Welcome to our second instalment of Invest like the best, our masterclass series of investor profiles. In our first instalment, we learned from the genius himself, Warren Buffett, and it’s only fitting we deep dive into another investing legend: George Soros. Hungarian-American Soros has a fascinating history and a reputation of being generous to refugees because he was one. Read on to find out more about one of the world’s most significant investors.
Editor’s update: we’ve since been informed of some controversial activities Soros has condoned or participated in. Apologies to all, we’ll do a better job of researching going forward.
Soros was a teenage Jewish refugee who escaped Nazi-occupied Hungary. Born in Budapest, Hungary, on August 12, 1930, Soros experienced the growing persecution of Hungarian Jews during the Nazi occupation. He even helped his father forge thousands of documents to help his fellow Jews flee Hungary during the Holocaust. In 1947, Soros studied at The London School of Economics where he honed his liberal and philosophical views. Four years after his graduation, he landed a financial position at a London bank. He moved to the United States in 1956 where he worked in various New York firms as a trader and analyst.
Ranked 60th on Forbes 400 wealthiest people in the world list, Soros made his money as one of the world’s greatest speculators in the world’s financial markets. You may remember him from his famous bet against the British pound in 1992 – a bet that made him over $1 billion in just 24 hours and earned him the title of “The man who broke the Bank of England”.
He set up his first fund in 1973, and this fund went on to be his Quantum Fund (in 1979) which earned a 3,365% return since inception, compared to 47% for the S&P 500 Index during the same period. By 1981, The Quantum Fund had grown to $381 million. Soros was the first American to earn over $1 billion annually.
"If investing is entertaining, if you're having fun, you're probably not making any money. Good investing is boring."
George Soros is a short-term speculator. This means he makes large, highly-leveraged bets on the direction of the financial markets. His famous hedge fund is centred around making one-way bets on the movements of currency rates, stocks, bonds, and other assets based on macroeconomic analysis. Put more simply, Soros bets that the value of these investments will either rise or fall. This is what we call “by the seat of your pants trading” which is based on research and executed on instinct.
"Markets are constantly in a state of uncertainty and flux, and money is made by discounting the obvious and betting on the unexpected."
While we’d all love to trade like Soros, finding that one niche, share or unexplored enclave of the market that's going to hit the stratosphere is extremely risky for the average investor (investors tend to be overconfident and discount what they don't know about the market and individual shares). Soros refers to the philosophy behind his trading strategy as reflexivity which is a theory that doesn’t follow traditional ideas of an equilibrium-based market environment. Instead, Soros believes that market participants and their irrational behaviours will lead to booms and busts that present investment opportunities.
"Stock market bubbles don't grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception."
Five actionable tips from George for us mere mortals:
Trial & Error: Form a hypothesis and get the opinion of others on it. When we take in inputs from people [not from insider trading though George!], we are able to get a better perspective. Once we actually form one, we can apply it in reality. If the thesis works well in the market, try and stick to it, or else withdraw from it and go for a new one.
Mistakes: I’m only rich because I know when I’m wrong. I have survived by recognizing my mistakes. You must recognise and admit your mistakes when you make them, cut your losses, and move on to the next logical step.
Scenario Planning: The financial markets generally are unpredictable. Successful traders abide by this philosophy by heart. Markets truly are random and no one knows where, when, and how prices will move. The biggest opportunities lie in those unexpected events because most people are betting on the obvious, and in the market, most people are wrong. The key is to be ready for every scenario that can happen so that you can take advantage of the opportunities that lay ahead.
Stock Bubbles: Stock market bubbles don’t grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception. Stock market bubbles start with good corporate or economic fundamentals. Things just go out of hand when people’s misguided greed comes into play.
Keep Things Simple: The more complex the system, the greater the room for error. A simple but effective investing system will always beat the crap out of a complex system that doesn’t work.
His 2019 Picks
Soros doesn’t seem to be slowing down at all. He’s recently acquired the following shares:
iShares Russell 1000 (IWB)
Philip Morris International Inc (PM)
Verizon Communications Inc (VZ)
Red Hat Inc (RHT)
Conagra Brands (CAG)
Encana Corp (ECA)
Soros was charged with stock manipulation in 1977. While he signed a decree that neither admits nor denies guilt, he settled a $1 million lawsuit with the Fletcher Jones Foundation – the plaintiff in the court case.
He’s pro-pot. In 1996, Soros donated $1 million to promote ballot initiatives in California and Arizona that would eventually lead to the legalisation of medicinal cannabis.
Soros was convicted of insider trading by a French court in 2002. He was fined $2.25 million for a 1988 deal with French bank Société Générale.
He’s a supporter of Hillary Clinton. In October 2013, he signed on to co-chair Ready for Hillary – the super PAC that laid the groundwork for Clinton’s 2016 presidential bid.
Image: Wikimedia Commons [Public domain]