George Soros Investment Strategy
In 1981, Soros was named “the world’s greatest money manager” by the Institutional Investor magazine. His investment strategies are still valid and relevant up till today.
Whether you are a new investor or an intermediate investor, following George Soros’ investment strategies would definitely keep you on top of the game for a very long time. As learned as Soros is, he also applied science and free markets to his investment strategies, and that worked out just fine.
Below, are the various notable and profitable principles/strategies introduced by the legendary investor, George Soros.
Before we go into the details, it’d be nice to highlight some notable achievements of George Soros. However, asides from being a tactical investor, Soros is a political activist, an author, and a notable philanthropist.
- One of the most mentioned achievements of George Soros is how he made over $1 billion profit in a day from short-selling the British pound in 1992.
- George Soros is a notable hedge fund mogul; he managed client money in New York from 1969 – 2011.
- George Soros is one of the most successful investors in history, alongside the likes of Warren Buffet.
- Soros owns successfully multibillion-dollar investment funds
- Soros is a speculator that takes advantage of short-term market volatility and highly-leveraged transactions.
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The George Soros Investment Philosophy
As a short-term speculator, Soros predicts and place highly-leveraged bets on the direction of the financial markets. George Soros’ philosophy bases on macroeconomic analysis and centers mainly on placing massive one-way bets on the movements of stocks, currency rates, bonds, commodity prices, derivatives, and quite other securities.
Well, the explanation above may seem intricate; hence, simply put, George Soros’ investment philosophy is all about making bets that the value of an asset, stock, currency, or other investments will either rise or fall. He pays candid attention to the investments he targets to short-sell and follows the movements of the different financial markets to make his trades.
When we talk about George Soros’ investment philosophy, we are equally referring to Soros’ trading strategy, “Reflexivity.” This strategy shuns traditional investment ideas of an equilibrium-based market environment where all the market’s information is relayed to participants.
Soros believes that the market participants can influence the market’s fundamentals where the irrational behavior of participants in a market can lead to the market’s booms and busts; thus, opening up investment opportunities.
Explaining George Soros’ Reflexivity Strategy
Let’s explain this strategy with house prices. If lenders make loans easy for many people to access, a lot of people would apply and get the loan(s). Now, with the money they’ve been lent, they could buy houses or homes, and this can increase demand for houses/homes.
In concurrence, the increase in demand for houses or homes can lead to a rise in housing prices. When this occurs, lenders would be encouraged to lend more money.
Furthermore, with more people being able to borrow more money, the demand for homes and houses would keep going up. Soros sees this upward spiraling cycle in housing prices as being possible to supersede the initial predictions based on economic fundamentals.
From the example above, it is clear that it is the lenders and buyers that influenced the price of purchasing houses that had a direct influence on the price of an investment.
An investor like Soros would look at the scenario explained above and place a bet that the housing market will crash. Thus, he’d likely short-sell securities of luxury home builders or major housing lenders in a bid to make profits when the market busts.
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Investing the George Soros Way
Hopefully, the explanation above clearly details the “Reflexivity” theory introduced by George Soros.
For many decades, Soros tried out various investment principles and strategies in the global financial markets the experiences pioneered his free-market concepts and individual liberty. George Soros’ Investment Strategy is based on several factors, including scientific experimentations.
Hereunder are the four key principles followed by George Soros.
1. Physical Signals (Body Signals)
As funny as it may sound, Soros had mentioned that he pays attention to his body when making decisions. According to the legendary investor, a headache or backache is enough reason for him to ditch an investment.
2. Read and Reflect
No one does it all on his own, even George Soros typically consults his advisors before making final decisions regarding substantial investments. Also, he pays more attention to critiques of his strategy before making decisions. According to him, he takes time “to read and reflect” before making moves. The keywords here are “Critiques” and “Time.”
3. The Scientific Method
Another important principle practiced by Soros is the “scientific method.” Soros believes in creating scientific strategies that utilize the most recent market data to track the possible happenings in various financial markets. However, initially, Soros starts off with smaller investments after coming up with a new investment theory.
Apparently, it the theory turns positive after the small investments, Soros then steps up his investment for bigger profits.
4. Combining Political Mentality with Investors Mentality
Being a political activist, Soros most times blends his political acumen with investment acumen. He made a record bet against the decision of the U.K. government to hike interest rates in September 1992.
This was expected to trigger an effect, which means devaluing the British pound and shooting stocks to a rocket-high position afterward. Well, this made Soros $1 billion richer in just one day. He was then nicknamed “The Man Who Broke the Bank of England.”
What To Learn From Soros’ Philosophical Strategy?
George Soros actually invests like a gambler. He bets on movements of the financial markets and he is often-always right. This is a man the correctly predicted the economic movement of a country more than the country itself.
