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The Alchemy of Finance Paperback – August 1, 2003

80 customer reviews
ISBN-13: 978-0471445494 ISBN-10: 0471445495 Edition: 2007 or Later Printing

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Editorial Reviews

From Publishers Weekly

Soros, who manages the Quantum mutual fund based in Venezuela, here traces the fund's performance in a controlled experiment using leverage in many markets (stocks, bonds, indexes, currency, etc.), to test the Reaganomics "imperial circle" and to demonstrate his own economic theory of "reflexivity." It is investors' perception of market values, claims the author, which perpetuates up-or-down price trends, foreign exchange movements, periodic government regulation, and so on. The most studious investment calculations, he concedes, are in the end more alchemy than science. As to such problems as the massive U.S. domestic and trade deficits and the Damoclean Third World debt, Soros offers innovative suggestions, including an international oil-based currency and a system of variable interest-rate bonds keyed to the volume of a borrower country's export trade.
Copyright 1987 Reed Business Information, Inc. --This text refers to an out of print or unavailable edition of this title.

From Library Journal

Soros, manager of the billion dollar Quantum Fund, certainly has credentials that merit attention to his personal approach to money management. As might be expected, he describes his so-called "theory of reflexivity" in a manner more appealing to serious market players than to the casual investor. Of more general interest is his account of a one-year real time series of investment decisions that resulted in his Quantum Fund more than doubling in value. Libraries serving a serious investment community should add this. Joseph Barth, U.S. Military Academy Lib.
Copyright 1987 Reed Business Information, Inc. --This text refers to an out of print or unavailable edition of this title.
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Product Details

  • Paperback: 391 pages
  • Publisher: Wiley; 2007 or Later Printing edition (August 1, 2003)
  • Language: English
  • ISBN-10: 0471445495
  • ISBN-13: 978-0471445494
  • Product Dimensions: 6 x 1.2 x 9 inches
  • Shipping Weight: 1.1 pounds (View shipping rates and policies)
  • Average Customer Review: 3.8 out of 5 stars  See all reviews (80 customer reviews)
  • Amazon Best Sellers Rank: #20,179 in Books (See Top 100 in Books)

More About the Author

George Soros was born in Budapest, Hungary on August 12, 1930. He survived the occupation of Budapest and left communist Hungary in 1947 for England, where he graduated from the London School of Economics. While a student at LSE, Mr. Soros became familiar with the work of the philosopher Karl Popper, who had a profound influence on his thinking and later on his professional and philanthropic activities. The financier. In 1956 Mr. Soros moved to the United States, where he began to accumulate a large fortune through an international investment fund he founded and managed. Today he is Chairman of Soros Fund Management LLC.

Customer Reviews

Most Helpful Customer Reviews

60 of 61 people found the following review helpful By Christopher Hefele on February 20, 2003
Format: Paperback
Soros is unquestionably one of the finest investors of our time, and the concept of "reflexivity" that he introduces in this book does have some merit. However, I found his wordy tome is a slightly burdensome read. Most of his most valuable points are in the first 80 pages; the remaining 300 could have been trimmed down by a wise editor.
Soros' main points revolve around a concept that he dubs "reflexivity." Reflexivity claims a few things: First, that prices aren't objective; they're based on people's biased perceptions of the fundamental factors influencing the market. Second, people make trades based on their biased perceptions, so perceptions will influence the market. Third, and most importantly, those market movements can in turn change the market's underlying fundamentals. There is, therefore, a continuous co-evolution of the market fundamentals, the market's price movements, and market participants' perceptions.
Let's run through an example to make this clear. Say a profitless Internet company's stock soars because investors have overblown expectations of earnings growth. That company could then use its inflated stock in a stock-swap to aquire another company that DOES has earnings. This aquisition would thus "justify" the stock's inflated stock value. Thus, mistaken perceptions have allowed a change in the structure of an industry (i.e. two companies merged which would not have earlier).
Soros makes a number of other valuable points about "reflexivity." He notes that traditional economics try to sidestep the issue of subjectivity and biased perceptions by assuming people behave rationally, which of course isn't always true. To demonstrate this, he points out that we see reflexive behavior all over the markets.
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73 of 79 people found the following review helpful By C. Kurdas on February 17, 2004
Format: Paperback
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.
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83 of 99 people found the following review helpful By A Customer on June 24, 2004
Format: Paperback
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.
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28 of 31 people found the following review helpful By A Customer on March 2, 2003
Format: Paperback
Soros is the greatest publicly known investor of our times. His Quantum Fund numbers attest to that. In this book, he makes a Herculian effort to explain how he did it, including a real-time diary, which is as informative in revealing how often he is wrong-headed (and so exits) as it reveals how he piles on more leverage on a winning position. He also tries to honestly write about how some decisions are simply intuitive, and not the result of reasoned analysis. Though most investors will not be involved in macro-investing, where Soros simultaneously considers equity prices, forex, commodities, politics and economics, and using 5 to 1 leverage invests accordingly in stocks, bonds, currencies, both long and short --- still this is a must-read for anyone considering a carreer as a money manager. If you wanted to be an artist, you would read the biography of da Vinci, a master of art. Soros is a master of finance. The way the Beatles inspired a generation of musicians, so Soros inspired a generation of hedge fund managers.
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