Education
Fundamental
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Worlds Greatest Investor Series: Part 4 – George Soros

16 Aug 2019
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Born in Budapest, Hungary in 1930, George Soros grew up surviving the Nazi occupation during World War II before moving to England in 1947 where he graduated from the London School of Economics. After taking an entry level job at an investment bank, he moved to the United States in 1956 where he worked as a trader & analyst, working his way to vice president at Arnhold and S. Bleichroeder before leaving in 1973 to set up a private investment company, the Quantum Fund.

The Quantum Fund is notably known for generating returns above 30% for its investors as Soros interpreted economic trends and turned them into huge leverage plays in bonds, stocks and currencies. Effectively a short term investor making huge bets about the direction of markets, which he described as chaotic due to emotion rather than logic. Perhaps most infamously known as “The Man Who Broke The Bank of England” when in 1992 he shorted the British Pound while the Bank of England stated it would support the Pound after it decided not to adopt the Euro, Soros eventually profited estimates of $2 billion.

Like all great money managers he made mistakes along his successful career losing billions in the tech bubble crash in the early 2000’s. However he understands it’s about having your winners outweigh your losses, stating “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” As well as “I’m only rich because I know when I’m wrong”.

There are five key points for how Soros tends to manage his money:

  • Reflexivity theory – values assets by relying on market feedback to gauge how the rest of the market values assets in order to predict market bubbles
  • Apply a scientific method – create a strategy based on current market data in order to track what should transpire in the financial markets, start with smaller investment during testing.
  • Physical cues – it may seem odd but Soros listens to what his body is telling him, it has been known for him to decline an investment due to a headache
  • Mix political view with investment decision – The best example is the discussed above under “The Man Who Broke The Bank of England”
  • Reflect – He also uses a handful of advisers and listens to contrary opinions before pulling the trigger

All in all Soros tends to go “all in” on his decisions not scared of position sizing but realises when he is wrong and exits.

In 2011 as a result of regulatory changes for hedge funds, Soros returned all outside money from the Quantum Endowment Fund which now only holds Soros family assets. Soros has also been an active philanthropist since the late 1970’s which is estimated his Open Society Foundations set up in 1984 has provided $7-$8 billion in donations to various charitable organisations. He has also written several books, including The Alchemy of Finance (1987), The Crisis of Global Capitalism: Open Society Endangered (1998), and The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means (2008).

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