According to Soros, “the objective is to ride the economic trends whose premise is false and step off from it before it is discredited.” Soros believes that there are two types of reality one that humans can influence and another they cannot.
However, he also believes that countries’ economies are a mix of both types of reality. This implies that, according to Soros, humans can influence the economy in one way or another; they could print more money or create new machines.
He believed that humans can never fully perceive reality, which makes their actions and decisions biased in one way or another. Concurrently, Soros believes that humans are liable to take actions that could turn their subjective reality to swerve from the objective reality.
Newer investors do ask if they could invest like George Soros even in this modern times. Well, an investor can be skeptical, but it takes confidence and smartness to be a successful investor.
Looking up to Soros as a role model, he is such a man that once he has decided to make an investment, he goes “all in” on a position believing that there’s no larger or smaller investment position; you just have to be in the correct position.
“To be in the game, you have to endure the pain,” George Soros. New investors must learn not to allow their emotions to affect their investment decisions. You need to choose the right investment broker or advisor and stick on.
Regardless, it is absolutely necessary to understand that, even legendary investors such as Warren Buffet and George Soros, at some time, made wrong investment decisions and counted losses. That is to say, not all investments will return profits.
For example, Soros is celebrated for making $1B in just one day; however, the same man lost a substantial amount of money in his Bear Stearns’ investment in March 2008. The loss led him to write “The New Paradigm for Financial Markets.”
Investment Lessons/Guides to Learn From Billionaire Investor George Soros
Here are some critical lessons to learn from Soros’s investment strategy and philosophies.
1. Discover What Works For You
Ben Graham indicated that there are two types of investors – speculators and investors. While Ben Graham was a full-time “Value Investor,” George Soros, on the other hand, is a full-time “Speculator.”
There is no doubt that Benjamin Graham is one the greatest investors of all time; in fact, he was nicknamed the “father of value investing.” Notwithstanding, George Soros is also one of the greatest and most celebrated investors of all time, even though he is a speculator.
What does this mean? It means that different investors are trading for different purposes. While speculators bet on market inconsistencies (short-sell), value investors consider long-term investments. However, in the end, both the speculator and the investor can make massive profits if the right strategy was applied.
So, as a new investor, it is important to understand what works for you, short selling stocks (as a speculator), or taking the bull by the horn to make long-term investments as a real investor.
Takeaway: if there’s something you’re good at doing, take full advantage of that.
2. You Can Lose Big If…
If you adopt George Soros investment strategy, it simply means that you’re a speculator or an aspiring one. Thus, it is imperative to understand that there’s the possibility to lose big, even when you bet big. Although it didn’t happen many times, Soros ran losses in some investments. Well, he succeeds far many times than he loses.
Takeaway: it is possible to apply your best strategy and still lose big.
3. Exploit Every Possible Opportunity
Most times, when some investors seem to be exiting the market – that’s the best time to see new opportunities. Look out for economic mistakes and exploit them! George Soros’ notable investments were virtually currency speculation, which earned the name, “the man who almost bankrupted England.”
The bold step Soros took in 1992 that earned him $1B in a day remains one of his lauded investments. While you may not meet such an opportunity as Soros saw in 1992, there are other economic mistakes you can monitor and exploit, if necessary.
4. To be in the game, you have to endure the pain
That’s one of Soros’ popular maxims. Soros believed that people can always change where they are to achieve different purposes. Circumstances would come, but you shouldn’t succumb to them, instead, find a way to benefit from them.
Notable Trades of Soros
In the 1992 trade, he short-sold the British Pond and made an unimaginable profit of over $1B dollars. Again, he made a similar investment in 1997 during the Asian Financial Crisis his frenzy speculations led to the collapse of Thailand’s currency, Baht.
Soros, to date, is a speculator that’s feared by most governments because he could take an interest in a country’s currencies seamlessly.
However, in 1987, Soros lost an investment he “speculated” that the U.S. markets would keep rising, but it didn’t and he lost around $300 million when the market crashed. Again, Soros lost around $700 million during the tech bubble in 1999 he placed high-leverage bets on a decline.
But, one thing about Soros is the fact that he isn’t a man of faint heart. He never succumbs to losses, and thus, he was able to make much more successful investments than he lost. It is not easy to emulate George Soros’ investment strategy but it’s yet effective, even in today’s markets.
Inarguably, we have taken time to explain the principles and strategy utilized by George Soros to achieve the level of success he did. This is 2021, and George Soros is still alive, he hasn’t entirely stopped investment, but he has set up quite a lot of successful hedge fund societies and other organizations.
Soros would forever be remembered for his 1992 move that shook the whole of Britain. Regardless, there are other notable investors/speculators you can follow up including Ben Graham, Warren Buffet, and John Bogle. We hope that you enjoyed reading this article, have a great day.