle — that’s a better route. In terms of the market itself, we have extraordinary expansionary policy going on, and as long as that’s going on, we’re probably going to have a background similar to what you’ve seen the last few years. On the other hand, I think we’ve eaten a lot of our future seed corn, and valuations are literally at all-time highs — not just for my career, which is 40 years, but of all time. So if and when this policy feels a need to reverse itself, particularly if we get inflation — which I think is probably a 50% to 70% chance of being not so-called “transitory” — we could go down to more normal valuations, which would be about 30% lower. So the music’s still playing. I have no idea when it’s going to stop, but when it does stop I think things could be difficult — more like the period just before I got into the business, from ‘68 to ‘75.
Volent: You have had some favorite stocks. You’ve been a fan of platforms like Amazon, Microsoft, and Google. We just got Lina Khan as the head of the FTC, which I think is not a good thing for those, because she’s very negative about tech. What are your thoughts on U.S. tech regulation, and also the regulation of Bitcoin and crypto, which is happening in China, and noises from Gensler?
Druckenmiller: I’ll start with tech regulation. We need to see what the regulation actually is, because sometimes counterintuitively it doesn’t work like you think. With the banks, when they got heavily regulated after the financial crisis, potential competitors couldn’t afford to compete with them. So the bigger the banks were, the more they could spread the overhead of dealing with the regulation, and it ended up increasing monopoly power. The same thing could happen here. If they over-regulate and don’t do it properly, no matter how much Ms. Khan wants to hurt these companies, she might actually help them by making the cost of competing with them so difficult that it actually enhances their monopoly status. I’m not saying that’s going to happen, but I’d say it’s very possible — and that’s a work in progress that needs to be analyzed.
Druckenmiller: On crypto — I’m a 68-year-old dinosaur, so I’m not sure I should be saying too much about it. I bought some last year in the early stage of the pandemic, when Congress started acting crazy. It was down at $6,500. I heard from another money manager that in point of fact, when it went from $17,000 to $3,000, a certain percentage of people still owned it and realized that these, like, religious zealots that own this stuff never sell it. So I was going to buy $100 million of it, even though I didn’t really believe in it, because I thought the risk-reward was quite good. It took me a week and a half to buy $20 million of it. I sold it all at $35,000, and like a month later it was $65,000. I was just beside myself because I left hundreds of millions of dollars on the table.
Druckenmiller: But I don’t know — this ransomware thing has really shaken me. I don’t feel there’s some great societal benefit from Bitcoin. And you’ve now got it being used for ransomware by criminals. If it were a country, it would be the 31st largest energy consumer. I will be very surprised if the government doesn’t crack down on this with regulation, simply because the central banks don’t want it — it’s a threat to their monopoly power over money — and this is the perfect excuse to act. I will say this: even though that’s the reason I don’t own any crypto right now, I do think that the blockchain technology is something that the best and brightest coming out of Stanford and MIT — and there are thousands of these kids working on the problem — have made into something real. I don’t think it’ll be as big as the internet, but I think it will be big. There’ll be a new payment system and a new world derived around this. Probably the companies you want to invest in you’ll catch at Rockefeller, Paula, because there’ll be stuff that hasn’t even been founded yet by some of these 26-year-olds. I’m not sure I believe in this stuff as a currency, but I do believe in the platform of the blockchain.
Volent: I think among the chief investment officers we’re trying to figure out if it’s a new asset class, but it’s so volatile. I do think the underlying blockchain is very interesting. There are a couple of questions that follow up on inflation. Could you share your current thinking on U.S. inflation and whether you think Powell’s stance that the current rise in inflation will prove “transitory”? And what assets make sense in a higher inflationary environment if Powell is wrong? There was also a question about gold.
Druckenmiller: I don’t know whether inflation is going to be transitory. I promise you Powell doesn’t know either — he may think he knows, but he doesn’t. But I do think his policy is incredibly reckless, because if in fact we do have inflation, it’s going to cause all sorts of problems. One of which we already alluded to earlier: if the cost of money were to go up five or six percent, the interest costs alone could bankrupt our country. So I don’t quite know why they’re rooting for this inflation.
