What can we learn from George Soros?

Hey there

I’m Tanyo, and I wrote today’s edition of WOLF’s newsletter.

It’s going to be a good one, I promise.

Stories of the Weeks

1. Sam Bankman-Fried was found guilty.

2. South Korea will ban short-selling in 2024.

3. Warren Buffett’s cash pile is bigger than Disney’s valuation.

4. Chamath is launching a paid newsletter and is getting memed into oblivion.

5. Fantastic interview with Charlie Munger

Five Lessons From George Soros

George Soros is one of the most successful (and controversial) investors of all time.

Bring his name into any conversation, and you’ll hear some wild stuff, but we are not here for that today.

We are here today to explore five lessons we can learn from the guy whose fund has averaged 20% annual returns from 1970 to 2010.

Here there are:

When you see an opportunity, go big

George Soros made his initial wealth shorting the British Pound in the 1990s. His fund (the Quantum Fund) saw that the pound was overvalued compared to the German mark, so he put an aggressive short against the currency.

Soros was right, and he made over $1 billion from that trade alone. Since then, he has become hated in the UK and is known as the man who broke the Bank of England.

Quite the reputation.

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Now back to the lessons!

Understand What Drives Markets

George Soros has its own theory on markets - reflexivity.

In traditional economics, people think markets price products and services effectively based on their fundamental value.

Soros’ reflexivity theory flips that on its head.

He understands that traders’ and investors’ biases and perceptions influence the market.

Ex: If tomorrow, everyone started thinking that the iPhone as a product sucks, Apple’s stock would tank.

Limit Your Downside

While traders get rich by taking risks, the great ones like Soros are experts in risk mitigation.

Remember, George Soros is a short-term currency speculator, so he makes his money taking huge amounts of risks.

He puts short calls on different currencies, profiting if they lose their value.

Soros takes these positions oftentimes using a lot of leverage.

It’s essential for him to use only capital he can afford to lose so he doesn’t get margin-called.

Volatility is Your Friend

Investors hate volatility.

It destroys the value of their investments and makes them panic.

But traders love volatility.

That’s how they make their money.

George Soros is known for taking advantage and even causing market volatility.

His bet against the British pound created a lot of market chaos, which was his opportunity to profit.

In Trading, Timing is Everything

Let’s be real - some traders are just degenerate gamblers.

But others are tactical and strategic, waiting for the right time to place a bet.

George Soros is from the second kind.

His wealth comes from seeing market opportunities where he can place large bets that pay off handsomely.

So, if one of the most successful traders of all time can be patient and wait for his opportunities, so can we as investors and traders.

Love him or hate him, George Soros is one of the people worth studying if you’re in the trading/investment world.

His theory of reflexivity is one of the best explanations of crazy market behavior I have ever seen.

Such a powerful insight.

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