on March 5, 2003
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.
on August 8, 2003
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.
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.
on December 25, 1999
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!
on April 19, 2015
In this very interesting book, Blackstone's Vice Chairman Byron Wein interviews one of the world's most successful investors, George Soros, about his investing and global finance activities (Part 1), and on his open-society concepts (Part 3). Journalist Krisztina Koenen interviews him on his philanthropy (Part 2), which I found somewhat less interesting and outdated. A few of George Soros' memorable quotes on investing follow.
- "Own stocks when they have successfully passed a difficult test."
- "Survive first, then make money."
- "The reflexive reaction is occasional while the reflexive structure is permanent." (Reflexivity is Soros' term for feedback in the form of market participant's influence on events and economics.)
- "Speculators ought to keep their mouth shut and speculate."
- "When you are confused it is best to do nothing. Otherwise you are just going to go for a random walk."
- "Foreign investors acting as a herd always prove to be wrong."
- "As an investor I find statistical probability of limited value. What matters is what happens in a particular case."
- "Once you abandon the impossible requirement for perfection, you open the way to progress."
This book leaves the impression of a highly intelligent and educated man, well grounded in the classics, economics and philosophy, who also possesses a unique grasp of geopolitical dynamics. In fact, Soros' entire philosophy sounds to me like a subjective version of the science of system dynamics, as developed by MIT's Prof. Emeritus Jay W. Forrester, beginning in the 1950s, and now practiced worldwide. Although George Soros has become a controversial public figure in his later years, due to heavy involvement in both European and U.S. politics, there is no avoiding the value of reading his thoughts and ideas on finance and democracy. I rate this book four stars, with one deducted for the outdated material in Part 2.
on May 13, 2006
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.
on October 22, 2014
Soros on Soros: Staying Ahead of the Curve is one of three books every aspiring trader needs to read; the other two being Reminiscences of a Stock Operator and Market Wizards (the original). George Soros, nicknamed the Palindrome, because his last name is the same forward and backwards, is arguably one of the greatest traders of this generation.
While managing the Quantum Fund, Soros realized astronomical returns for decades (averaging over 30% a year).
Soros has authored numerous books on topics ranging from philosophy, government, globalization, and of course, trading. Soros on Soros is the second of his two written on trading. I refer to Soros on Soros as being The Alchemy of Finance-lite.
The Alchemy of Finance is Soros’ first book — which is an absolute treasure trove for those willing to slog through it — and yet has never received the praise, nor attention I believe it rightfully deserves. The reason being that while the Palindrome’s mind is genius, and his trading near divine, his prose is sorely lacking. As a result, his brilliance comes across slightly muddled and his ideas too abstruse for many to grasp.
Soros on Soros avoids this problem with its interview format, resulting in a more digestible read. It contains many of the major points introduced in The Alchemy of Finance, without as much detail or digression into abstract philosophical musings. The interviewer keeps Soros on point, keeping the discussion fluid.
The book is composed of three parts: “Investing and Global Finance”, “Geopolitics, Philanthropy, and Global Change”, and “Philosophy”. For those primarily interested in Soros’ thoughts regarding trading and economics, reading just the first section will suffice. However the other two sections do offer additional insight into how the Palindrome’s mind works — which I personally believe makes them well worth a read.
Soros is often accused as being the liberal counterweight to the conservative fundraisers, the Koch brothers. I personally do not have an opinion one way or another about Soros’ politics. I may not agree with all of his conclusions, but really, I’m more interested in the logical process he uses to arrive at them. It’s his radically unique philosophical framework that makes this book worth it’s weight in gold. The foundation of his philosophy, which Soros first introduced in The Alchemy of Finance, is what he terms “Reflexivity”.
The Theory of Reflexivity, which Soros applies to all areas of human input (i.e. politics, economics, finance etc), is so sound in logic that it amazes me that it’s largely been ignored. Instead, the “Efficient Market Hypothesis” still somehow stands as the idea du-jour. Yet the concept is so glaringly evident that when I encountered it for the first time in this book — I realized its truth was axiomatic.
