Big Mistakes: The Best Investors and Their Worst Investments (Bloomberg)

by Michael Batnick

In August 1992, Druckenmiller was looking to short the British pound. At the time, Quantum had $7 billion in assets under management and, inspired by his mentor Soros, Druckenmiller looked at selling $5.5 billion in pounds and putting the money in Deutsche marks. It seemed risky to have almost the entire fund invested in a single trade, but Druckenmiller had worked the numbers and was confident it was a winner. Before taking action, he decided to run his idea past Soros. As he described his plan, Soros got a pained expression on his face. Just as Druckenmiller started to second guess his plan, Soros surprised him by saying, “That is the most ridiculous use of money management I have ever heard. What you described is an incredible one‐way bet. We should have 200 percent of our net worth in this trade, not 100 percent.”14 Druckenmiller and Soros put the equivalent of $2 for every $1 they had invested in the fund, and shorted the pound. The Bank of England spent $27 billion in an effort to defend their currency,15 but it could not stand up to the onslaught of selling out of the Quantum Fund and others. When the levee broke and the pound crashed, Druckenmiller and Soros made a billion dollars.