I’ve been following many public market investors on Twitter over the past few weeks to understand how they view the vacillation of the public markets. One of the tweets linked to a speech Stanley Druckenmiller gave in 2015 about Black Wednesday.
At the time, Druckenmiller worked for George Soros at a hedge fund.
“George, I’m going to sell $5.5 billion worth of British pounds tonight and buy deutsche marks. Here’s why I’m going to do it, that means we’ll have 100% of the fund in this one trade”.
As I’m talking, he starts wincing like what is wrong with this kid, and I think he’s about to blow my thesis away and he says, “That is the most ridiculous use of money management I’ve ever heard. What you describe is an incredible one-way bet.
We should 200% of our net worth in this trade, not 100%. Do you know how often something like this comes around? Like once every 20 years. What is wrong with you?”
The trade turned out to be a massive success for both of them.
The anecdote made me laugh just as much for its delivery with the twist, as for the familiarity of unexpected turns in investment decision-making.
This conversation, or some form of it, is played out across the financial ecosystem every day: one person pitching another an idea. Most of the time, the thesis doesn’t land. But every once in a while, the pitch evokes a reaction like Soros' in this story.
When I started in venture capital, I didn’t realize this happened. It took me a long time to figure it out.
VCs are market-makers in a sense. On the sell-side of the market, they convince entrepreneurs to work with them as board members and investors. And on the buy-side of the transaction, VCs convince their firm’s investment team to partner with a founding team. Bringing those two parties together is at the heart of successful deal-making in venture firms.
Every once in a while, when hearing pitching an idea, the investment team will roar with excitement and it’s a lot of fun, especially when resonates unexpectedly.
When it happens next at Redpoint, I’ll be thinking of this exchange between Druckenmiller and Soros.