Learning from George Soros

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Without feeling guilty, I have to admit that my personal investment style is driven more by Soros’ approach. Yes, I have a collection of all books written by him. Legendary macro investor George Soros founded and ran the legendary Quantum Fund which compounded at 32%+ between 1969 and 2000 (over 30 years). A $1000 investment in the Quantum Fund at inception would have been worth over $4 million by 2000. 

This makes Soros arguably one of the most successful hedge fund managers of all time. He also worked with and mentored other trading greats such as Stanley Druckenmiller and Jim Rogers. Soros retired in 2011 from managing outside money so he could focus on trading his own vast fortune, estimated to be over $25 billion.

When George Soros (the man who broke the Bank of England in 1992 and watch it HERE) acts in the investment arena, he remains aware that he can be wrong, and is critical of his own thought processes. This gives him unparalleled mental flexibility and agility. If, as Soros believed, everybody’s view of the world is “somehow flawed or distorted”, then our understanding of the world is necessarily imperfect and often wrong. Where Warren Buffett seeks to buy $1 for 40 or 50 cents, Soros is happy to pay $1, or even more, for $1 when he can see a change coming that will drive that dollar up to $2 or $3.

Changes in market prices cause changes in market prices? Sounds ridiculous. It is not. To give just one example, as stock prices go up, investors feel wealthier and spend more money. Company sales and profits rise as a result. Wall Street analysts point to these improving fundamentals, and urge investors to buy. That sends stocks up further, making investors even wealthier, so they spend even more. And so on it goes. This is what Soros calls a “reflexive process” - a feedback loop: a change in stock prices has caused a change in company fundamentals which, in turn, justifies a further rise in stock prices. And so on.

For Soros, reflexivity is the key to understanding the cycle of boom followed by bust. Soros applies his philosophy to identify a market trend in its early stages and position himself before the crowd catches on. Soros had applied reflexivity to make money on the way up and the way down. Soros’ investment philosophy provides a framework for analyzing how events will unfold. So he can stay with the trend longer, and take far greater profits from it than most other investors. You may like this VIDEO as well.

Some of you can love or hate him and he is still one of my favorite macro guys out there in the boxing ring. In this ARTICLE, Soros has compared social media companies to casinos, accusing them of deceiving users by manipulating their attention. “It is only a matter of time before the global dominance of the U.S. internet companies is broken,” he said.

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