Book Review: Soros, The World's Most Influential Investor, by Robert Slater

Soros, The World's Most Influential Investor, by Robert Slater (McGraw Hill, 2009)

The subtitle to this book on George Soros, I believe, should be “What Makes George Run?” after the title to a novel originally published in 1942. Slater does a good job presenting his subject in an easy to read and interesting biography. Yet, the book seems incomplete because a question still remains as to why Soros does what he does. It is not so much that he is an investor and a very successful one. It is why he seems driven to be a philosopher, a philanthropist, and a political mover and shaker.

As one critic remarked about the subject of the novel just mentioned, he is running “always thinking satisfaction is just around the bend.” It is like Soros has never found a way to justify his existence and so must continually search for ways to prove himself worthy. Over and over he is described as an extremely self-confident man. Yet the things he does indicate a need for something more, something that will ultimately give him satisfaction, something that will give him peace.

Soros is successful. He generously shares his wealth. He wants to do good things and contribute to good government. He wants to be known as a thinker. These are all commendable things and we should certainly hold him in respect for them. It is just that as one reads of his life, as Slater presents it, one comes away feeling that he is not completely comfortable with who he is.

People talk about how both Barack and Michelle Obama seem comfortable with who they are. That is one reason, people contend, that they can project themselves so well to others. They are not trying to be someone they are not. I do not get the same feeling when I read this book about George Soros.

From everything that is public about him, it seems Soros has legitimately earned his fortune. He has worked hard, he has taken risks, and has guessed right more often and in larger amounts that he has guessed wrong. He has set up and led several organizations and has retained talented individuals who have remained loyal and supportive of him. And, he has sustained his position at or near the top of the performance ladder for many years. He remains very, very wealthy.

His secret? Slater tries to get at this, but the best answer he can come up with is that Soros has great intuition. Soros is quoted as saying, “In the final analysis, you must rely on your instincts for survival.” Work hard, read widely, study, study, study…and then…well…? We are told that investing “is a business that doesn’t necessarily lend itself to logical, rational thinking. It’s an intuitive process.”

Soros attempts to provide us with his insight into how markets work and how investors make money. In his major effort to comprehensively explain how he sees the world work, “The Alchemy of Finance”, he describes a world in which all views of the world are “flawed or distorted.” The ‘academic’ models that assume investors have complete information and act rationally with this information are best kept in the academy.

The price of an asset, he contends, is “a result of perceptions that (are) as much the outcome of emotions as of hard data.” Soros uses the term ‘reflexivity’ to describe the connection between these flawed perceptions and the course of events, a connection that, from time-to-time, produces a ‘self-reinforcing factor’ that interacts with ‘underlying trends’ to create wide swings in individual prices or in movements in whole markets. In other words, “Flawed perceptions cause markets ‘to feed on themselves.’”

The Soros effort to provide ‘intellectual’ support to how he views the world falls into the category of economic theories that blame “irrational” explanations for the movement of markets. A recent ‘academic’ presentation of this approach is the book by Robert Shiller and George Akerlof entitled Animal Spirits. Animal spirits, according to Shiller and Akerlof, are related to “noneconomic motives” that are major influences on people making economic decisions: motives like confidence, fairness, corruption and bad faith, money illusion, and stories. Because of these motives, they argue, financial markets will, from time to time, fall into chaos since animal spirits tend to drive the economy sometimes one way and sometimes another causing markets to fluctuate more excessively than if investors had complete information and acted rationally.

To perform well in these markets one must act intuitively and respond on the basis of instinct, attributes that Soros seems to have a plentiful supply of. However, intuition and instinct cannot be taught. They cannot be modeled. Soros, as a thinker and a writer, just does not possess the skills of a Shiller or Akerlof to present such a picture of the world coherently or cogently. And why should we expect this since we are told that Soros has never been more that an average scholar, even in college. Still he tries, for he wants to be a “philosopher.”