Druckenmiller: But if I went back to Professor Shipman and Freeman’s class — when you have this kind of fiscal stimulus, and by the way the infrastructure bill was just announced as a deal, so if you get the continued government spending we’re getting and the Fed financing it, Economics 101 says — maybe that doesn’t work anymore, but with all the shortages out there after the pandemic, and now everybody talking about inflation, which I don’t remember since the ’70s — my Pittsburgh friends who make like $50,000 a year, they’re obsessed. Everybody has a story about their gasoline, or this or that. The wealthy friends are talking about restaurants. Once people start talking about inflation it’s been my experience it’s already too late. I have a partner here from Argentina, and Powell is under the illusion that if inflation really starts to ramp up, he can stop it. If inflation is in fact not going to be transitory, he’s already way too late.
Druckenmiller: I’m not sure what this is all about, because we have nominal growth at 11%, which is the highest it’s been in 50 years, and the story was we wanted inflation up from 1.7% to 2% — I don’t know what difference that would have made — but we’ve already done that. So it’s almost like they’re embarrassed that they said this stuff and now they have to stick with it. But I think the policy is incredibly dangerous. And this is something I need to be open-minded and cognizant of, because if inflation goes up, obviously you don’t want to own bonds, you don’t want to own equities. There are certain commodities — counterintuitively, you may not want to own gold, because interest rates will go up and gold trades more off the interest rates. But there will be things you can own — certainly commodity-oriented companies, and then what I would call real commodities. But inflation will just be very difficult. You know how everything’s been going up the last two years? It doesn’t matter what it is — it can be games, it can be bonds. It will probably be more of the opposite. So the one thing we should not be rooting for, unless you have the ability to short fixed income, which most people don’t have the stomach for, is inflation.
Volent: There are a number of questions from younger alums about careers in finance. You have been very successful in identifying talented young managers who are starting out with a small amount of money, and you’re also very adamant that large pools of money can hinder great investment returns. So what characteristics do you look for in identifying a good investor? What are the characteristics you look for when you’re identifying a good entry-level investor or student?
Druckenmiller: Many that I described in a woman about a half an hour ago named Paula Volent. They have to have an extreme passion for the business, because this is a business that some people just love, and you can’t compete against people that love the business if you don’t love it — they’re going to outwork you, out-think you, out-compete you. They also have to be extremely competitive. They have to be sore losers. They have to want to win. Notice I haven’t even gotten to IQ yet. I think anything over 120 or 130 — it doesn’t hurt you, but it’s largely superfluous.
Druckenmiller: I would also say they can have an ego, but they have to know how to check it at the door. You have to be open-minded, because this is a business where things happen that you didn’t anticipate, and you can’t be stuck and start making up reasons why you have a position — you will just lose a lot of money. And finally, they’ve got to be able to think outside the box and not with the crowd, because if you’re in the crowd, those positions are already owned by everyone, and the only thing that can happen is fewer people own them than do now. It’s not easy to fight your emotions in the crowd, but that’s a big piece of it — the discipline to fight your emotions and go against the crowd when it’s appropriate. My first boss always said, “The higher they go, the cheaper they look,” and that’s a strange thing about the stock market. When prices go up you want to buy, and when they go down you want to sell. You’ve got to look for a person who is able to fight that emotion and go the other way when it’s appropriate.
Volent: There are also some questions about China. We do have venture capital in China, and I remember when we first presented it you were a little skeptical. But China has been a good returning — everything from Alibaba to Tencent to some of the things that are happening in the consumer space. But Xi is actually cracking down in a lot of areas, and then there’s the geopolitics. What’s your view on China right now?
Druckenmiller: China is a real enigma. On the one hand, if you go over there, Shanghai is like New York on crack in terms of energy. The entrepreneurial spirit, the energy — it’s just fabulous. All these young entrepreneurs really do have a capitalist spirit, even though they’re working within this communist dictatorship. And now that the two supply chains have been severed, they’ll have their own cloud and their own tech, so there’s a lot of opportunity. On the other hand, the larger, well-established companies are becoming increasingly difficult — because, as my partner said it best, there’s only room for one monopolist in China, and that’s the government. If you get to the status of Alibaba or Tencent, he’s going to be a rent-seeker and not only take some of your profits — he’s going to make sure you don’t become bigger in terms of image than him.
Druckenmiller: So the simplistic answer — and it’s way too simplistic — is: I don’t want to own the incumbents, but I do want to own the challengers. If you find great VC managers like Sequoia or Chase Coleman who have been over there, they’re probably going to find some very dynamic companies and you’ll get some great returns over the next 10 years. But I think the top-down thing is becoming more and more difficult, because Xi has really proved himself to be a true Maoist.
