George Soros

Best Quote: "Short term volatility is greatest at turning points and diminishes as a trend becomes established… By the time all the participants have adjusted the rules of the game will change again"

What would Soros buy in India? Soros was recently rumoured to have taken positions in real estate stocks like Unitech, Ansal Prop etc.

George Soros was arguably the most powerful money managers of all times. His decisions moved currencies, countries, stocks and commodities. In 1970 he co-founded the Quantum fund with Jim Rogers  At that time there were just two of them Soros the trader, Rogers the research analyst and a secretary. During their partnership tenure between 31st December 1969 to 31st December 1980 this fund chalked up a total return of 3365%.Like all the other legends Soros did not spend much time reading the Wall Street Research reports. He considered them to be of little material value and insisted upon getting a first hand information on ideas through reading news papers, journals, periodicals etc. Soros used to pay big on the markets. In 1992 his bet against the pound made him richer by US $ 1.5 billion where as in another such currency swipe he lost about US $ 600 million by betting that the Japanese Yen would fall. In 1999 his views against the technology bubble made him go short and he ended up losing. A few months later he doubled his position and went long thinking to ride the rlly on the upside. Unfortunately he was caught on the wrong side and lost again.

Key learning:

• Soros believed in starting with smaller amounts of money and then building the portfolio with increasing profits.
• Try and do what you are good at was his advice to traders. He discouraged people from trying to be clever and attempting to discover that new technology company with a new product.
• Soros insisted that speculators should keep the downside risk of an investment in mind before they punch in the buy button. More over the ability to cut a losing trade should be a speculator’s greatest attribute
• Markets are never efficient. Soros dwelled upon reflexivity – the participants have pre defined views and understandings. The outcome of the markets are most likely going to be different then the pre defined set of views that a majority of these participants have. The final outcome would then change the participant’s behavior. John Train summarizes the situation best when he remarks “Perceptions change events which in turn changes perceptions”. Soros also opines that the participants decision relates to the future and the future is contingent on the participants decision in the present”
• Soros considers technical Analysis to be an utter waste as he questions the foundation on which this theory has been built.
• Stocks prices are determined on the basis of Fundamental analysis. The problem how ever is to understand the internal dynamics of the fundamentals of a company since they keep changing very often..
• Soros argues that each Cycle could have the following features:
  • The proportion of speculative transactions increase as the trend gathers steam.
  • Trend should be your friend – Longer the trend greater the reason to follow it.
  • Once in vogue trends normally run their courses.

Soros stated that immediate prices are determined by demand and supply, which in turn is governed by news flow, momentum & legislation. He was a specialist in catching reversal points. He did so twice in the nineties for the European currency markets. He thought that knowing what would happen is not enough as much as knowing when it would happen. The best analogy we can draw is from his Nasdaq trades. He knew that the technology bubble would burst but he still lost a big amount for a pre mature trade