These days, the World Economic Forum is taking place in the tranquil town of Davos. A man who is very well known in investor circles made the headlines. We are talking about George Soros. The stock market legend has, for example, sharply criticized the German ex-chancellor Angela Merkel. Also, in another context, Soros communicated that he fears the end of civilization.
“Since the last Davos meeting, the course of history has changed dramatically… issues that concern all of humanity – fighting pandemics and climate change, avoiding nuclear war, maintaining global institutions – have had to take a backseat to that struggle. That’s why I say our civilization may not survive.” –George Soros, May 24, 2022
In the fight against climate change, he said, society has fallen far behind. It is possible that climate change is already irreversible. But what other famous hedge fund manager outlines such gloomy things?
Soros, whose native name is György Schwartz, was born in Budapest, Hungary, in 1930. He and his family experienced the Nazi and Jewish persecutions firsthand and survived.
Soros fled Hungary for England in 1947 and attended the LSE (London School of Economics). He received his degree from the LSE in 1952. He then eventually emigrated to the U.S. in 1956, where he began as a trader on Wall Street.
Soros is a Very Special Investor
Later, he went into business for himself and, together with Jim Rogers, another very well-known investor, founded the Quantum Fund, which was subsequently able to achieve returns of around 30% per year.
Soros did not make his fortune by betting on undervalued companies and waiting for the market to recognize and reward the fair value of these companies, as Warren Buffett did, for example. Instead, Soros made his fortune with his nose for macroeconomic trends.
For example, in the 1970s he foresaw the liberalization of the financial system and bought bank stocks. When he met Maggie Thatcher, he got into British companies. He suspected she was serious about her plans to open up the economy. In the mid-1980s, Quantum became the first hedge fund to surpass the billion-dollar mark in fund volume.
Probably His Greatest Coup
Soros did not become world famous, however, until the early 1990s. At that time, Soros realized that the fixed exchange rate system in Europe was so strained that the British pound had to be devalued relative to the German mark.
Soros bet against the pound, earning an estimated $1.1 billion in a very short time. From then on, Soros was regarded as the man who toppled the Bank of England (the British central bank).
Further Successes of Soros
Later, Soros benefited from the Asian financial crisis in the 1990s and from the global financial crisis in 2008 and 2009, which had its origins in the bursting of the real estate bubble in the United States. In 2008, Soros was the highest-paid hedge fund manager, with an income of $1.1 billion.
He sees his theory of reflexivity, which he describes in his book “Alchemy of Finance” (1988), as the basis for his successes on the stock market. This theory describes the emergence of a discrepancy between perceived and actual reality and refers to Karl Popper, one of his former professors.
My personal conclusion: You don’t have to and can’t copy the stock market legends 1:1, but you can learn a lot about the stock market by observing investors who have celebrated success over decades in different market phases. Therefore, one should have an open ear when Buffett, Munger, Soros and Co. analyze companies or markets.