George Soros, one of the most well-known financiers of the last half-century, is known for digging deep and collecting vital investment intelligence, as well as saving while others are selling. At that time, he was using a strategy that was way ahead of time. However, he should not be judged only on the basis of his investing expertise. He’s already proved to be a big power player in international politics and a generous philanthropist, whose name is associated with many different activities. To grasp the “Soros Way” of investing, it is necessary to first understand Soros the individual, him as a political power, and Soros the global lower-class champion.
Who is George Soros?
To start from the very beginning, Soros was born in Budapest, Hungary in 1930. After having witnessed the oppressive Nazi regime at a very young regime, he left the country and the Eastern Europe to study in London at the London School of Economics. The first time he witnessed the bridge between politics and economics was after reading Karl Popper’s book about “The Open Society and Its Enemies”. He was a supporter of individual rights over the collective.
After finishing his studies in London, he started working at F.M Mayer, a New York City money management company where he was applying free markets principles. Soros had founded his first Wall Street firm, the Soros Fund later called the Quantum Fund, where he could put his free-market ideas to the test in the capital markets. By the first decade of the twenty-first century, Soros had converted a $12 million seed investment into $20 billion. If you had put $1,000 into Soros’ Quantum Fund in 1969, you would have made $4 million by 2000, assuming a 30 percent annual growth rate.
The “Soros Strategy”
In 1984, Soros founded the Open Society Foundations, a philanthropic organization dedicated to “building thriving and tolerant communities where institutions are transparent and open to the participation of all people.” it was dedicated to ensuring the rule or law, respect human rights, minorities, and diversity, this is where we see that the capital and money being used on the development of the society.
After a decade of putting his investing principles to the test in the global capital markets, Soros influenced his human liberty and free-market concepts. Soros’s investing approach was built on the scientific method he studied at the London School of Economics, along with his enthusiasm for social change. There are five major points on how he was investing his money:
- The reflexivity theory – Soros’ investing policy is built on the principle of reflexivity. It’s a one-of-a-kind approach for valuing assets that rely on investor input to determine how the rest of the market prices assets. To foresee financial bubbles and other market openings, Soros uses reflexivity.
- Applying the scientific method – Soros also employs the mathematical approach in his trading moves, devising a technique that predicts what will happen in the capital markets based on existing market results. Soros would almost always begin by testing his hypothesis with a small investment, then increase his investment if the theory appears to be correct. It is a very different approach from what we are using today in forex trading, we can say that Soros was using this strategy way before auto-trading robots in Forex when the job which Soros was doing on his own now is done automatically. However, new technological developments make the field more attractive to the newcomers and are less fear of risking than before.
- Physical cues – When it comes to investing, Soros still pays attention to his body. He has been known to cancel an investment due to a headache or backache.
- Blending political acumen with investment acumen – Soros famously bet heavily against the UK government’s plan to raise interest rates on September 16, 1992. This will set off a chain reaction, depreciating the British pound and driving prices higher as a result. Soros made a one-billion-dollar profit as a result of his decision.
- Consolidate – Soros makes major investment decisions with the help of a small group of experts. Soros says he needs time “to read and reflect” after conferring with his team of experts and making sure to study at least one opposing viewpoint to his approach.
Soros Strategy for Investors
The most important takeaway from the Soros approach is that if you’ve decided on a business decision, you can’t be too bold. “To be in the game, you have to bear the pain,” is one of Soros’ favorite maxims. For regular investors, this involves finding the best broker/advisor and sticking with them, as well as using a “trial and error” approach to portfolio choices and avoiding emotional investment decisions.
However, it does not mean that all the investments will be successful and that there is a certain formula, investors should keep in mind that even the greatest investors have been facing tough times. Soros has had both, good and bad picks.
His best investment was in 1992 when he put $10 million against the currency policy of the Bank of England and he bet that the pound would flounder in global currency markets. This caused Soros to earn $1.2 billion in profits over the next few weeks. The worst investment was when he bought a huge chunk of Bear Stearns stock, $54 per share. A day later, per share was sold at $2.
Summing It Up
Finally, to sum up, It’s not easy to replicate George Soros’ portfolio performance, but you can learn a lot from the persistence, diligence, and analysis that Soros employs in his investing approach. Soros wins by researching investing strategies while taking into account all economic and political facts, keeping to his values, and exiting as his gut tells him to. All those are based on his own personal experience, knowledge, and set of mind and it is impossible to predict how the stock market will perform or how another person would react in this specific situation, however, observing Soro’s performance and investments can be helpful in a way to analyze what kind of approach and factors you need to take into consideration, before involving in the investment process.