George Soros is famously known as the man who “broke the Bank of England.” He earned this title in 1992, when he made more than a billion dollars shorting the pound sterling. As the manager of the Quantum Endowment Hedge Fund with more than $27 billion in assets under management, he is deemed a legend of trading and investment and there are many things we can learn from him.
George Soros had a net worth of $26 billion as of September 2015, making him the 21st wealthiest person in the world, according to Forbes. Interestingly, he earned the entirety of his fortune without any initial capital or fund.
When his book, “The Alchemy of Finance” was published in 1987, I was excited that I could finally see what the secrets of his trading were and the techniques he used. But finally, after reading this book, I was disappointed as there was not any secret disclosed or particular “holy grail” explained. After many years, I understood that at that moment I was just not ready for this book and the wisdom of it came to me later.
Just like all masters of their business do, Soros has his own philosophy and perspective regarding financial markets and investment. Below I cite some of his greatest quotes and the meaning behind each of these sayings.
- Markets are Unpredictable – Seize Opportunities
“The financial markets generally are unpredictable. So that one has to have different scenarios… The idea that you can actually predict what’s going to happen contradicts my way of looking at the market.”
According to Soros, the markets tend to be biased and one can hardly predict when, where, and how prices will move. What is important here is to be prepared for every scenario that can take place and capitalise on the opportunities that may arise.
- Trade with a Proper Risk Reward Ratio
So how you can succeed in the markets in this case? Here is another quote from Mr. Soros:
“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right, and how much you lose when you’re wrong.”
What is important to emphasise here is that you can make money in trading even if you do not win the majority of your trades. How? Through proper risk management and risk reward. It’s really as simple as that. Employing a risk-reward ratio in your trading involves setting up your trades in such a way, so that you make for example twice the amount that you have risked (or even more); this system along with proper risk management will reward you over the course of time.
- Keep it Elegant and Simple
Interestingly, Soros is mainly known as a short-term speculator. In practice, this means taking highly leveraged trading positions on the direction of the underlying markets. And here is the philosophic background for it:
“The market is a mathematical hypothesis. The best solutions to it are the elegant and the simple.”
The moral of keeping things simple in life generally pays off, and investing is no exception to this. Soros has built his financial empire by abiding by this rule. Obviously, a simple, clear and effective trading strategy certainly outdoes a complex system that does not work.
- Markets Tend to Fluctuate – Study Them Well
At the same time, the nature of markets is not to be overlooked. This is Soros’ perspective on this:
“I put forward a pretty general theory that financial markets are intrinsically unstable. That we really have a false picture when we think about markets tending towards equilibrium.”
Soros advocates that markets do not tend towards equilibrium, on the contrary, they are subject to fluctuations and periodic crises. Equilibrium is merely a false assumption when looking at markets. This means that a good investor should have a good understanding of risk.
- Risk Properly
“Risk taking is painful. Either you are willing to bear the pain yourself or you try to pass it on to others. Anyone who is in a risk-taking business but cannot face the consequences is no good. There is nothing like danger to focus the mind, and I do need the excitement connected with taking risks to think clearly. It is an essential part of my thinking ability. Risk taking is, to me, an essential ingredient in thinking clearly.”
if you don’t enjoy taking risks, specifically financial risks, you can hardly survive as a trader. Risk helps focus the mind he says, in a similar way, I feel like I am keener and more aware of the market when I have money at risk. But there is a fine line between being focused and being over-involved and over-trading. Risk can make you stay focused, but you don’t want to spend all your time watching the charts.
Moreover, you must really love this ‘game’ to thrive at it. Some people are just not mentally cut out to take financial risks and be able to operate effectively in the market with their money on the line.
- Investment Requires Rational Thinking
“If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.”
To thrive in trading, you should be emotionally detached from it and simply base your decisions on sound judgement, consistency and discipline.
These are just some of Soros’ greatest quotes that point to his unique way of thinking and well-developed business mindset. I hope you got a great deal of inspiration and make good use of his ideas in your own trading.
More lessons from other trading greats coming soon. Stay tuned!