Loading the player...

Markets are constantly in a state of uncertainty and flux, and money is made by discounting the obvious and betting on the unexpected.” – George Soros.

To George Soros, the words listed above are no hyperbole. Drilling down and gathering critical investment information, and investing when others are divesting, is the calling card of George Soros, one of the most famous financiers of the past half-century. That said, don’t judge Soros on his investment acumen alone. He’s also proven to be a major power broker on the global political scene as well as a benevolent philanthropist.

To understand the “Soros Way” of investing, it helps first to know Soros the man, Soros the political force, and Soros the champion of the global lower class.

Who is George Soros?
There is no template for an investment legend like Soros, but you can start with the financier’s background as a child in Budapest, Hungary, where he was born on August 12, 1930. As a pre-teenager, Soros witnessed the atrocities of the Nazi regime, and survived to flee Eastern Europe in 1947, making his way to England to study at the London School of Economics. It was in London, after reading Karl Popper’s tome, "The Open Society and Its Enemies," where Soros first combined the concepts of science and politics. Soros never abandoned that concept, and relied on it again and again as he championed individual rights over the collective.

Soros applied science and free markets to his investment principles, starting with his first post-graduate job at F.M. Mayer, a New York City money management firm. Within 20 years, Soros had opened his first Wall Street enterprise, Soros Fund, which later was renamed to the Quantum Fund, where he was able to test his free market principles in the capital markets.

Soros turned an original seed funding of $12 million into $20 billion by the first decade of the 21st century. If you had invested $1,000 in Soros’ Quantum Fund in 1969, you would have earned $4 million by 2000 – at an annual growth rate of 30%.

The “Soros Way”
Along the way, Soros founded the Open Society Foundations in 1984, a philanthropic organization that “builds vibrant and tolerant societies whose governments are accountable and open to the participation of all people,” according to the foundation’s website. With the OSF, Soros sought to “strengthen the rule of law; respect for human rights, minorities, and a diversity of opinions; democratically elected governments; and a civil society that helps keep government power in check.” George Soros has donated $8.5 billion to charity as of March 31, 2013 through his institution. (Soros' generosity still doesn't match up to two other powerful billionaire philanthropists - Bill Gates [$28 billion charitable giving] and Warren Buffet [$17.5 billion].)

Soros shaped his individual liberty and free market concepts after a decade of testing his investment principles in the global financial markets. That blend of free markets, human rights, and scientific inquiry found its way into Soros’ investment strategy – a strategy erected on the scientific method Soros studied at the London School of Economics, merged with his passion for social change.

Here are five key points on how George Soros invests his money:

  • The “reflexivity” theory – Soros uses reflexivity as the cornerstone of his investment strategy. It’s a unique method that values assets by relying on market feedback to gauge how the rest of the market is valuing assets. Soros uses reflexivity to predict market bubbles and other market opportunities.
  • Applying the scientific method – Soros also bases his market moves on the scientific method – creating a strategy that tracks what will transpire in the financial markets, based on current market data. Invariably, Soros will test his theory with a smaller investment first, then broadens his investment if the theory proves positive.
  • Physical cues – Soros also listens to his body when making investment decisions. A headache or a backache has proven enough for him to abandon an investment.
  • Blending political acumen with investment acumen - On September 16, 1992, Soros famously bet heavily against the U.K. government’s decision to hike interest rates. That would set off a trigger effect, devaluing the British pound and sending stocks higher after that devaluation. That move earned Soros $1 billion, along with the famous moniker as “The Man Who Broke the Bank of England.” Effectively, Soros went short a position in the British Pound (worth $10 billion) and earned $1 billion as the British currency slid amid political and economic turmoil linked to a policy of higher interest rates.
  • Consolidate . . . and reflect – Soros uses a handful of advisors to make big investment decisions. Once he confers with his team of analysts, making sure to review at least one contrary view to his strategy, Soros says he takes time “to read and reflect” before pulling the trigger.

Can Investors Learn the “Soros Way”?
Can regular folks invest like George Soros? It takes moxie and it takes confidence, two attributes that Soros has in abundance. Once he makes up his mind, Soros often goes “all in” on a position, holding the view that no investment position is too large - as long as it’s the correct position.

