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Soros on Soros: Staying Ahead of the Curve

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George Soros is unquestionably one of the finest investors of our time; his returns over the life of his Quantum fund have put the random-walk theory to shame. In this book, which is essential a long interview, Soros expounds on his market philosophies and political views. Personally, I found this book better structured and more informative than his previous book, "The Alchemy of Finance."

As the book begins, Soros goes into the details about how he founded and runs his fund. He started as a trader, then an analyst, then created a model portfolio that he managed as a sales tool for when he talked to his clients. He left his firm and started his hedge fund at age 43, with $12M in 1973. In 1981, retired from active management and hired other fund managers to run the Quantum fund.

When running the fund, he is a macro investor, since he claims he's better at picking the tide rather than surfing the smaller waves in the markets. He tends to form an opinion on the direction of a currency, stock market, or interest rates, then trades within the view he set.

Soros also describes his market philosophy, which he described previously in "Alchemy of Finance." His concept, dubbed reflexivity, claims that market's movements influences people's perceptions, but since people trade based on their biased perceptions, they in turn influence the market. The result is that perceptions and market movements co-evolve, and may drift away from the fundamentals and, in some cases, change the fundamentals. The result is familiar boom-bust patterns, such as trend-following behavior in markets followed by crashes. As a result, Soros follows trends, but remains alert for signs of reversals.

Soros is also a major philanthropist, and has created foundations to spread open societies into Eastern Europe. There is a significant portion of the book devoted to his political work, however I found that less interesting, not because his views aren't valid or well articulated, but because I bought the book primarily to learn about Soros' work in finance.

Overall, I found this a good read in finance. Although you won't come out with 10 sure-fire stock tips for your 401(k), this book is certainly a must for Soros fans, or any intrigued investor who would like to learn from one of today's most successful financiers.

Like a 21st century physicist, George Soros is looking for the universal theory, the theory of everything. In Soros on Soros, he tries to express his vision of that theory, that one formula that will link his insights into markets, group dynamics and the historic and political evolution of mankind. While he never succeeds, you'll get a full education in Soros-think as you watch him lurch through a series of anecdotes, observations and philosophic lunges. Soros is an investor and self-proclaimed failed-philosopher, not a wordsmith. The power of this book lies in its ideas, not its art. He has learned from his role as the world's most powerful investor that mere thoughts - whether correct or incorrect - can move markets, motivate people to action and alter the course of history. For that reason, we [...] recommend this book to all investors, executives and students. After a series of financial defeats since 1998, Soros might not be what Soros was, but his ideas and beliefs still sway markets and shade international policy in a manner that few people on the planet can match.

This book covers many facets of George Soros's life- his investment philosophy, family history, quantum fund, his own theories of investing, philanthropy, diplomacy, and some of his selected writings. Mr. Soros talks about macroinvesting and how leverage has given the quantum fund greater flexibility than a two dimensional portfolio. He surprisingly admits that he is a very critical person who looks for defects in him as well as others- calls himself an insecurity analyst. Mr. Soros also talks about the tension between his parents and how the Nazi invasion of Hungary influenced him. I would suggest that one read his book, The Alchemy of Finance to learn more about his approach to investing. Classical economic theory assumes market participants act on the basis of perfect knowledge, his philosophy is based on imperfect understanding. The Alchemy of Finance talks in detail about the general theory of reflexivity and boom/ bust theory. Using the sterling crisis, Mr. Soros emphasizes the need for Euro. Karl Popper at LSE influenced him greatly and Mr. Soros invested millions on promoting an open society in Eastern Europe. His foundations have failed in China and Russia. He does not want anything but the Central European University to outlive him. Mr. Soros talks extensively how the west failed the Soviet Union and states that it would have been better had it not collapsed like Yugoslavia It is a must read for anybody interested in philosophy, diplomacy ,and business.

I'll say this first: I am not a genius, and George Soros probably is. The book presented itself in an interesting Q&A format that made it easy to skip around and jump sections. That being said, it was still a struggle to finish.

I did not like this book because it was hard to understand and mostly discussed Soros' high-level theory on investment strategy. His theory, which Mr. Soros is very passionate about, has something to do with the universe always being out of balance. If you are a finance whiz who thrives in theoretical analysis, or if you are a new age guru curious about a billionaire's spiritual mantra, maybe you will like this book.

Many people insist that one can't beat the market. They tell you: don't even try. Heaven forbid you pick out a few stocks which you think will go up (they'll tell you you'll almost certainly be wrong) but instead buy all sorts of stocks (stocks you think will go up, stocks you think will go down, and stocks you think will go sideways (to make this easy just buy some index))in an attempt to insure an average return. And while many people believe this, there are also many (with some overlap) who still try to outsmart the market. Please don't expect a formula, cookbook, or road map. You won't find a list of stocks to buy here. Soros can't tell you: always buy stocks with a P/E below this, or sell stocks when the moon is full, or they fall 8% from where you bought them (Is it 8% or 9%? It's all so arbitrary isn't it? What does it matter what price you paid, the earth doesn't revolve around you and neither does the future of any stock. Soros can give you some perspective and teach you that you may actually have to think, and think well, with each decision! And THIS, is far better than presenting a bunch of false rules!

