“It is not whether you are right or wrong that is important, but how much money you make when you are right and how much you lose when you are wrong.” — George Soros
Last updated February 8 2020
Soros was born in Budapest, Hungary on August 12, 1930. Soros survived the Nazi occupation of Hungary during World War II as well as the postwar imposition of Stalinism in his homeland. In 1947, Soros fled the Soviet Union Communist occupation of Hungary for England.
His father, Tivadar was an Esperantist writer and taught his son to speak Esperanto from birth. He later said that he grew up in a Jewish home and that his parents were cautious with their religious roots. George Soros was thirteen years old in March 1944 when Nazi Germany occupied Hungary. Soros took a job with the Jewish Council, which had been established during the Nazi occupation of Hungary to carry out Nazi and Hungarian government anti-Jewish measures.
George Soros early life
Soros later described this time to writer Michael Lewis:
“The Jewish Council asked the little kids to hand out the deportation notices. I was told to go to the Jewish Council. Moreover, there I was given these small slips of paper … It said report to the rabbi seminary at 9 am .And I was given this list of names. I took this piece of paper to my father. He instantly recognized it. This was a list of Hungarian Jewish lawyers. He said, “You deliver the slips of paper and tell the people that if they report they will be deported.”
Later that year, at age 14, Soros lived with and posed as the godson of an employee of the Hungarian Ministry of Agriculture. The official once was ordered to inventory the remaining contents of the estate of a wealthy Jewish family that had fled the country; rather than leave the young Soros alone in the city, the official brought him along. The next year, 1945, Soros survived the Battle of Budapest, in which Soviet and German forces fought house-to-house through the city.
Soros immigrated to England in 1947 and, as an impoverished student, lived with his uncle, an Orthodox Jew. His uncle paid his living expenses while he attended the London School of Economics, where he received a Bachelor of Science in Philosophy in 1952.
At LSE Soros studied Karl Popper’s work in the philosophy of science as well as his critique of totalitarianism. The critique, also known as, The Open Society and Its Enemies, maintains that no philosophy or ideology has the final word on the truth and that societies can only flourish when they allow for democratic governance, freedom of expression, a diverse range of opinion, and respect for individual rights.
Influence of Karl Popper
While a student of the philosopher Karl Popper, Soros worked as a railway porter and as a waiter. A University tutor requested aid for Soros, and he received GB£40 from a Religious Society of Friends (Quaker) charity.
After leaving LSE, he obtained an entry-level position with an investment bank in London. In 1956, he immigrated to the United States and held analyst and investment management positions at the New York firms of F.M. Mayer (1956-59), Wertheim & Co. (1959-63) and Arnhold & S. Bleichroeder (1963-73).
In a discussion at the Los Angeles World Affairs Council in 2006, Alvin Shuster, former foreign editor of the Los Angeles Times, asked Soros, “How does one go from an immigrant to a financier? When did you realize that you knew how to make money?”
Soros replied, “Well, I had a variety of jobs and I ended up selling fancy goods on the sea side, souvenir shops, and I thought, that’s really not what I was cut out to do. So, I wrote to every managing director in every merchant bank in London, got just one or two replies, and eventually that’s how I got a job in a merchant bank.” That job was an entry-level position in Singer & Friedlander.
Later, while working as a financial analyst and trader in New York, Soros adapted Popper’s thinking in developing his own application of the social theory of “reflexivity,” a set of ideas that seeks to explain how a feedback mechanism can skew how participants in a market value assets on that market.
After concluding that he had more talent for trading than for philosophy, Soros began to apply his ideas on reflexivity to investing, using it to predict, among other things, the emergence of financial bubbles. In 1967, he helped establish an offshore investment fund. In 1973, he set up a private investment firm that eventually evolved into the Quantum Fund, one of the first hedge funds.
Soros’s memories of anti-Semitism in wartime Hungary prompted him, in 1979, to begin providing financial support for black students at the University of Cape Town in apartheid South Africa. In 1984, Soros created an education and culture foundation in Hungary. He later supported dissident movements in Eastern Europe’s other Communist countries. The movements helped people organize themselves at a time when popular organizations were banned,voice their opinions when dissonant opinions were considered anti-state propaganda, and promote tolerance, democratic governance, human rights, and the rule of law when a one-party dictatorship exercised a monopoly on power.
