I periodically recycle old posts on my blog to ensure that new clients can benefit from valuable content they may have missed. Today, I’m revisiting an insightful post on George Soros, a figure I greatly respect as one of the most exceptional investors on my radar.
I must confess that my investment approach is influenced by the renowned macro investor George Soros. I possess a complete set of his authored books. Soros, the mastermind behind the iconic Quantum Fund, achieved a remarkable +32% compounded return from 1969 to 2000, spanning over three decades.
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.
When George Soros (the man who broke the Bank of England in 1992) 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.
George Soros has been a controversial figure, especially due to his involvement in various political and social causes. His political activism and financial contributions to progressive causes have made him a target for criticism from some quarters, particularly those with opposing ideological views. Opinions about Soros can vary widely depending on one’s perspective and political beliefs.