One trap you can fall into in life is to not learn from those that you disagree with, for one reason or another. George Soros would be an example of that. His politics are very different from mine, as well as his religious views. He's a far more aggressive investor than I am as well. I am to hit singles with high frequency over the intermediate term. He played themes to hit home runs.

The Alchemy of Finance made a big impression on me 15 years ago. Perhaps it was a book that was in the right place at the right time. It helped to crystallize a number of questions that I had about economics as it is commonly taught in the universities of the US.

First, a little about me and economics. I passed my Ph. D. oral exams, but did not receive a Ph. D., because my dissertation fell apart. Two of my three committee members left, and the one that was left didn't understand my dissertation. What was worse, I had moral qualms with my dissertation, because I knew it would not get approved.

My dissertation did not prove anything. All of my pointed to results that said, "We're sorry, but we don't know anything more as a result of your work here." I have commented before that the social sciences would be better off if we did publish results that said: don't look here -- nothing going on here. But no, and many grad students in a similar situation would falsify their data and publish. I couldn't do that. I also couldn't restart, because I had put off the wedding long enough, so for my wife's sake, I punted, and became an actuary.

That said, I was a skeptical graduate student, and not very happy with much of the common theories; I wondered whether cultural influences played a larger role in many of the matters that we studied. I thought that people satisficed rather than maximized, because maximization takes work, and work is a bad.

I saw how macroeconomics had a pretty poor track record in explaining the past, much less the present or future. In development economics, the countries that ignored the foreign experts tended to do the best. Even in finance, which I thought was a little more rigorous, I saw unprovable monstrosities like the CAPM and its cousins, concepts of risk that existed only to make risk uniform, so professors could publish, and option pricing models that relied on lognormal price movement.

Beyond that there was the sterility of economic models that never got contaminated by data. I was a practical guy; I did not want to spend my days defending ideas that didn't work in the real world. And, I felt from my studies of philosophy that economists were among the unexamined on methodology issues. They would just use techniques and turn the crank, not asking whether the metho, together with data collection issues made sense or not. The one place where I felt that was not true was in econometrics, when we dealt with data integrity and model identification issues.

Wait. This is supposed to be a book review. :( Um, after getting my Fellowship in the Society of Actuaries, I was still looking for unifying ideas to aid me in understanding economics and finance. I had already read a lot on value investing, but I needed something more.

On a vacation to visit my in-laws, I ended up reading The Alchemy of Finance. A number of things started to click with me, which got confirmed when I read Soros on Soros, and later, when I began to bump into the work of the Santa Fe Institute.

I was already familiar with nonlinear dynamics from a brief meeting with a visiting professor back in my grad student days, so when I ran into Soros' concept of reflexivity, I said "Of course." You had to give up the concept of rationality of financial actors in the classical sense, and replace them with actors that are limitedly rational, and are prone to fear and greed. Now, that's closer to the world that I live in!

Reflexivity, as I see it, is that many financial phenomena become temporarily self-reinforcing. We saw that in the housing bubble. So long as housing prices kept rising, speculators (and people who did not know that they were speculators) showed up to buy homes. That persisted until the effective cashflow yield of owning a home was less than the financing costs, even with the funky financing methods used.

Now we are in a temporarily self-reinforcing cycle down. Where will it end? When people with excess equity capital look at housing and say that they can tuck it away for a rainy day with little borrowing. The cash on cash yields will be compelling. We're not there yet.

Along with that, a whole cast of characters get greedy and then fearful, with the timing closely correlated. Regulators, appraisers, investment bankers, loan underwriters, etc., all were subject to the boom-bust cycle.

Expectations are the key here. We have to measure the expectations of all parties, and ask how that affects the system as a whole.

In The Alchemy of Finance, Soros goes through how reflexivity applied to the Lesser Developed Country lending, currency trading, equities, including the crash in 1987, and credit cycles generally. He gives a detailed description of how his theories worked in 1985-6. He also gives you some of his political theorizing, but that's just a small price to pay for the overall wisdom there.

Now, Soros on Soros is a series of edited interviews. The advantage is that the interviewers structure the questioning, and forces more clarity than in The Alchemy of Finance. The drawback (or benefit) is that the book is more basic, and ventures off into non-economic areas even more than The Alchemy of Finance. That said, he shows some prescience on derivatives (though it took a long time to get to the promised troubles), though he missed on the possibility of European disintegration.

On the whole, Soros on Soros is the simpler read, and it reveals more of the man; the Alchemy of Finance is a little harder, but focuses more on the rationality within boom/bust cycles, and how one can profit from them.