Perhaps the biggest takeaway from the Soros method is that you can’t be too bold once your mind is made up on a market move. One of Soros’s favorite maxims is “to be in the game, you have to endure the pain.” For regular investors, that means picking the right broker/advisor – and sticking with that broker/advisor – taking a “trial and error” approach to one’s portfolio decisions, and keeping emotion out of one’s investment picks.

It's also imperative to understand that, even for the greatest investors, not all investments will prove profitable. Soros has had both his good picks and his bad investments:

Best Investment:
In 1992, George Soros wagered $10 billion against the currency policy of the Bank of England, and its underlying currency, the pound. Essentially, Soros' bet the pound would flounder in global currency markets. On September 16, 1992 - a day known as "Black Wednesday" among currency traders - the British pound cratered against the German mark and the U.S. dollar, earning Soros $1.2 billion in profits over the next few weeks - a bet that went down in history as the day George Soros broke the Bank of England.

Worst Investment:
On March 14, 2008, George Soros purchased a huge chunk of Bear Stearns' stock, valued at $54 per share. Only days later, the fabled Wall Street investment firm was sold to J.P. Morgan at $2 per share. Soros was correct in his assessment that Bear Stearns was on the trading block. But he was dead wrong on the takeover value of the company, an expensive lesson he details in his book, “The New Paradigm for Financial Markets.”

The Bottom Line
It's not easy emulating the portfolio results of George Soros, but you can learn a great deal from the patience, discipline and research Soros demonstrates with his investment strategy. Researching investment ideas by taking into account both the economic and the political realities, sticking with your convictions and getting out when your gut tells you to are some of the ways Soros wins.

Related Articles
  1. Investing Basics

    Muriel Siebert: Female Finance Pioneer

    Muriel Siebert has blazed many paths for investors, but is especially relevant as the first woman to sit on the NYSE.
  2. Investing Basics

    Turnaround Titan: How Carl Icahn Does It

    Carl Icahn's investment strategy, explained to regular investors.
  3. Active Trading

    Warren Buffett: How He Does It

    We look at the Sage of Omaha's methodology for evaluating value stocks.
  4. Forex Education

    George Soros: The Philosophy Of An Elite Investor

    George Soros spent decades as one of the world's elite investors, and even he didn't always come out on top. But when he did, it was spectacular.
  5. Entrepreneurship

    The 10 Greatest Entrepreneurs

    These 10 entrepreneurs' names will live on long into the future - perhaps even after their enterprises are gone.
  6. Investing

    George Soros: 3 Best Investments Ever

    Learn about some of the most successful trades famed investor George Soros has made during his career, including a billion dollar profit against the pound.
  7. Economics

    How Warren Buffett Made Berkshire A Winner

    Berkshire Fine Spinning Associated and Hathaway Manufacturing Company merged in 1955 to form Berkshire Hathaway.
  8. Investing News

    Building a Case for the Bulls: 3 Opinions

    These three big names are bullish on the economy. Are there good times ahead?
  9. Fundamental Analysis

    Gloom and Doom for Global Markets in 2016?

    Learn about the volatility in global markets during the beginning of 2016. See why famous investors are saying some economies could see recessions.
  10. Mutual Funds & ETFs

    Mutual Fund Fact Sheets: What You Need to Know

    Novice or experienced investors should read mutual fund sheets. Fees and explanations will be discussed providing valuable information to the investor.
  1. What are the biggest risks associated with covered interest arbitrage?

    Covered interest arbitrage is when an investor buys into foreign currency that has an interest rate that will yield the investor ... Read Full Answer >>
  2. Why are the tangible assets of a company important to investors?

    A financial forecast is an estimation or projection of likely future income or revenue and expenses, while a financial plan ... Read Full Answer >>
  3. How does price elasticity affect my stock purchase decisions?

    The person who handles a corporation's short-term investments varies depending on the size of the company, the corporate ... Read Full Answer >>
  4. Which financial instruments have par values?

    Short-term investments can include a number of possible investment vehicles. Marketable equity securities are just one of ... Read Full Answer >>
  5. What are some examples of fiduciary duty?

    Under the U.S. legal system, a fiduciary duty is the legal term describing the relationship between two parties that obligates ... Read Full Answer >>
  6. What impact does inflation have on the time value of money?

    The impact that inflation has on the time value of money is that inflation decreases the value of a dollar over time. The ... Read Full Answer >>
Hot Definitions
  1. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  2. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  3. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  4. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  5. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
Trading Center