George Soros (Trades, Portfolio) needs no introduction. This man is complex, however. Even though I have read all of the books Soros has written himself, I was surprised to still learn quite a lot about this fascinating man in Michael T. Kaufman’s biography.
If you have read any of the books Soros wrote himself, you will be aware that Soros, who is Jewish, survived Nazi-occupied Hungary in World War II thanks to the actions of his father and then went to study economics and philosophy at the London School of Economics after the war. Kaufman goes into great detail about Soros’ upbringing.
As soon as Soros’s father realized the situation, he declared to his family:
“All the normal rules are suspended. This is an emergency. If we remain law-abiding citizens and continue our current existence, we are going to perish.”
This of course was a correct call and almost certainly saved the family. Experiencing this extreme situation no doubt was a good preparation for a later career in leveraged trading, as
Stanley Druckenmiller (Trades, Portfolio) later pointed out. Various details of this wartime period are interesting just from a pure historical point of view. It is fair to say the difficult environment toughened up a young Soros given the risks he and his family were taking living under false identities. Later on, we learn from one of Soros’ sons that the guru was obsessed with the importance of survival.
Soros was indeed always a competitive person thanks to the rivalry with his older brother, and sports was an important part of this. Immediately after the war ended, a teenaged Soros was asked by his father to trade some jewelery and currency on the black market. We learn that this activity gave Soros an introduction to markets along with some street smarts.
After Soros moved to London, he found it difficult to fit in. He was, for all intents and purposes, a loner. This gave him time to read the works of Adam Smith, Hobbes, Ricardo, Bergson and Machiavelli, as well as Karl Popper, whose ideas on Open Society were very influential on Soros. As Time magazine noted:
“It was from Popper that Soros gained his personal philosophy of reflexivity. It boils down to the sensible if not entirely original idea that people always act on the basis of imperfect knowledge of understanding; that while they may seek the truth – in the financial markets, law or everyday life – they will never quite reach it, because the very act of looking distorts the picture. He says he has used this theory “to turn the disparate elements of my existence into a coherent whole.”
Soros moved to Wall Street and for a few years was effectively an analyst, broker and fund manager all at the same time. Regulatory changes meant this was unsustainable, Soros took a young Jim Rogers and some clients and spanned out the fund he was managing within the brokerage house. While others disliked Rogers due to a perceived arrogance in the young analyst, Soros appreciated his work ethic. Indeed, we learn from the book that Soros always looked to work with what he called “Doers.”
Rogers and Soros shunned Wall Street. Their New York office was not in Manhattan, and they came up with their own trade ideas, with Rogers reading mountains of trade journals for intel. Rogers apparently thought the Street was always wrong and that he and Soros were always right. Soros thought that both the Street and they were at any time fallible. Soros’ attitude was to invest first and investigate later as he sought to jump into trends early. Since Soros wanted to grow, he wanted Rogers to train new analysts, but Rogers apparently did not want to, which led to tension and eventually their split.
Although the details of Soros’ early career and the relationship with Rogers was interesting, apart from the famous sterling trade against the Bank of England, which is described in great detail, there is not much meat on other great trades Soros has executed. Although, to be fair, the section on how Soros reacted to the 1987 crash was insightful. His background in survival influenced his decision to take huge losses on the day of the crash, even getting out of positions at worse than market rates for the sole purpose of ensuring a proper derisking and survival to fight another day.
Human nature being what it is, prospect theory in behavioral psychology shows most people prefer to gamble with losses and collect winnings early. Doing this with the leverage Soros has going into the 1987 crash could have wiped out his firm. Instead, his focus was survival at any cost. That gave Soros Fund Management the dry powder to trade after the crash and recover losses to end the year higher. I am sure most people would assume Soros being such a guru would have made money in the crash, but it was not the case.
The world’s best fund manager and stateless statesman
Although Soros was known within the industry thanks to Institutional Investor calling him the world’s best fund manager and due to his book, “The Alchemy of Finance,” the geopolitical elites had constantly ignored Soros until the Bank of England trade and a London Times interview with Anatole Kaletsky helped propel his status in the geopolitical sphere, where Soros longed to be influential. Having long tried to keep a low profile as a fund manager, Soros decided to raise his profile in the media as he turned his attention increasingly to philanthropist activities and a role as a “stateless statesman.”
Soros was never a very good manager, but he recognized this and hired a fellow named Gary Gladstein to look after the operational side of Soros Fund Management, and it was Gladstein who described Soros’ skills as a fund manager and his ability to visualize the entire world’s money and credit flows:
“He has this macro vision of the entire world. He consumes all this information, digests it all, and from there he can come out with his opinion as to how this is all going to be sorted out. What the impact will be on the dollar or other currencies, the interest rate markets. He’ll look at charts, but most of the information he’s processing is verbal, not statistical.”
It was also mentioned in the book that Soros was excellent at compartmentalizing the different roles he was playing in his life. One wonders, though, if his activity in “activist philanthropy” was an important part of the “verbal” information he was processing on world affairs, given his hands-on approach in many of the emerging markets where he was active with his foundations.
Soros has been a global philanthropist, but much of his early efforts were spent opposing communism in Central and Eastern Europe. He funded dissidents and actually spent plenty of time with them, preferring their company to that of Wall Streeters and tycoon businessmen. Again, reading the book one really wonders if this access to on-the-ground geopolitical intel was an advantage to Soros on the investment side of things, but for the longest period he tried not to invest in countries where he had his foundations operating.
Soros the philanthropist was also a risk-taker. A man named Fred Cuny, whom he employed after a hugely successful project in war-torn Sarajevo, was then killed in war-torn Chechnya. Although it seems that Soros was not to blame here, it was an example of how Soros always pushed the envelope in his activities. This section was compelling reading, purely for its historical insight.
Overall, for those interested in Soros the investment guru, then “The Alchemy of Finance” or “Soros on Soros” are better reads, or just the two chapters on Soros in the excellent “More Money Than God.” However, for those interested in Soros the complex individual, who simply speaking has lived quite an amazing life, this book gives a lot more color and historical context and is an easy and fascinating read.
This post originally posted here The European Times News