Those of you familiar with the ideas of Karl Popper and Friedrich Hayek will likely notice the influence of their work on Soros’ philosophy — he admits to greatly admiring these two renowned thinkers. Here is the theory of Reflexivity, as told by Soros himself:
“The main idea is that our understanding of the world in which we live is inherently imperfect. The situations we need to understand in order to reach our decisions are actually affected by those decisions. There is an innate divergence between the expectations of the people taking part in events and the actual outcome of those events. Sometimes the divergence is so small that it can be disregarded, but at other times it is so large that it becomes an important factor in determining the course of events.“
Take some time and let that idea marinate. It really is a radical notion isn’t it? That we, as participants, affect the fundamentals or reality of the situation we are attempting to understand… through just the process of trying to understand it. It essentially leaves us shooting at a moving target.
Variables that we once believed were isolated are in fact tied to us in a two way causative feedback loop — where the observer affects the observed and the observed in return affects the observer.
Using the lens of Reflexivity, we can start to see and understand instances of this two way interaction constantly occurring in our reality. Generally the divergence is very small and imperceptible between our understanding and reality. But, occasionally the divergence grows quite large and the disequilibrium will noticeably correct itself. Soros refers to this as the “boom/bust process”. A good example of this is the housing bubble and subsequent crash of 2008.
In addition to discussing Reflexivity, Soros on Soros also provides an interesting look at the man himself and what sets him apart as a trader, which is what I assume the majority of readers are most interested in.
The following are some of my favorite insights from the book as well as some of my thoughts on what makes Soros so exceptional.
“My peculiarity is that I don’t have a particular style of investing or, more exactly, I try to change my style to fit the conditions .”
Many traders pick a school of thought, be it purely technical analysis, fundamental, macro, value, trend following etc… They pigeonhole themselves into a single trading process which makes them extremely inflexible and unable to adapt to a changing market environment. They become fragile, as Nassim Taleb would say.
Soros, like many greats in their respective fields, transcended any single investment style. He was able to do this because spent a great deal of time developing a deeper understanding of markets and how they work.
“I insist on formulating a thesis before I take a position. But it takes time to discover a rationale for a perceived trend in the market; and sometimes the market will reverse the trend just when I manage to formulate a theory justifying it. If it happens repeatedly, it can be devastating. I am good at riding the tide, but not the ripples of a swimming pool.”
Soros, admittedly, was not adept at trading trendless markets. It just wasn’t a part of his bag of tricks. He searched out trades that offered the potential for huge tectonic shifts in the markets and an accompanying trend he could bet big on.
I appreciate the way in which Soros approached trades, testing his “hypothesis” in the markets as a scientist would test a theory in his labs. I think this is a novel way to approach trading, in that it helps to retain perspective and objectiveness.
“The prevailing wisdom is that markets are always right. I take the opposite position. I assume that markets are always wrong. Even if my assumption is occasionally wrong, I use it as a working hypothesis”
Soros is of a very independent mind and it’s his willingness to make radically differing assumptions about how the markets work that is the single greatest reason for his success. He could be starkly contrarian at times, and he could jump right in and run with the herd when he saw it fit. The key is, that Soros remained extremely flexible and able to act at key inflection points in the markets ahead of others, because of his original thought process.
“I feel the pain. I rely a great deal on animal instincts. When I was actively running the Fund, I suffered from backache. I used the onset of acute pain as a signal that there was something wrong in my portfolio”
I personally use the signal of acute back pain as a sign that I’ve probably been sitting too long — not nearly as useful. Some may be inclined to believe that Soros is some kind of super-human trading god… and I admit… that quote is pretty ridiculous. But, I believe that it is just the natural result of a deeply ingrained and vast knowledge base. It’s the result of decades of intense experience, where internalized processes became instinctual and manifested themselves in the physical form of back ache.
