UPDATE: Druckenmiller pushes into cloud stocks, saying they're disruptive and defensive at the same time

01/18/19 05:07 PM EST

By Stephen McBride

The legendary investor has over $1 billion in cloud companies including Microsoft, Amazon, ServiceNow, Salesforce.com and Workday

Billionaire investor Stanley Druckenmiller might be the greatest investor alive today. His track record is astonishing.

"Druck," as he's known, had 30 straight profitable years from 1980 to 2010. During that time, he earned an average of 30% a year. If you took $10,000 and compounded it at 30% a year for 30 years, you'd amass a $26.2 million fortune.

And Druck has never had a losing year. He made money in 2001 during the dot-com crash. And reportedly made $260 million in 2008, while most investors lost their shirts.

So what's his secret?

'Long the disruptors'

Druck is low-key and rarely gives interviews. But in one rare interview with Bloomberg, he revealed his secret to success. He said: "We are long the disruptors and short the disrupted ... it has worked beautifully."

Disruptors are not ordinary stocks. They don't compete with industry leaders. They destroy them. In the process, they often hand investors gains that are far beyond benchmark indexes.

How Adobe steamrolled Xerox and Canon

Take a company such as Adobe (ADBE). Its PDF software transformed American offices. Remember Xerox (XRX)? It makes those big, clunky paper copiers. Believe it or not, Xerox was once a mighty tech giant. Thirty years ago, it was America's 20th-largest company.

Today its stock chart is a sad reminder of what it's like to get steamrolled by a disruptor.

Xerox's stock peaked at $168 in the late 1990s. Today, it trades for $23.

Canon (7751.TO), one of the world's biggest manufacturers of printers, is a victim of Adobe's disruption, too. In the past decade, printer sales have plunged 30%. And Canon's stock has been cut in half since 2007. Meanwhile, Adobe stock has surged 600% since 2010. That's four and a half times better than the S&P 500 Index .

And if you'd bought Adobe when it was an "early stage" disruptor in the late 1990s, you'd have earned over 20,000%.

Now Druck bets on the cloud

Today, Druck is plowing billions into a disruptive technology called "the cloud." The cloud gives businesses cheap access to powerful supercomputers.

Druckenmiller has invested over $1 billion in cloud businesses including Microsoft (MSFT), Amazon (AMZN) ServiceNow (NOW) Salesforce.com (CRM) and Workday (WDAY). In fact, 52% of his stock holdings are in cloud companies, according to SEC filings.

He says the fast-growing companies even have a measure of protection. "Everything has to convert to the cloud," he recently told Bloomberg. "If we get in a mild recession, demand goes up because it's a way to cut costs."

Cloud disruptors have crushed the S&P 500 over the past five years:

Druck isn't the only legend buying disruptors

Have you seen the movie "The Big Short"? It tells the story of a few investors who made a killing by betting on the U.S. housing collapse in 2007-2008. Steve Eisman, played by Steve Carrell, was a mastermind behind the trade. His fund made about $1 billion from the housing collapse.

In a recent interview, Eisman was asked: "What are the biggest opportunities you see today?"

He said, "The disruptor vs. disruptee theme. [It] will last for a long time, and there's lots of ways to play that."

Druck and Eisman are 'bloodhound investors'

Many legendary investors got rich by specializing in one strategy. Warren Buffett buys undervalued businesses and holds them forever. Carl Icahn is an "activist" investor. He buys big chunks of companies and influences CEOs to make changes.

Neither Druck nor Eisman specialize. Instead, they seek out money-making opportunities like bloodhounds. Druck has famously made big money across all assets: stocks, bonds, currencies. Eisman made his fortune during the worst market crash since the Great Depression.

You could say they're agnostic in what they buy. It's like when bank robber Willie Sutton was asked why he robbed banks? He answered "because that's where the money is."

Disruption is where the big money is today

In a recent interview, Druckenmiller said: "We're in the most economically disruptive period since the 1880s."

Clearly, these guys know the big money today is in disruptor stocks. I like to see two of the world's smartest money managers on my side, buying disruptors along with me.

Stephen McBride is the editor of RiskHedge Report (http://riskhedge.com/), a free weekly newsletter that shows how to profit from disruptive trends like self-driving cars, artificial intelligence, cloud computing, and others.

-Stephen McBride; 415-439-6400; AskNewswires@dowjones.com

 

(END) Dow Jones Newswires

01-18-19 1707ET

Copyright (c) 2019 Dow Jones & Company, Inc.