George Soros, Stan Druckenmiller (Money World, May 1, 1994)
H/T Hedge Fund Conversations
0:00this man made more than a billion dollars last year in a single week
0:08that’s right a single week that that was his event has been available for the
0:13last ten years and you don’t get paid off at that particular moment he spent
0:20the next few months giving it away sometimes a hundred million dollars at a
0:25time when installing somebody makes its money in the rights to spend it in the
0:30East George Soros and find out what drives one of the world’s most
0:35successful investors
0:47with over one hundred and twenty years experience in financial to look into
1:01sorrows as a man of many paradoxes is a world-class speculator who sounds and
1:07write like an Oxford philosophy professor certainly doesn’t sound like a
1:12wall street fund manager last year he gave away more than a hundred million
1:17dollars in Russia yet he thinks it may be too late to stop russia from sliding
1:23into chaos is an expert in Soviet minorities I spoke with George Soros
1:30last fall after is great currency coup when he made a billion dollars almost
1:35overnight but the more I heard about his recent philanthropy the more I wanted to
1:39talk to him again I wanted to find out what kind of men with steak more than
1:44its entire workin against the Bank of England and then give away so much of
1:50the winnings
1:52Black Wednesday day the currency speculators broke the Bank of England
1:58British taxpayers lost six billion pounds bank got caught in a financial
2:05tug of war Britain was in a deep recession and needed to lower interest
2:10rate to turn the economy around but British interest rates and exchange
2:15rates are locked into the high rates of Germany and the European Community
2:19something had to give
2:22active borrowed them to other currencies and waited and finally did fall short of
2:30its payback is low but because cheaper cost them less to repay his debt and he
2:36pocketed the difference
2:38stan druckenmiller manages sorrow says quote I asked him about the events last
2:44september it was never brought it was a conclusion that could not be avoided
2:48under any intellectual thought process and i must say as the person actually
2:54managing the front that would have led me maybe to do two or three or four
2:59billion dollars and that was where where the combination of experience courage
3:05whatever you’ve heard about this man came in came into play because it was he
3:10who pushed very very hard on me to take the position to where we took it and
3:16actually wanna taken further but we didn’t we ran out of time
3:21leveraged as portfolio and ended up getting more than the entire value of
3:26the funds they manage basically the whole quantum and that one and a half
3:33times that that’s really called betting the ranch actually in terms of the risk
3:40to the day it it wasn’t it wasn’t even a full exposure because of the risk of
3:47loss was maybe two two and a half percent so is mine and out times to an
3:54hour per cent would be less than four percent loss
3:57it wouldn’t have killed us that once it was a safe bet that is a question but it
4:04was worth making it that that was is avail has been available for the last
4:09ten years and it only paid off at that particular moment so this is where this
4:16equilibrium reached a climax it’s really a once-in-a-decade and that’s when he is
4:23really that’s when he is George Soros that’s when he just as you can’t have
4:27enough of this and if there’s one thing I’ve learned from him is when you’re
4:33right and you know something you really feel it you can’t have enough and the
4:38biggest mistake if I had to sum up his investment philosophy in one sense it’s
4:44it’s it’s not whether you’re right or wrong you just have to have a maximum
4:48when you’re right and that’s his unique innate ability with the Bank of England
4:56and back his fortune that the pillar of financial establishment would like a man
5:02with an unconventional view of the world to be sure george services worldview was
5:07formed as a teenager during the Second World War when all the usual rules
5:13normal life suddenly fractured really studied in 1944 when
5:23hundred occupied and me being jewish I was in danger of life his father a
5:36prominent budapest attorney who had lived through the Russian Revolution
5:39understood the art of survival depended romance came in he said this is a little
5:46less occupation and the normal rules don’t apply you have to forget how you
5:54behave in a normal society in this is an abnormal situation and he arranged for
6:00all of us to have false papers everybody had two different arrangement I was
6:08adopted by an official of the Ministry of Agriculture whose job was to take
6:16over jewish properties so I actually went with him and we took possession of
6:21these large estates that was my identity so it’s just strange very strange life
6:28when I was 14 years old at the time
6:31Georgia great in the second world war gave me a lesson never forgot what was
6:37the lesser the main this island during is to expect the unexpected situations
6:48that you get into so out of context of what you have here on out there that you
6:56have to examine the framework in which your thing and then you realize that we
7:05all preconceived ideas and those ideas don’t necessarily correspond to reality
7:13so there is this gap between perception and reality and as the gap that I have
7:18really kind of explored and also exploited
7:24after the left and went to England to the London School of Economics very
7:33discovered the works of the loss of her sorrows was deeply influenced by
7:38properties views on the nature of science is so I came to conclusion
7:42basically all of the world are somehow flawed or distorted and then I
7:51concentrate on the importance of this distortion in shaping events sorry Mr
7:59Kloppers ideas and applied them to the financial market he wrote a book
8:03explaining its theory of reflexivity markets don’t always reflect reality
8:09because they’re based on faulty perceptions it really is the method
8:14about me because the value of securities or the value of currencies is much more
8:22dependent on the kind of incantations or formulas that you are using as so you
8:29really are dealing with the process of alchemy rather than the process of
8:33science
8:34investment is a process of alchemy soros has found a formula that does bubble up
8:40go you had invested $10,000 with him in 1969 you would have more than 10 million
8:47today I did they do that by looking for places where he thinks perception and
8:53reality are out of whack and basically interested in manias or what I called
9:00boom bust sequences that is this a process in which US initially
9:05self-reinforcing but unsustainable and therefore eventually have to be reversed
9:11well your head when you read the morning paper work doesn’t happen every day
9:20first of all because these processes occur
9:24infrequently and long periods in between when it’s sort of from my point of view
9:31is noise and that’s you know sort of just a normal kind of situation you take
9:38for instance what I called reagan’s employer circle when reagan him early
9:47nineteen eighties and an aggressive program will be arm and hand was
9:51unwilling to pay for it and so it was deficit financing and you had a
9:56self-reinforcing process a strong dollar strong economy strong stock market which
10:04was however unsustainable and head eventually to be reversed so it was a
10:08boom bust kind of sequins and I think that I understood it reasonably well and
10:16the same thing would work on the downside and the depression is there a
10:20great depression anywhere in the world today that has to be reversed I i think
10:23that we are in a cave depression now in the world I think that I think that that
10:28we are in conditions very similar to what prevailed in the nineteen thirties
10:32differences for the first time since the second world war say
10:41prices are actually falling in a country like Japan that is something that hasn’t
10:49happened since the nineteen thirties this small trading room in New York SROs
10:56trades currencies stocks and bonds around the world looking for the
11:00unexpected not an easy job
11:04SROs made one of his biggest mistakes in his own backyard you wrote that you saw
11:09the crash coming in the late eighties in 87 and yet you got caught like everyone
11:15else do you explain that I made a very big mistake because I expected the crash
11:21to come in Japan and I was prepared for that and it would have given me an
11:27opportunity to prepare for the follow up in this country and they actually
11:32occurred on wall street and not in Japan I was estimated that mistake cost six
11:41hundred and fifty million dollars since then thesaurus funds have continued to
11:46grow even though soros travels constantly we still very involved in the
11:51day-to-day management of the fund he is here maybe a third to a half the time
11:59because of his other activities he’s often in eastern europe places when
12:05you’re trying to talk to him on the phone it’s very very scratchy and maybe
12:09last minute or so a day the way I look at it is having the greatest financial
12:17advisor in history to help create and bounced off ideas on an ongoing basis
