The Alchemy of Finance (Wiley Investment Classics) (Paperback)

~ (Author), Paul A. Volcker (Foreword) "I started the original introduction by saying that in a very real sense this book represents my life's work..." (more)
Key Phrases: portfolio structure, net asset value per share, international central bank, United States, Imperial Circle, Long Short (more...)

Editorial Reviews

Review

“…contains a detailed description of his trading methods and repays careful reading.” (Investors Chronicle, 1st April 2005)

“…these updated classics are packed  with investment wisdom…” (What Investment, November 2003)

Product Description

Critical Praise forThe Alchemy of Finance

"The Alchemy of Finance joins Reminiscences of a Stock Operator as a timeless instructional guide of the marketplace."
––Paul Tudor Jones
From the Foreword to the First Edition

"An extraordinary . . . inside look into the decision-making process of the most successful money manager of our time. Fantastic."
––The Wall Street Journal

"A breathtakingly brilliant book. Soros is one of the core of masters . . . who can actually begin to digest the astonishing complexity . . . of the game of finance in recent years."
––Esquire

"A seminal investment book . . . it should be read, underlined, and thought about page by page, concept by idea. . . . He’s the best pure investor ever . . . probably the finest analyst of the world in our time."
–– Barton M. Biggs
Director, BKF Capital Group, Inc.

Updated to include a new Preface and Introduction by Soros, and a Foreword by Paul A. Volcker

George Soros is unquestionably the most powerful and profitable investor in the world today. Dubbed by BusinessWeek as "The Man Who Moves Markets," Soros once made a billion dollars by betting that the British pound would be devalued. Soros is not merely a man of finance, but a thinker to reckon with as well. In The Alchemy of Finance, this extraordinary man reveals the investment strategies that have made him "a superstar among money managers"(The New York Times).

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Product Details

• Paperback: 416 pages
• Publisher: Wiley (July 29, 2003)
• Language: English
• ISBN-10: 0471445495
• ISBN-13: 978-0471445494
• Product Dimensions: 8.8 x 6.1 x 1.3 inches
• Shipping Weight: 1.1 pounds (View shipping rates and policies)
• Average Customer Review: 3.5 out of 5 stars  See all reviews (22 customer reviews)
• Amazon.com Sales Rank: #12,592 in Books (See Bestsellers in Books)

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• This item is part of The Wiley Investment Classics Series.

Customer Reviews

Most Helpful Customer Reviews

36 of 40 people found the following review helpful:

5.0 out of 5 stars Lesson in Dealing with Uncertainty, February 17, 2004

By	C. Kurdas (Brooklyn, NY United States) - See all my reviews (REAL NAME)

In this updated edition, Soros summarizes his worldly philosophy--the connection between thought and reality and how it applies to financial markets. The heart of the book remains Mr. Soros's account of what he did with Quantum Fund in the mid-1980s, both as an example of his approach and a remarkable lesson in how to make money in markets where most of the time nobody, including Mr. Soros, knows what's coming next.

His philosophical tenet, Reflexivity, denotes a feedback loop: Individuals act on their views of a situation, thereby changing the situation. For example, if traders believe a stock is going up, they buy it, thereby bidding it up. But their belief caused the result; there may be no fundamental reason for the rise.
Thus what we think determines what we do and has consequences, but typically it is not correct.

Inspired by Heisenberg's rule about quantum particles, Soros proclaims a human uncertainty principle which suggests our understanding is often incoherent and always incomplete. From his case study, one notices that uncertainty continually besets Mr. Soros in managing his hedge fund, which has the same name as the particles subject to Heisenberg's uncertainty principle.

General models do not always translate into money making practice. But Soros provides an insight of great practical significance: traders need to be adaptive, because there is no way of knowing beforehand how a market situation will turn out.

The Quantum Fund experience demonstrates how that works. This exercise in global macro strategy, a master speculator's take on commodity, currency and equity markets, is a a litany of doubts and hazards.

He's been losing on currency trades for several years. Then in September 1985, he makes a killing by buying a lot of yen just before central banks switch to a new exchange rate system and the yen rises. There is a pattern: he sustains losses, reduces positions, gets out, then sees a great opportunity and pounces. In short, he constantly and quickly adapts to events.

Despite various setbacks, Quantum Fund's NAV per share rose 121% in 1985 and 43% in 1986. Such numbers make for legend and Mr. Soros became one.

