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The Alchemy of Finance: Reading the Mind of the Market Hardcover – May 17, 1994

ISBN-13: 978-0471043133 ISBN-10: 0471043133 Edition: 2nd

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Product Details

  • Hardcover: 367 pages
  • Publisher: Wiley; 2 edition (May 17, 1994)
  • Language: English
  • ISBN-10: 0471043133
  • ISBN-13: 978-0471043133
  • Product Dimensions: 9.4 x 6.3 x 1.2 inches
  • Shipping Weight: 1.7 pounds (View shipping rates and policies)
  • Average Customer Review: 4.2 out of 5 stars  See all reviews (5 customer reviews)
  • Amazon Best Sellers Rank: #899,738 in Books (See Top 100 in Books)

Editorial Reviews

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

Customer Reviews

4.2 out of 5 stars
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Most Helpful Customer Reviews

3 of 3 people found the following review helpful By M BRINSLEY on January 22, 2012
Format: Hardcover
People get frustrated with this book because they secretly expect a book on how to make billions. Then they complain because the reading is tough. You will see Soros exploit global capital flows, currencies, interest rates and the stock market to amass billions and a near-impossible trading record. You see a powerful mind tease out the complexities of finance, understand how he saw what others missed and receive huge insight into the most complex financial issues of the modern age. Maybe, in the process, you will get ahead curve yourself. I learned an enormous amount. The book does not give itself easily, but I found it enormously rewarding and recommend it highly.
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2 of 3 people found the following review helpful By David Merkel on February 12, 2011
Format: Hardcover
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.
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Format: Hardcover
In the chapter titled "Theory of Reflexivity." Mr. Soros begins the book by stating that market participants continuously adjust and prices fluctuate, making equilibrium unreachable. Economic theory uses assumptions and distortions to represent equilibrium as reality through logical manipulation. Perfect competition held back by the influence of future prices on participants, and the attraction of rising prices to buyers.

The difference between a participant and a natural scientist is that the scientist attempts to not interfere while participants try to mold situations to their own satisfaction. The deductive nomological model does not apply to situations with thinking participants.

There is a shoelace connection between perceptions and facts. The cognitive function continuously affects the participating function and vice versa.

Stock market valuations influence values through repurchase of shares and options, mergers, acquisitions, going public, private etc...

Two points made in the beginning chapters are that:

1) Markets are biased in one direction or another.
2) Markets influence events that they anticipate.
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Format: Hardcover
There is something disreputable about speculation, with George Soros having the name of the speculator par excellence. Unfortunately for the book he really did help push sterling out of the ERM creating a lot of excitement and adding to a fortune of billions of dollars in the process.

Political / financial thrillers are made of this kind of material so one would suppose that the people who bought the book did so to relive the action or maybe (hopefully) to learn the art for themselves. They'll all be disappointed since Soros comes across as a politico/economic theorist with The Alchemy of Finance reading more like a set of (interesting) academic articles.

He highlights an aspect of economic or rather historical events that doesn't appear in economics textbooks giving it the awkward name of "reflexivity". His view is that the standard classical text (from Adam Smith) only paints part of the picture of economic change, namely that part of change that takes place in an orderly stable environment.

In the standard terminology things tend to move towards an equilibrium as consumers and producers adjust to present market conditions with a closer approximation to equilibrium being the efficient "good thing". Soros's insight (rediscovery) is that a real approach to the ideal of equilibrium implies a stagnation and freezing of change in society. His healthy norm therefore becomes a world of permanent disequilibrium as prices and production never stabilise, being constantly overtaken by changing tastes and technology.

"Reflexivity" is more a case of instability taking on a life of its own that may or may not be positive. The essential element is that a feedback process is set in motion that is the exact opposite of an equilibrium seeking system.
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