When processes become internalized in our subconscious, our minds are able to continuously carry them out without any effort, or even any knowledge of doing so. This is why artists, scientists, or many top performers in their specific fields often come to realizations and inspirations while they sleep or when they focus on something entirely separate from their work.
“I entered this wild period with a store of knowledge that I could apply to practically any new opportunity that might surface. I remember looking at myself with awe, amazed at the speed with which I could react, the wealth of information I could draw on, and the analogies I could apply. I was on top of every situation, I was able to establish connections that were not readily visible to others”
Many people don’t realize this, but Soros didn’t begin managing the Quantum fund until he was in his early 40’s. The prior two decades he’d spent in various jobs as an arbitrage trader, a financial analyst, and in his own words, as a “failed philosopher”. By the time Soros entered the money management game he had already developed a wide breadth of understanding about markets and trading.
Soros’ internalized knowledge allowed him to operate on a superior conscious plane, where his own ability amazed even himself. I wouldn’t mind being a fly on the wall, watching the Palindrome operate in his prime — it must have been quite a sight.
“When you are a serious risk taker, you need to be disciplined. The discipline that I used was a profound sense of insecurity, which helped to alert me to problems before they got out of hand”
Combine an unmatched analytical mind and the instinct and cojones to go for the jugular, with a “profound sense of insecurity” and you have the makings of an elite trader. Those who know him say that Soros has the most detachment and least amount of regret over trades than anyone else in the game. He can pound the table with ironclad conviction one minute, and the next, completely liquidate that same position and not give it a second thought. This is largely attributable to a big component of his personal philosophy, which is the acceptance of his own fallibility.
Soros not only accepted the limits of his own knowledge, but wore his fallibility as a badge of honor and approached every trade with the absolute understanding that he could very well be wrong. That kind of mindset is invaluable to a speculator, not just in facilitating strong risk measures, but in opening the door for the trader to seek out absolute truth and to brutally and constantly test his own assumptions.
I could continue on and on about the invaluable information in Soros on Soros, but then this review would be as long as the book, and the ideas are much better coming from Soros himself.
This book is a great primer into understanding how the impressive mind of the Palindrome works. It should be followed up with Alchemy of Finance, which is required reading for any applicant looking to join Paul Tudor Jones’s firm.
It was after reading Alchemy of Finance, that a young trader by the name of Stanley Druckenmiller contacted Soros and asked for a job…
on May 12, 2014
When I was reading the book, I realized that Soros had written about many phenomena we'd face 10 years after the book was published. Needless to say I was thoroughly impressed.
If you take time to digest his ideas, you get to know a truly brilliant mind. Soros manages to challenge my worldviews by looking at social phenomena through the lens of complex, stochastic, reciprocal systems (although he never names them as such).
Cannot recommend this book enough for anyone who wants to broaden his world view, understand what is the background and ideas behind one of the financial masterminds of our time and get a different perspective on the social dynamics of our time.
The only downside of the book was that I felt he became overly speculative or philosophical at times, especially at the last essay, which went to explain the concepts of open, closed, organic societies and their modes of thinking. I'm not too big on philosophy texts though, so this may be just my own issue.
on December 31, 2014
This book is a series of lengthy interviews of George Soros with Byron Wien and Krisztina Koenen.
There is an extensive discussion about the following topics:
• Managing funds
• His views on derivatives and risk
• Investment methods and philosophies
• His personal psyche and how he manages it
• How he analyses the world
• Structure of his hedge fund
• Life experiences
• Theory of Reflexivity
• Discussion on various geopolitical and economic matters
Since this was published in the year 1995, the political views feel outdated. However, the point here is not to get his perspective on his latest news. Rather it is an invitation to dig into his mind-set and understand the basis of his open ended conclusions of the world. The year of publish may seem so ancient to some readers, but history plays an important role in shaping future events.
The candid nature of the interviews make it a refreshing read for those who like: Economics, history, investing/trading.
on January 23, 2010
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.