As the last bloc crumbled during the late 1980s and the Soviet empire collapsed in the early 1990s, Soros expanded his funding in an effort to help create open societies in all of the region’s countries. He demonstrated his commitment to critical thinking and democratic political development by establishing the Central European University in 1991. In 1993, he founded the Open Society Institute.
Over the past three decades, Soros’s philanthropy has spawned a network of foundations dedicated to promoting development of open societies in Africa, Asia, Europe, Latin America, and the United States. To date, Soros has given over $8 billion to support human rights, freedom of expression, and access to public health and education in 70 countries.
George Soros: Quantum Fund
Soros went off on his own in 1973 and founded the hedge fund company of Soros Fund Management, which eventually evolved into the well-known and respected Quantum Fund. For almost two decades, he ran this aggressive and successful hedge fund, reportedly racking up returns in excess of 30% per year and, on two occasions, posting annual returns of more than 100%.
A $1,000 investment with George Soros in 1969 would have been worth about $4 million by the year 2000.
In the late 1980s, Soros gave up the day-to-day management of the Quantum Fund and, as one of the wealthiest people in the world, became a substantial philanthropist, donating huge sums worldwide through his Open Society Foundation. In recent years, political activism has also become important to Soros.
However, Soros’ Quantum fund has remained active. During 2007, on the eve of the financial crisis, Soros stepped into the market and returned 32% during 2007 and a further 8% during 2008 when the average hedge fund logged a loss of around 19%.
Soros returned money to outside investors during 2011, after the investor announced his retirement and SEC rules made it more difficult to manage outside cash. Soros is now focused on managing his own money. But this has not stopped the Quantum endowment fund outperforming. The Quantum Endowment fund had its second-best year ever in dollar terms in 2013, returning $5.5 billion once again making it one of the best performing hedge funds of all time. Since its inception during 1973, Quantum has returned more than $40 billion for its investors.
George Soros: Breaking the Bank of England
Soros is regularly referred to as “The Man Who Broke the Bank of England” after speculating on the pound sterling. In the early 1990s he believing it was overvalued and by 1992 Soros’ short position earned netted him $1 billion.
The Greatest Currency Trades Ever Made
No. 1: George Soros Vs. the British Pound
The British pound shadowed the German mark leading up to the 1990s even though the two countries were very different economically. Germany was the stronger country despite lingering difficulties from reunification, but Britain wanted to keep the value of the pound above 2.7 marks. Attempts to keep to this standard left Britain with high interest rates and equally high inflation, but it demanded a fixed rate of 2.7 marks to a pound as a condition of entering the European Exchange Rate Mechanism (ERM).
Many speculators, George Soros chief among them, wondered how long fixed exchange rates could fight market forces, and they began to take up short positions against the pound. Soros borrowed heavily to bet more on a drop in the pound. Britain raised its interest rates to double digits to try to attract investors. The government was hoping to alleviate the selling pressure by creating more buying pressure.
Paying out interest costs money, however, and the British government realized that it would lose billions trying to artificially prop up the pound. It withdrew from the ERM and the value of the pound plummeted against the mark. Soros made at least $1 billion off this one trade. For the British government’s part, the devaluation of the pound actually helped, as it forced the excess interest and inflation out of the economy, making it an ideal environment for businesses.
Breaking the Bank of England
Soros gained international notoriety when he broke the BoE, risking $10 billion and his reputation on the trade. Ultimately, it was reported that his profit on the transaction almost reached $2 billion.
Along with the famous pound trade, some have also accused him of being the “trigger” behind the Asian financial crisis in 1997, as he had a large bet against the Thai baht. According to Wikipedia, which has a whole page dedicated to George Soros conspiracy theories and anti-Sorosism as it has now become known, according to Mahathir (Prime Minister of Malaysia from July 1981 to October 2003) in the three years leading to the Asian crash:
“Soros invested in short-term speculative investment in East Asian stock markets and real estate, then divested with “indecent haste” at the first signs of currency devaluation. Soros replied, saying that Mahathir was using him “as a scapegoat for his own mistakes”, that Mahathir’s promises to ban currency trading (which Malaysian finance officials hastily retracted) were “a recipe for disaster” and that Mahathir “is a menace to his own country”.
The two traded angry barbs against each other in various newspapers and broadcast interviews over the next nine years. The nominal US dollar GDP of ASEAN fell by US$9.2 billion in 1997 and $218.2 billion (31.7%) in 1998.”
Mahathir later conceded that he did not view Soros as responsible for the financial crisis.