How did he do it? He keeps an open mind and continually modifies his outlook with new information. As he remarks, "the markets provide a merciless reality check," and Mr. Soros never stays with an idea that fails the test. Most of the time he can't predict what's coming, but he promptly corrects course in response to feedback. That limits losses. On rare occasions he can see through the fog of uncertainty and hauls in the booty.

This is not an easy book to read, but as another hedge fund manager, Paul Tudor Jones, describes it in the foreword, it is a timeless guide.

76 of 93 people found the following review helpful:

1.0 out of 5 stars A diatribe from a Billionaire, December 13, 2005

By	Atherton Reader (Atherton, CA) - See all my reviews

I first read this book in 1994 and remembered it being unuseful and his kitchen-talk economics being superficial. So, 11 yrs later I picked it up again believing that it was my own lack of understanding and maturity that made me under-appreciate Soros. But, I was wrong.

Pros: Chapter Chapter 3 is about his approach to the currency market speculation. This is probably the most useful part of the book for an investor or market observer. Currencies are, after all, entirely relative to each other, particularly after the fall of Bretton Woods. He simplifies his model into eight variables (nominal FX, nominal i, price levels, gdp, capital flows, hotmoney flows, trade account, and govt budget) and then talks about how a virtual cycle appears when the market perception itself feeds price movement, which in turn fuels the perception that the perception was correct. This culminates in incorrect pricing and thus opportunity. This approach is not unlike other int'l/macro hedge fund managers today.

Cons: He has lengthy diatribes around his overabundant belief that he's a great-mind in philosophy and economics. Reflexivity is nothing more than the notion that market participants affect a price, but that prices are dynamic and constantly influenced by perception -- and here's the GREAT insight -- and perception sometimes is misled by unfounded herd momentum. He applies this model to the stocks, currencies, and credit vs regulatory cycles in the book. However, Billionaire make not a Worldly Sage...

For example, he debunks all academically-taught economics by comparing the "Perfect Competition" model to his Reflexivity. Well, of course, Perfect Competition is not reality and Supply/Demand are not discrete lines that nicely intersect on Wall Street at 4:00pm every business day! Every student of economics understands that. Its too bad that Soros's 1950's college-level economics didn't introduce him to more challenging concepts and higher level models (no offense intended towards Princeton). He does similar things to metaphysics, which can be best described as a little better than yet-another-Hollywood-actor describing existentialism.

His arguments follow an annoying pattern: (1) oversimplify a current model and debunk it, (2) apply his Reflexivity theory onto the situation, and (3) philosophize about life's implications. I can almost see him take a cigar puff then as minions sit gasping at his profound teachings, as if from Kant and Samuelson -- combined. He readily admits in the introduction and thoroughout the book that he's writing real-time and out of sequence when he has time. So, the style of writing follow an initially focused set of themes, then meander about as if he's punching the keyboard at 2:00am.

In summary, this book will NOT give you insights into the mind of one of the most profitable hedge fund traders in the world. He will not tell you his techniques (like "How to Trade like a Hedge Fund"), nor will he allow you into his inner feelings and personality (like "My Life as a Quant") so that you can walk away with something useful tomorrow. Rather, he's telling you what he wants and drags you along for a ride with verbose pages -- after pages.

30 of 36 people found the following review helpful:

2.0 out of 5 stars Soros = great mind, terrible writer, June 24, 2004

By A Customer

Anyone who has had as much success as Soros must be doing something right, so I respect his mind. Unfortunately, he is a terrible writer. He could take ten pages explaining why 2 + 2 = 4.

Here's an example:
"[the shoelace theory]...can be interpreted as a synthesis of Hegel's dialectic of ideas and Marx's dialectical materialism. Instead of either thoughts or material conditions evolving in a dialectic fashion on their own, it is the interplay between the two that produces a dialectic process."

This passage is a microcosm of the entire book: he makes a valid point, but it's not a particularly significant or difficult point. The only difficulty is in parsing his turgid language. I sense he is a great investor who wants to be considered a great thinker, and he believes that in order to accomplish this he has to use big words to express his theories.

Soros's widely praised theory of reflexivity is a valuable contribution, but he doesn't need 400 pages to convey it. I didn't read this book expecting a "how to make money in the stock market" tutorial, but I did expect to gain a better insight into how the markets function. I did not get that.

Don't waste your time.