George Soros is possibly the most successful investor that ever lived. In fact, his return rate throughout his career has been greater than even the return rate of Warren Buffet. However, the two have very different views of what investments to make. You see, George Soros is largely a contrarian investor. This means that he makes his money by betting against the status quo.
Now, don’t get me wrong, he didn’t make his millions by blindly making bets that went against what the masses were doing, there’s a big more complexity to his actions than that.
One Big Bet That Brought Billions In For Soros
Stone House Capital Partners returned 4.1% for September, bringing its year-to-date return to 72% net. The S&P 500 is up 14.3% for the first nine months of the year. Q3 2021 hedge fund letters, conferences and more Stone House follows a value-based, long-long term and concentrated investment approach focusing on companies rather than the market Read More
One of the big trades that really outlines the George Soros trading style is one that made him almost #2 billion. In the early 90’s, George Soros showed his strengths, and he did so in the currency market. In fact, after this trade, he became known as “the man who broke the Bank of England.” Of course, this isn’t the most flattering of names, but it does fit him well. After all, he ended up costing the Bank of England a ton of money.
In September of 1992, Soros made the decision to borrow a billion dollars in British pounds. Shortly after making the decision to borrow the money, Soros converted the British pounds to German marks. This was an incredibly strong move because the UK economy simply wasn’t doing well and was on the verge of a crash.
Soon enough, the British pound crashed in a big way. This was exactly what Soros wanted to see. He had already converted the money he borrowed to German marks. Now, all he had to do was pay the money he borrowed back, using the lower value British pound, and he walks away with the profits. That’s exactly what he did. On the first day of declines, Soros made more than $1 billion in profits. By the time he unloaded the position, his earnings on the move came to nearly $2 billion!
Currency Wasn’t His Only Strength
Throughout history, George Soros has made a massive amount of money trading currency. The example above is just one example of the masses he brought in with the vehicle. However, currency wasn’t his only strength. In fact, using macroeconomic data, he predicted the housing crisis, and profited from moves he made leading up to it.
Soros saw that the housing market was in trouble. As demand for homes climbed, prices climbed. This created an insatiable thirst for lenders to be able to lend more and more money. Soon, the housing market became a securitized industry. This took the risk of lending largely out of the hands of the banks, and transferred that risk to the investors that purchased the securities.
George Soros saw that something big was happening here. After all, he once said that “whenever there is a conflict between universal principles and self-interest, self-interest is likely to prevail.” While banks knew that it was a risky play, the interest in gaining larger profits led decisions made. Soon, banks were giving sub-prime loans for very high dollar amounts. With the ability to pass the risk on, they wanted to give loans to every living, breathing being on this planet.
Soon however, this plan backfired. While everyone seemed to be buying shares in the big banks, large real estate companies and more, Soros had the insight to start taking on short positions. When the bubble popped, Citi and Bank of America lost 95% of their value, Phony and Fraudie took a 99% dive. Soros on the other hand, he was raking in the profits.
There’s An Interesting Connection Here
If we start to try to think like Soros, we can see an interesting connection to the housing bubble and what’s going on in the world today. George Soros made a ton of money by watching macroeconomic data and making moves on the idea that this data moves the market. With a strong history of highly successful trades, there’s no reason to doubt his perspective.
With that said, at the moment, economic conditions around the world are overwhelmingly negative. This has led to incredibly low interest rates from central banks around the world. Due to the low interest rates, we’ve seen an insatiable thirst for risk in the market, pushing market values close to record highs. At the moment, it could be said that we’re seeing a securities bubble. While the market continues to push upward, I would be willing to bet that Soros is eyeing this bubble at the moment!
What Do You Think?
Is there a connection between the housing bubble, what Soros accomplished with the British Pound