Any investor must improve and learn from the most prosperous. One such investor is George Soros, who made his capital through investing prowess and predicting market movements correctly. In this article, we will look at the main points of his philosophy and trading strategy that helped George Soros succeed.
Who is George Soros?
George Soros was born in 1930 in Hungary. At 17, he emigrated to the UK, having survived all the hardships of that time. The move allowed him to graduate from the London School of Economics and get a job as a stockbroker in New York.
George Soros is known for his hedge funds, the first of which, Double Eagle, he founded in 1969. Soros Fund Management, which he founded in 1973, became the most successful. George Soros is known for his bold investment decisions that have contributed to the success of hedge funds.
Although Soros correctly predicted the global stock market crash in 1987, not all of his predictions came true. So, he was wrong that Japanese stocks would suffer the most. But in 1992, George Soros earned more than $1 billion in the Forex market in one day thanks to the correct trading strategy. And all because he correctly interpreted the UK’s decision to leave the European Exchange Rate Mechanism.
Soros has been linked to various speculative attacks, such as the attack on the Thai baht in 1997. It was also linked to the Asian financial crisis in 1998 and contributed to the fall of the ringgit.
Since then, he has no longer actively invested but switched to charity and political activities, opening the Open Society Foundations. Soros gave the organization $32 billion to promote democracy and human rights worldwide, but not everyone believes in his motives.
Soros believed that the UK would have to exit the European Exchange Rate Mechanism (ERM) because of high-interest rates causing a lot of economic losses. He thought that when the UK did this, the pound would fall because now its value is artificially high.
How does George Soros get his capital?
George Soros made his fortune by combining investment, speculation, and Forex trading. The experience in the Forex market helped him speculate in the foreign exchange markets and eventually amass a fortune. As we have already said, he correctly predicted the exit of the UK from the European Exchange Rate Mechanism in 1992; therefore, Soros sold the British pound in the Forex market, earning $1 billion in a day.
How did George Soros «break» the Bank of England?
On September 16, 1992, George Soros sold $10 billion worth of pounds short, making history as the man who broke the Bank of England. He bet that the pound would depreciate, borrowed money in British currency, and converted it into German currency. When his prediction came true, the bet paid off as a whole — George Soros earned $1 billion.
This incident forced the Bank of England to raise interest rates to stem the fall in the value of the pound. However, this only deepened the recession. Soros’ decision to buy pounds further reduced its value. It collapsed against other currencies as the Bank of England abandoned the fixed exchange rate. It has paid off.
What is the net worth of George Soros?
George Soros’s net worth is estimated at $8.6 billion as of January 2023. His primary source of income is hedge funds and successful investing. He is not afraid to participate in speculative investments and risk large amounts of money. It is what allowed him to increase his capital.
What is George Soros’s trading strategy?
Soros believes that the market is always wrong, so he looks for large imbalances in the market and trades on them. Among the outstanding trading strategies of George Soros, you can see the Global macro strategy and Active money management. Let’s see what their value is.
Global macro strategy
The global macro strategy includes a lot of one-sided bets on stocks, commodity prices, and currency movements. George Soros uses this trading strategy in his hedge funds, assuming that the value of an investment will either rise or fall.
Не allows the movements of financial markets and key participants to determine his trades. In essence, the philosophy of this trading strategy is reflexivity, by which assets are valued based on the available feedback from the market.
Active money management
It is a method of tracking the performance of an investment portfolio and making decisions to buy, hold or sell a special asset. The plan is to beat a particular benchmark while meeting risk management goals.
George Soros bases his moves in the market on scientific methods. He keeps track of what will happen in the market depending on the current market data. He also tests the theory by investing a little before investing a significant amount if there are positive results.
George Soros’ tips for beginners
George Soros has proven the effectiveness of his trading strategies. You may find his helpful advice if you have just started trading in the Forex market.
Find out what works for you
George Soros is a speculator who prefers to use huge bets for big profits instead of the usual long-term investment rules and diversification. But don’t repeat his trading style; find your strengths and use them to your advantage. It’s essential to understand what works for you.
Watch for economic mistakes and use them
George Soros states: «Markets are constantly in a state of uncertainty and flux, and money is made by discounting the obvious and betting on the unexpected».
That is, he suggests looking for economic mistakes and betting against them. Soros masterfully uses economic mistakes, which is why he broke the Bank of England. It once again confirms that there are a lot of opportunities around; you need to see them!
You can learn more about this George Soros trading strategy from his book «Soros on Soros: Staying Ahead of the Curve», which can be purchased online and downloaded in PDF.
Don’t be afraid of taking risks
Caution is not always the right way to invest. George Soros also proves this when he takes risks and reaps significant rewards. Don’t be afraid to plunge into a trade because the rewards can be worth it.
Of course, you must think about the risk and not make rash decisions. There is a significant difference between strategy and unjustified risk. Assess your strengths when you see an opportunity, but don’t be afraid to take it.
Think for yourself
Conforming with the majority is not always the right strategy in investing and trading. George Soros has shown that sometimes the most rewarding investments are the ones that go against the majority opinion. When investing, thinking independently and making decisions based on your own analysis and research is essential.
George Soros compares making an investment decision to formulating a scientific hypothesis that needs to be tested in practice. That is, all your independent ideas need to be tested to see if they take root in the real world.
Be ready to act quickly
George Soros does not like to procrastinate and is always quick to make decisions as investment opportunities come and go instantly. It’s a controversial but effective strategy.
Soros’ reflexivity philosophy might prepare you to move quickly in the market. It argues that there is a feedback loop between the real world and investor perceptions. Knowing this will help you prepare to take advantage of opportunities as they arise.
Note! The reflexivity philosophy is described in detail in «The Soros Lectures: At the Central European University».
The bottom line
George Soros is a prime example of an investor who got his capital through independent thinking and the ability to take risks. Many of the tips George Soros gives beginners can form the basis of your trading strategy. It is also essential to be aware of the risks and be able to act quickly when the opportunity arises.