This, however, does not seem to satisfy the world famous investor and so he has branched out into ‘good works’ (his philanthropic efforts) and to changing how the world is governed (his efforts to promote liberal causes and open societies). People listen to him. Well, why shouldn’t they? He has lots and lots of money and he has been very willing to give it away to others. I’d listen to him too. It is a small price to pay.

Slater does a good job of relating the events in the life of George Soros: his upbringing in Hungary, his stay in London, his education at the London School of Economics (where he met and interacted with Karl Popper) and his move to New York. He follows Soros through the ups and downs of his investment career, spending a total of three chapters on his “greatest coup,” the “remarkable bet against the pound” in 1992, which “made him a world-famous investor.”

Read this book for the story of the man. Read this book as a history of the period. But, don’t read the book to learn how to invest like George Soros. And don’t read the book to see how all that George Soros has done has led to a contented life.

This book is available from McGraw-Hill Professional.

Comments

[Asitoughtobe:]

Right, wrong or indifferent;

People who put themselves out there in voice draw lots of attention. The American media has a history of vilifying anyone who's view if different from theirs, always drumming up one hatred or another. It seems to me this is a self made man who has a view, speaks it, lives it and whether you feel he it right, wrong or have indifference, has helped many people in need along his journey.

I might pick up the book to read!

May 16 10:46 AM

[ed233:]

The interesting thing about successful investors is that they are able to operate outside of the traditional envelope. They also seem to recognize instinctly the opposing interests of the media personalities who espose their traditional forms of investing in a time when those historical norms may best be kept in their dusty closets. Their is a growing self styled investor utilizing various platforms that sometimes run afoul of the traditional fundamentals. They work for a time but are doomed for failure because everybody cannot get through the same door at the same time. Sometimes it's better to carry a life jacket and jump over before the squabbles begin as to who gets to use the life rafts.

May 16 11:59 AM

[The Kansan:]

you cant seek alpha without the alphabet.


On May 16 11:59 AM ed233 wrote:

> The interesting thing about successful investors is that they are
> able to operate outside of the traditional envelope. They also seem
> to recognize instinctly the opposing interests of the media personalities
> who espose their traditional forms of investing in a time when those
> historical norms may best be kept in their dusty closets. Their is
> a growing self styled investor utilizing various platforms that sometimes
> run afoul of the traditional fundamentals. They work for a time but
> are doomed for failure because everybody cannot get through the same
> door at the same time. Sometimes it's better to carry a life jacket
> and jump over before the squabbles begin as to who gets to use the
> life rafts.

May 16 12:18 PM

[Andrew Butter:]

Nice balanced review

I think one of the most important thing that Soros has to say is that markets are frequently mis-priced.

May 16 12:38 PM

[Fighting Yoda:]

Soros has this 'Reflexivity Theory' - essentially saying markets feed on themselves - causing exaggerated moves and self fulfilling prophesies. Soros is a fine investor – made money every which way - never let a good crisis go waste.

May 16 03:39 PM

[Bevo:]

Evil incarnate---ask the Asian Tigers

May 16 06:01 PM

[ed233:]

I don't usually reply to commentator's views about which I'm not concerned. But what I'm concerned about when I make a comment is expressing my view for the sole purpose of giving others the benefit of my reasoning, good or bad. I only come to you in my writing out of a sincere sense of saying exactly what is on my mined without arrogance, bias, or hope for monetary gain. My purpose for writing is out of a concern that your money is important to you so that what I might say will encourage you think before you jump. So be assured I have no predilection. LOL Looking after your money.

May 16 07:09 PM

[Market Sniper:]

Very interesting and complex man, Mr. Soros. He is indeed correct that profitable investing is partly intuitive. His big bet (against the GBP) was based on a fundamental belief that a government could manipulate a currency for only so long. Eventually, the currency's clay feet would be exposed. He had his timing wrong twice in a row on that trade. Third time was a charm. Ring a bell?

May 16 09:54 PM

[Dan Perkins:]

John,
Very nice: You are definitely on to something here, but, tragically, I don't think most people will get it. I have a similar observation about Jimmy Rogers, Marc Faber and many others. I wonder what would possess them to repeatedly jump in front of a camera at un-Godly hours from all over the world and tell us how screwed up everything is - at this point in their lives?

