George Soros is well known as “The Man Who Broke the Bank of England.” He earned this title in 1992, when he (famously) made more than a billion dollars selling-short the pound sterling. He is the co-founder and manager of the Quantum Endowment Fund, an international hedge fund with more than $27 billion in assets under management. Soros survived as a young jew, living in Nazi-occupied Hungary in 1944. He then immigrated to England to attend the London School of Economics, and moved to the US in 1956 to work as a stock broker. Today, Soros is a passionate investor, philanthropist, and democratic idealist who could teach us a lot about investing and philosophy. Here are ten very insightful quotes from him:
1. “If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.” – As I discussed in this article, personal emotions have no place in investing. If you want to be successful in the long-run, base your investment decisions on rationality and discipline.
2. “I’m only rich because I know when I’m wrong…I basically have survived by recognizing my mistakes.” – Almost every successful investor that I’ve written about knows this. That is, you must recognize and admit your mistakes when you make them, cut your losses short, and move on to the next logical step.
3. “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.” – Successful traders abide by this philosophy by heart. Markets truly are random and no one knows where, when, and how prices will move. The key is to be ready for every scenario that can happen so that you can take advantage of the opportunities that lay ahead.
4. “Markets are constantly in a state of uncertainty and flux, and money is made by discounting the obvious and betting on the unexpected.” – Since markets are random, anything can happen, even the “unexpected.” The biggest opportunities lie in those unexpected events because most people are betting on the obvious, and in the market, most people are wrong.
5. “The worse a situation becomes, the less it takes to turn it around, and the bigger the upside.” – This is true in life as well as in investing. When you hit rock-bottom, every inch of improvement feels so much better and powerful. If you bought Goldman Sachs (GS) in the midst of the subprime crisis in 2009, you could’ve made more than thrice your money just a year after.
6. “Stock market bubbles don’t grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception.” – Stock market bubbles start with good corporate or economic fundamentals. Things just go out of hand when people’s misguided greed comes into play.
7. “I contend that financial markets never reflect the underlying reality accurately; they always distort it in some way or another and the distortions find expression in market prices.” – Just like Warren Buffett, Soros also looks at value over price. They both know that price is just noise made by human emotions in the markets. Value, on the other hand, is the intrinsic worth of an asset.
8. “Unfortunately, the more complex the system, the greater the room for error.” – Obviously, when it comes to investing, Soros like to KISS (keep it simple, silly). He built a financial empire by adhering to this basic principle, and so should you. A simple but effective investing system will always beat the crap out of a complex system that doesn’t work.
9. “Making an investment decision is like formulating a scientific hypothesis and submitting it to a practical test. The main difference is that the hypothesis that underlies an investment decision is intended to make money and not to establish a universally valid generalization.” – The simple goal of investing is to make money, not to be right all the time. As a trader, I abide by this mantra and it makes it easy for me to accept losses easily and to stick to my investing plan.
10. “We try to catch new trends early and in later stages we try to catch trend reversals. Therefore, we tend to stabilize rather than destabilize the market. We are not doing this as a public service. It is our style of making money.” – Again, like Warren Buffet, Soros enters markets based on valuations. He buys when prices are “low” and sells when they are “high,” thereby effectively catching trend reversals.
If you look at these quotes, you can see that Soros has very similar investment philosophies with Warren Buffet. I guess great minds really do think alike, so let’s adapt these principles into our own investing to get some kick-ass results.