George Soros is the founder (1969) and Chairman of Soros Fund Management, a hedge fund management firm. In the four decades through 2010, the fund posted exceptional returns, averaging a 20% annual rate. With an estimated Assets Under Management [AUM] of $25B, the fund currently operates as a "family office" -- in July 2011, outside investors were informed their money would be returned. This was to bypass the new regulations under the Dodd-Frank financial legislation. The fund is eclectic, with global investments in diverse areas as stocks, bonds, forex and commodities. Prior to the "family office" mode, investments were made via a number of funds sporting the Quantum brand name.
Soros is renowned as "the man who broke the bank of England" -- he netted $1.8B by shorting the British pounds and buying German marks in the weeks leading to the "Black Wednesday" (09/16/1992). Great Britain was forced into withdrawing the pound sterling from the European Exchange Rate Mechanism [ERM] as it was impossible to keep the pound above the agreed upon lower limit. Like most hedge fund managers, Soros adheres to an investment philosophy diametrically different from the rational theories that assert the market as a whole is not only greatly ahead than any individual participant (Random Walk) but also constantly correct. Soros has authored a number of informational books that reflects his thoughts, the latest two being "The New Paradigm for Financial Markets" (2008) and "Financial Turmoil in Europe and the United States" (2012). Several of them delve on his reflexivity theory which is summarized as:
I contend that financial markets are always wrong in the sense that they operate with a prevailing bias, but in the normal course of events, they tend to correct their own excesses. Occasionally the prevailing bias can actually validate itself by influencing not only market prices, but also the so-called fundamentals that market prices are supposed to reflect… The crux of the theory is that market prices can influence the fundamentals…The change in the fundamentals may then reinforce the biased expectations in an initially self-reinforcing but eventually self-defeating process. Of course such boom-bust sequences do not occur all the time. More often the prevailing bias corrects itself before it can affect the fundamentals… When they occur, boom-bust processes can take on historic significance. That is what happened in the Great Depression, and that is what is unfolding now, although it is taking a very different shape.
Soros Fund Management invests in a wide array of investment vehicles globally, and the US stock market investments average only around 20% of the total portfolio size. In the recent years, the average number of US holdings exceeded over 500 different positions - at any given time, the fund has a large number of very small positions and a small number of very large positions. Investors attempting to follow Soros's trades should steer clear of the smaller positions and concentrate on the larger ones.
Below lists the Soros Fund Management's US holdings with almost 2% allocation compared to the total value of the positions reported in the 13Fs:
- The 13Fs indicate 28 different positions that account >2% of total value listed over the last five years, and the average of such positions was about 7. None of the positions from five years ago made the latest filing list. The fund continuously adjusts positions and their relative allocations.
- A couple of large positions covering the broader US market were initiated in Q1 2011 through puts on the S&P 500 Spider ETF (SPY) and Ishares Russell 2000 (IWM). The positions account for ~10% of the total value reported, and appear to be an insurance against a significant market drop. Soros is known for his skeptical take on the developed world and cautiously optimistic one on the developing world, and these positions reinforce that outlook. The stance is made clear from his comment about world economy:
While the developed world is in a deep crisis, the future for the developing world is very positive. The aspiration of people for an open society is very inspiring. You have people in Africa lining up for many hours when they are given an opportunity to vote. Dictators have been overthrown. It is very encouraging for freedom and growth.
- Interoil Corporation (IOC) is a large 4% bet initiated in 2009 as a play on Soros' comparatively optimistic approach towards developing nations. IOC is developing an integrated oil and gas company in Papua New Guinea [PNG] with plans to own assets throughout the entire value chain -- from the well-head to retail. IOC is owned by only a very small minority of the largest hedge funds, and even between them, the long or short bias is not clear. While Soros is long, with a sizable position, the stock is heavily shorted by Whitney Tilson of T2 Partners LLC, whose latest letter (12/01/2011) to investors indicated IOC as being one of his largest short positions. Also, Tilson's commentary on IOC posits the intrinsic value of the company is zero - this short thesis is based on the logic that IOC will have a tough time finding partners for exploration on their licensed acreage in PNG.
- Gold was a large position for Soros Fund Management until the sale of almost all of its SPDR Gold Trust (GLD) holdings in Q1 2011. The 13F filing for Q4 2010 showed the fund holding ~9% of the total values reported in GLD. Soros has since termed gold as the ultimate bubble, without specifying when it will pop. Soros Fund Management still has several smaller positions in gold mining companies as of the latest 13F filing (09/2011).
- Motorola Solutions Inc (MSI) is a large (~4%) position initiated in Q1 2011, immediately after the spin-off of Motorola Mobility Holdings Inc (MMI). Soros has a number of other relatively large positions in tech companies including Apple (AAPL), Amazon (AMZN), and Sandisk (SNDK).
George Soros is also famous for the many conspiracy theories surrounding his philosophy, wealth and political stance. The sentiment is best summarized in a 2011 Forbes article that said:
Soros is hated because many Eastern Europeans and Central Asians believe that he is using his money to subvert their political systems. Rightly or wrongly, this view tends to promote anti-Americanism. And it gives dictators a talking point to use against American diplomats.
The opinion is so widespread that many governments have passed legislation that explicitly prohibits non-governmental organizations (NGOs) from accepting money from foreigners. Some of the much-publicized conspiracy theories about George Soros are listed below:
- "The Puppetmaster", a television program by Glenn Beck aired 11/9/2010 made the claim that Soros is attempting to collapse the United States economy and create a new world order.
- George Soros was blamed as the alleged cause of the East Asian economic crisis of 1997. The most vocal among his critics was Mahathir bin Mohamed, the Prime Minister of Malaysia at the time; in 2006, he softened his stance by indicating that he did not view Soros as being responsible for the crisis.
- Starting in the early 1990s, there have been several accusations by prominent Americans (Lyndon LaRouche, Dennis Hastert, David Horowitz, etc) that claim George Soros as being a leader of the international illegal drug trade.
Along with the negative press and stories surrounding him, there are positives too to Soros. He has given away over $8B to several causes covering education, public health, and human rights, and is among the most financially savvy people of the world. As such, investors can learn much from him by studying his investments and philosophies.
Disclosure: I am long (GLD).