There does not seem to be any connection whatsoever between success, money, talent, and the ability to exist peacefully. You would think it would be blatantly obvious to them as they possess the wealth of kings but are somehow tormented by their own minds, and projecting in on to the world - quite literally!.

And what of these wealthy tycoons that off themselves when the market crashes? Pure emptiness without their money - but then, how did they survive childhood?

For whatever reason, they simply cannot see the world as a metaphor for their own mental projections! Your mind does not define what you perceive "around you", nearly so much as what your mind see's around it, defines your mind!

The tycoon's belief that the world is unbearable without his vast wealth is due entirely to a faulty mind and completely devoid of any objective reality! There is absolutely nothing anywhere on the planet to validate a belief that he has staked his life on! If you believe you are nothing without your money, then that you shall be, but why does the austere monk live in total peace? They are simply thoughts, or habitual patterns of electrons!

If you believe the world is screwed up, then in your mind, it is! Goerge knows not what it is he so desperately seeks, nor do most people, but until they cease chasing, they never will.

May 16 09:56 PM

[Market Sniper:]

Dan, some really great points! Question is: if the world is really ("objective reality") as screwed up as you think ("subjective reality") it is , then what? LOL

May 16 10:45 PM

[Jasper M:]

'. . . intuition and instinct cannot be taught. They cannot be modeled. "

I must dispute that last part. The whole of the field of technical analysis is based around trying to model the aggregate intuition and instinct of the investing public.
Just because our 'higher functions can't dissect a phenomenon easily doesn't mean it can't be done at all.

May 17 12:08 AM

[waitaminit:]

Hard to understand why there is no news about Soros dumping GS shares. It's really gonna be GS news, rather than Soros news.

Tyler Durden, where are you?

May 17 12:23 AM

[Henrique Si...:]

I think George Soros`s trading philosophy is almost impossible to emulate.

But I like to follow his former partner (Jim Rogers) trading activity, in his blog.

Regards

May 17 10:22 AM

[User 372304:]

IMHO George Soros has a world view of the economy having lived his life in Europe, experiencing the great wars and communism. Intuition is gathered from life experience and actions follow accordingly. We are fortunate to have Mr. Soros as an outspoken American citizen who cares about humanity and the direction our country has taken over the past 30 years.

The same applies to Barack Obama. We desperately need leaders who have lived abroad to experience the world as it is from a real life perspective. GW Bush was just the opposite having no real life experience in the greater world as a child or student or as a young adult. The dismal results of his presidency were no surprise.

As for investing, we all need to find our own style that works for us. His message of "work hard, read widely, and study, study, study..." is right on. George Soros is a guiding light in a nation filled with misinformation, political arrogance and ignorance, and just plain corruption. The USA is so widely different than when I grew up some 60 years ago when as a student we had unlimited potential, it is hardly recognizable.

May 17 01:01 PM

[rosey99:]

Thanks for the piece, a quality and balanced review . I find Soros to be a fascinating, and complicated individual. Inspirational to some, anathema to others.

May 17 03:18 PM

[gtmcduffy@g...:]

bloggingstocker.blogsp.../

May 17 06:06 PM

[CaptainJJack:]

I think the Soros insight can be put pretty succinctly:

Either the market is an efficient process where all information is assessed which leads to an equilibrium, or it isn't.

To me, this is key since all of the risk models start with the assumption that there is an equilibrium which then leads to the key assumption that while we cannot make any prediction about the direction of the market, we can make and do make predictions about variance.

And if there is an equilibrium, we can follow the analogy with the natural sciences and the processes described by Popper, including mathematical modeling.

If there is no equilibrium, there is no stability, and variance is a meaningless concept. If there is no stability, then there is no science involved.

Soros postulates there is no equilibrium and economics is not a science, and markets are not efficient.

And all of the risk modeling is merely providing precision for a bankrupt concept.

May 17 06:26 PM