Edward Teller and George Soros shared few common traits; nationality, religion, and globalization. Both were Hungarian, Jewish, hard workers, and stubborn thinkers. Teller dreamed of the Hydrogen bomb and believed earlier that a nuclear explosion might detonate the earth's atmosphere and ends civilization. Even with the fission bomb out-of-reach, Teller was living in the dreamland of the nuclear fusion. Soros is less fortunate in reaching his utopian dream despite his billions. Sociology isn't physics. Soros' players have emotions and beliefs that impact their decisions. The Russian robbers had outsmarted him, as they did with Napoleon and Hitler. Yet, his driven obsession with open society made him repeat the same mistake in Macedonia and Ukraine.

Teller also confronted opponents, yet with like scientific minds and confronting limited physical constraints. Knocking down Oppenheimer was Teller's big chance to keep his status, though never became billionaire. In Soros's realm, there is no known opponent to knock down in order to satisfy his utopian dream of open society. His sense that his efforts might lead to lasting changes on the long term, even in his absence, might well be true. Ideas outlive people, though Soros' generation is unique in many ways.

Soros's basic concepts center on reflexivity, fallibility, far-from equilibrium economy, and open society. His basic tools are economic and mathematical analysis of supply and demand. The greatest challenge to his effort to utilize his tools in achieving open society is the lack of concrete principles for predicting human emotion. Not only the little players like Macedonia, Albania, Iran, and Israel are driven by emotions, but also the American Superpower shares the ailment. Noticeably however, financial investors possess detrimental emotion as well. They must win in the first round or get out before another loss. Soros' judgment on the imbalance of receivables and production in the new Russia is an example of an impatient, selfish, and zealous financier looking merely for his immediate gain.

In his comparison to the sudden decay of the Soviet empire with the British Empire, Soros cannot conceal his wishful desire of a mechanical history. He bitterly blames the West for betraying Mikhail Gorbachev and accuses the latter of being naïve. Yet, he admits that the sick mother of communism could not carry her fetus to full term. His paternal views that eastern European and third world nations need be or anxious to be told what to do when given financial assistance, omit national emotions. Nations have pride as do individuals. Coercive politics might hinder the progress to open society. Past Germany, Venezuela, Iran, North Korea, Iraq, Syria, Cuba, and Yugoslavia are examples of how imposing politics perpetuated long conflicts.

Where does his utopian dreaming lead to? The Internet, he claims, is opening society and might seal the death of fascism, communism, and the like. However, anything could happen in the future since our civilization is fueled by energy which is getting scarcer everyday. His assumption that a new scientific breakthrough, such as carbonless extraction of energy from coal, or other innovations that secure renewable energy, could safeguard human civilization from inevitable catastrophe.

Soros' resort to philosophy is driven by his economic undertaking. In order to make financial profit, he has to tackle the emotional factors of key players. Against the common wisdom of history and science, emotional policy-makers are still blundering national treasures and human lives. Defeat or victory in war is still the controlling principal in curtailing stray emotion of nations.

Mohamed F. El-Hewie
Author of
Essentials of Weightlifting and Strength Training

Good book, but too much philosophy on it. I was expecting more practical tools. Good to understand the mindset of one of the best. Anyway you always learn something to apply on a daily basis. Recommended.

Parts of this book are very interesting, particularly where they deal with Soros' marginal experiences prior to starting his famous hedge fund. It lends a human picture with a past to this powerful person.

However as you make your way through the book, it begins to sound like many other books written by famous people at similar points in their lives. There seems to be a need to prepare oneself for a certain kind of statehood existence, and this is no exception. The last third of the book was a little bit tiresome.

I would reccommend the biography as a companion to this book. In fact, sometimes it seems like this book was written as a reaction to the biography which was published at about the same time.

Rumored to have had a financial hand in the election of Barrack Obama, as well as in currency devaluation crises in Asia and the U.K. in the past, George Soros now is pushing for a continuation of big government deficit spending - by coming out against austerity measures being taken in Germany and other European nations. On the contrary, austere spending cuts now would lead to less need for taxes and borrowing immediately. Spending cuts also lead to less inflation and lower commodities prices. Greater consumer confidence and confidence in local currencies would be the immediate result of responsible budgeting, laying the foundation for improved business conditions in those Western nations.

Apparently, there is an evil reason for Soros's pushing for more of the same irresponsible fiscal policies that is causing gold and oil prices to rise; forcing central banks to respond by increasing money printing in order to ward off deflation - but the real cause of deflation being lack of confidence by free-market participants being subjected to wrong-headed, left-wing government fiscal policy. The markets have always been bifurcated: when oil and other commodities, such as base metals and grains, have risen in the past, manufacturers of things like consumer technology and the transportation and shipping industries have suffered. Therefore, having influenced self-serving policies of economic destruction, Soros peddles the economics of destruction that suits his evil intentions: to enrich himself in the style of investing in which he is accustomed, making billions for himself by taking advantage of economic distress - enriching himself, this time at the expense of the Europe and the U.S. And he's doing it all by ingratiating himself with left-wing ideologues, like a blood-sucking trojan horse. It doesn't get much lower than that .