George Soros is a short-term speculator. He makes massive, highly leveraged bets on the direction of the financial markets. His famous hedge fund is known for its global macro strategy, a philosophy centered around making massive, one-way bets on the movements of currency rates, commodity prices, stocks, bonds, derivatives and other assets based on macroeconomic analysis.
Simply put, Soros bets that the value of these investments will either rise or fall. This is “seat of the pants” trading, based on research and executed on instinct. Soros studies his targets, letting the movements of the various financial markets and their participants dictate his trades. He refers to the philosophy behind his trading strategy as reflexivity. The theory eschews traditional ideas of an equilibrium-based market environment where all information is known to all market participants and thereby factored into prices. Instead, Soros believes that market participants themselves directly influence market fundamentals, and that their irrational behavior leads to booms and busts that present investment opportunities.
Some basic Soros’ trading principles:
- Some people spend all day talking to their brokers. Soros “prefers to talk to a select few people who can be really helpful ….” Then you need to think and read and reflect.
- To be successful, you need leisure. You need time hanging heavily on your hands [to talk to people, read, and think].
- If you have an investment thesis you like, run it by people who support the other side of the argument. See if you still like the thesis afterward.
- Basically, the way Soros operates is to have a thesis and then he tests it in the market. If the market goes against his position and he feels uneasy (e.g. gets a backache), he cuts his losses.
- What he took was basic information from various sources and kind of mulched it in his mind. Then he would come up with a thesis that most of the time was valid.
- When Soros believed he was right … no investment position was too large. Holding back was for wimps. The worst error in Soros’ book was not being too bold.
- The key to investing is knowing how to survive. That means at times playing conservatively, cutting losses when necessary and keeping a large portion of one’s portfolio out of play.
- If you are doing poorly, retrench. Don’t try to recoup. And when you start again, start small.
- To be in the game, you have to be willing to endure the pain.
- Perhaps Soros’ most distinctive feature, the trait that explained his investment talents the best, was his ability to gain membership in a very ‘exclusive ‘ club that included the leadership of the international community…. Such encounters clearly gave Soros an advantage over other investors
- Invest first and then investigate … form a hypothesis, take a toehold position to test the hypothesis, and wait for the market to prove you are right or wrong.
- Financial Turmoil in Europe and the United States: Essays
- Soros on Soros: Staying Ahead of the Curve
- The Alchemy of Finance (Wiley Investment Classics)
- The Crash of 2008 and What it Means: The New Paradigm for Financial Markets
- The Soros Lectures: At the Central European University
- The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means
- Soros: The Life, Ideas, and Impact of the World’s Most Influential Investor
- Open Society: Reforming Global Capitalism
- It’s Not Easy Being God: The Real George Soros
- The Age of Fallibility: Consequences of the War on Terror
George Soros: Quotes
“I rely a great deal on animal instincts.”
“Playing by the rules, one does the best he can, irrespective of the social consequences. Whereas in making the rules, people ought to be concerned with the social consequences and not with their personal interests.”
“George opened all of our thinking to macroeconomic theory, and he made globalists of us all by making us understand the importance of geopolitical events on the U.S. economy.” (Byron Wien, Morgan Stanley)
“My approach works not by making valid predictions but by allowing me to correct false ones.”
“The secret to my success is that I know that I will be wrong. I consider it strength to admit my mistakes. That allows me to stay in the game and fight another day.”
“If investing is entertaining, if you are having fun, you are probably not making any money. Good investing is boring.”
“An open society is a society which allows its members the greatest possible degree of freedom in pursuing their interests compatible with the interests of others.”
“Bush’s war in Iraq has done untold damage to the United States. It has impaired our military power and undermined the morale of our armed forces. Our troops were trained to project overwhelming power. They were not trained for occupation duties.”
“I am not doing my philanthropic work, out of any kind of guilt, or any need to create good public relations. I’m doing it because I can afford to do it, and I believe in it.”
George Soros News
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- George Soros | Open Society Foundations – OSF
- Forbes Profile
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- Portfolio – 2012 Stock Picks and Performances
- Who Is George Soros? « Thoughts of A Conservative Christian
- Articles & Essays | George Soros
- News, Articles, Biography, Photos – WSJ.com
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George Soros: Videos
- BBC Documentary on Black Wednesday 1997
- Soros Speaks with Alan Murray for The Wall Street Journal’s “Viewpoints” Series
- Soros Lecture Series: Financial Markets
- GInterview – Investing Secret of Biggest Speculator
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- Soros remarks at the World Economic Forum 2012
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