This book is comprised of a series of edited interviews with George Soros, and is broken up into 3 parts. The first part is about his investing. He talks about his family history, investment philosophies and theories, his early times as an analyst on Wall Street, and the Quantum Fund. He talk about how his theories were related to some of his real trades, specifically the Japanese stock market, the Mexican market, and the British Pound.
The second section deals with his views on (and participation in) politics. He talks about philanthropy, the geopolitics of Europe, diplomacy, and open societies. The third section of the book deals with philosophy and talks about some of his personal writings.
This book was fun for me to read since it was about hedge funds back when hedge funds were pure – before they were contaminated by Wall Street. Since this book is about Soros the person, and not Soros the investor, a significant portion of the book is devoted to politics and philosophy, and not investing. Although these topics are not out of place, most people will be less interested in this stuff since they are more interested in his investments.
Since Soros talks about his theories (specifically his theory of reflexivity), this book could be considered a more philosophical version of Alchemy of Finance. Hence, this book will appeal to traders/investors looking to ponder their personal investing philosophies. Although Soros tries too hard at times to make every statement sound profound, the timeless philosophical topics he brings up lends the book substantial (as well as lasting) value. This is due to the fact that a majority of traders will always lose money. When novice traders are unable to achieve success, it is best for them to step back and ask fundamental questions, like “why do I trade?”. But most don’t do this, and this book can help with that.
Consequently, the most important lesson that can be extracted from Soros’s market philosophies is that it is important to HAVE market philosophies. When I wrote my “How to Become a Trader” checklist, I said that one of the first things you should do is to write down your philosophies about the markets. This catches some prospective traders off guard since it is something that they’ve never thought about.
Cartoon inspired by this article written by Peter Tasker in the Financial Times
“The inconvenient truth is that gold is not really an investment at all. Since it generates no return and thus has no fundamental value, the same arguments can be used to justify any price – $500 an ounce or $5,000. Gold buyers are simply trusting in the bigger fool theory – that someone else will take it off their hands at a higher price. They are speculating, not investing, and like all speculators what they are speculating on is the speculations of other speculators. Packaging it in an exchange-traded fund makes no difference.“
A great reminder from technical analyst John Murphy:
“The statement ‘market action discounts everything’ forms what is probably the cornerstone of technical analysis. […] The technician believes that anything that can possibly affect the price–fundamentally, politically, psychologically, or otherwise–is actually reflected in the price of that market.”
Alfred Cowles adds:
“This evidence of structure in stock prices suggests alluring possibilities in the way of forecasting. In fact, many professional speculators, including in particular exponents of the so-called Dow Theory widely publicized by popular financial journals, have adopted systems based in the main on the principle that it is advantageous to swim with the tide.”
William Dunnigan adds:
“We think that forecasting should be thought of in the light of measuring the direction of todays trend and then turning to the Law of Inertia (momentum) for assurance that probabilities favor the continuation of that trend for an unknown period of time into the future. This is trend following, and it does not require us to don the garment of the mystic and look into the crystal balls of the future.”
Richard Donchian adds:
“When I first got into commodities, no one was interested in a diversified approach. There were cocoa men, cotton men, grain men they were worlds apart. I was almost the first one who decided to look at all commodities together. Nobody before had looked at the whole picture and had taken a diversified position with the idea of cutting losses short and going with a trend.” (more…)
There’s a lot of talk around the markets and in Washington about China’s currency policy. What many want to know is whether the US Treasury will name China as a currency manipulator. Perhaps a more important question is, should China be named as a currency manipulator? And if it were named as such, what actions could the US take? In recent days the Chinese and the US administration have taken shots in the press at each other. The US is hinting that China is manipulating its currency to boost its economy. The Chinese is firing back saying that the US “should not politicize the remnimbi exchange rate issue.”
First, some background on the problem. Basic economics says that if you keep the currency of your country at a weak (but not so weak as to cause a collapse in it) level you help boost exports. The currency becomes weaker making your goods cheaper for foreign consumption. In a freely floating exchange system, the market determines the equilibrium value. Speculators look at economic statistics like GDP growth, interest rates, inflation etc. to figure out what a currency should be worth and then place bets accordingly. If speculators think that an economy can grow strongly while keeping inflation at a benign rate, they will bid up the currency of that economy. As that happens, the country whose currency is getting stronger could see a decrease in exports. This is caused by the larger amount of currency the importer uses to make the same purchase as previously made. (more…)
If you never trade, can you be a successful speculator?
If you cost average, and are disciplined, are you a successful speculator?
If you compound at 50% per year for 10 years, and then lose everything in an afternoon, are you a successful speculator?
If you lose everything in an afternoon, and then learn from your mistake, and then compound at 50% for the next 10 years, are you a successful speculator?
If you compound at 6% per year for 10 years, and never have a meaningful drawdown, are you a successful speculator?
If the risk free rate is 6%, and you are making 12%, are you a more successful speculator then if the risk-free rate is 0% and you are making 6%?
If you think you are a successful speculator, can you really be a successful speculator?
If you think you are not a successful speculator, can you be a successful speculator?
Who are the most successful speculators of the past 100 years? Who are the least successful speculators of the past 100 years?
Sometimes it seems like the investment community operates on the assumption that the world started in 1929 – or at least that the financial booms, busts and speculators preceding the 1920s are irrelevant to the modern investor. We think this is misguided. Just consider that this common worldview ignores an age where speculators lived in sprawling mansions on Fifth Avenue (as opposed to apartments in the same place measuring about 1/100th the size)! We imagine that there’s a lot to learn from looking at the past 300 years as opposed to the past 80. With this in mind; here we present what we believe to be the best trades of all time.
Speculation, in all its forms, is what drives human progress. This is the core message behind Michael Bigger’s recent post, “The Desire to Speculate”.
An excerpt from Michael’s essay:
“It is said that the desire to speculate is very strong in the American people. That is why our country has made greater progress than any other country in the world, because progress is the result of speculation. We are not referring merely to stock speculations, but to the word in its broadest sense. Every new undertaking is a speculation.
An inventor speculates on what he is going to invent. Often such speculations result in losses, because many inventors, or would-be-inventors, never accomplish very much. They spend their money, time, and efforts, and probably live years in poverty, and then if the invention is not profitable, they are heavy losers.
It is the same thing with every new business. It is purely a speculation…” (more…)
The capacity for rigorous thought; the flexibility and resilience to adapt to changing circumstances; the love of disciplined risk-taking; the hungry intellect: perhaps successful speculators already display those qualities in other life domains and then learn to apply them to markets.