Volent: There’s a question: should Bowdoin offer a course that actually invests several million of real endowment money in order to teach and train the next generation of analysts and portfolio managers? And what would you encourage a student at Bowdoin who’s interested in finding out if this is the career they want — what should they do?
Druckenmiller: I don’t like the class idea — they have the rest of their lives to run live money. I love your suggestion about reading the Wall Street Journal. Maybe they can trade a little stuff on their own, and please make it a little bit, because the best way to learn is to lose. One tends to learn more from their losses than they do from their gains. But yeah, I think Bowdoin is a place to teach you how to think, as opposed to how to do something. That’s something to do post-Bowdoin, not more in terms of actual class work.
Volent: As you look forward for Bowdoin — we’re just coming out of a pandemic, some people think it’ll be the Roaring Twenties, but education has faced many challenges — what do you think is the most important thing for Bowdoin going forward? In 1991, when you joined the investment committee, the financial aid budget was very small. Right now, the financial aid budget represents 46% of what the endowment is devoted to, which I’m really proud of, because students can come to Bowdoin who never could before. We’re dealing with diversity, with gender equity, with all these issues. What should the college be focused on going forward?
Druckenmiller: I’m biased — I have a German last name, so I’m incredibly fiscally conservative — but thanks to you, we’re in a really good place. Probably the best place we’ve ever been with regard to being able to not take into account the wealth of an individual coming in, so we can get the best and the brightest and the most diverse class we want. I would say one of the things I’ve seen in the past with other boards I’ve been on: when there’s a big windfall — like you’ve created for us, particularly in the last 12 months — resist the temptation to go out and spend it, because rainy days come. But I would also consider — not lurching, but thinking about the fact that we’re now in a position to take on Williams and Amherst, which were like pie in the sky when I went to Bowdoin. We’re now at the very least snipping at their heels. I would think seriously about, in terms of faculty-student ratio and that kind of thing, trying to take advantage of this and move up our competitive position given our financial windfall relative to these other institutions.
Volent: One other issue before we run out of time, which I think is very important, is climate change and net zero. I’m on the board of MSCI, we’re spending a lot of time on it, Mark Carney just spoke to the board, and we’re doing a lot of research on company transparency. How do you think the net zero initiative and some of what Bill Gates and others are talking about in the environment — how does that impact the endowment and the opportunity set?
Druckenmiller: Well, the way you make money in markets is you anticipate change. You can’t buy a security because of its current circumstances — you have to envision those circumstances 18 to 24 months ahead. This global movement to try and decarbonize the world is going to create tremendous change in company after company and sector after sector. And it has to become an integral part of the analysis of many, many industries — on the negative side and the positive side. And then of course you’ve got to figure out: is that already priced into the market? When change is this big, it generally isn’t. You think you’re in the eighth inning and you’re in like the third inning. We talk about innovation in the software and other spaces — there’ll be innovation in the carbon space. So I think it should be a big part of anybody’s process in trying to make money.
Volent: I know we’re almost out of time — I need to hand this back to Bob. Stan, it has been an honor and a pleasure. You’re still a legend at Bowdoin — they should name a game room after you here. But thank you, and thank you for your mentorship of me, because I couldn’t have done what we did without your counsel. Bob, over to you.
Bob: Well, thank you, Paula, first of all, for leading today’s discussion and for your tremendous service to the college. As Stan pointed out, your hard work and the performance has made a huge difference and allows Bowdoin to do things that we never would have envisioned many, many years ago. So thank you for that, and best wishes in your next chapter at Rockefeller — we’ll be watching, and don’t be a stranger. And Dr. Druckenmiller, thanks for taking time today to share your insights and your very valuable thoughts. Thanks for all you do and have done for this college for so many years — we are all very indebted to what you’ve done and continue to do. For those who are on, I hope you enjoyed the session. Thank you for your interest and for your continued support of the college.
Druckenmiller: Thank you for stewarding the college. I could not be more happy with you in charge in terms of thinking of our future. And for all the Polar Bears on the call — you’ll notice whenever Stan talks on the press or something he wears a polar bear tie. So I always notice on CNBC or whenever he’s being interviewed, that polar bear. From one member of the cult to all the rest of the members of the cult — thanks again for today’s session. Be well.