George Soros: The Philosophy of Elite Investors

George Soros, a maverick hedge fund manager. After deducting the management fee, a considerable annual return has been generated. His flagship Quantum Fund is highly regarded by investors. Despite the hostility caused by his trading strategy and the controversy surrounding his investment philosophy, Soros has been a leader among the world’s elite investors for decades. In 1981, corporate investor The magazine called him “the greatest money manager in the world.”

Soros’ philosophy

George Soros is a short-term speculator. He made a large-scale, highly leveraged bet on the direction of the financial market. His famous hedge fund is known for its global macro strategy. The core of this philosophy is to make large-scale one-way bets on currency exchange rates, commodity prices, stocks, bonds, derivatives and other assets based on macroeconomic analysis.

In short, Soros is betting that the value of these investments will either rise or fall. Soros studies his goals and allows various financial markets and their participants to determine his transactions. He called the philosophy behind his trading strategy reflexivity. This theory eschews the traditional concept of an equilibrium-based market environment, in which all market participants know all the information, so it is included in the price. On the contrary, Soros believes that market participants themselves directly affect market fundamentals, and their irrational behavior will lead to prosperity and depression of investment opportunities.

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House prices provide an interesting example of his theory. When lenders make it easy to obtain loans, more people will borrow money. These people have money on hand to buy a house, which leads to an increase in demand for houses. Increase in demand leads to price increases. Higher prices encourage lenders to lend more money. More funds in the hands of borrowers have led to an increase in demand for housing and a spiral upward cycle, resulting in housing prices that have exceeded the reasonable level indicated by economic fundamentals. The actions of the lender and the buyer have a direct impact on the price of the goods.

Investments based on the idea that the real estate market will collapse will reflect the classic Soros bet. Short selling stocks of luxury home builders or major housing lenders will be two potential investments that seek to make a profit when the real estate boom bursts.

Main industry

Soros will always be remembered as “the one who broke the Bank of England.” As a well-known currency speculator, Soros’s efforts are not limited to a specific geographic area, but consider the entire world when looking for opportunities. In September 1992, he borrowed billions of dollars worth of British pounds and converted them into German marks.

When the pound plummeted, Soros repaid his creditors based on the new, lower value of the pound. In one day’s transaction, the difference between the value of the pound and the value of the mark exceeded $1 billion. After closing the position, he made a total of nearly 2 billion U.S. dollars.

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He took similar measures against Asian currencies during the 1997 Asian financial crisis and participated in the speculative frenzy that led to the collapse of the Thai baht (Thailand currency). The reason these transactions are so effective is that the national currency that the speculators bet on is linked to other currencies, which means that an agreement has been reached to “support” the currency to ensure that they are traded at a certain rate. hook up.

When speculators place bets, currency issuers are forced to try to maintain the ratio by buying their currency on the open market. When the government ran out of money and was forced to abandon this effort, the value of the currency plummeted.

The government is worried that Soros will be interested in their currency. When he did so, other speculators also joined the ranks of what was described as a pack of wolves pounced on a pack of elk. The large amounts of money and leverage that speculators can borrow make smaller governments unable to withstand attacks.

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Despite his great success, not every bet made by George Soros is in his favor. In 1987, he predicted that the US market would continue to rise. His fund lost $300 million during the crash, but the return rate for the year was still low by double digits.

He also suffered a loss of 2 billion U.S. dollars during the 1998 Russian debt crisis, and lost 700 million U.S. dollars during the 1999 technology bubble due to falling bets. Hit by the loss, he bought large sums in anticipation of a rise. When the market finally collapsed, he lost nearly $3 billion.

in conclusion

A transaction like George Soros is not for the faint-hearted or purse. The disadvantages of big bets and big wins are big bets and big losses. If you can’t afford to lose, you can’t bet like Soros. Although most global macro hedge fund traders are relatively quiet types and avoid becoming the spotlight when earning wealth, Soros has taken a very public stance on a series of economic and political issues.

His public stance and amazing success left Soros largely alone. In more than 30 years, he has made the right move almost every time, generating a large number of fans among traders and investors, and a large number of critics among those who failed in speculative activities.


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