But there are some valuable lessons you can learn from reading his not so easy-to-understand writing. He talked about a phenomenon in business world, in which an industry feeds on its own success and grows bigger and its stock prices higher, until it tumbles. Then, the fall will trigger more to fell, until it seems there is nothing left. Sound familiar to the dot com bloom and burst of 2000? Actually, he was talking about the electronic industry bloom-burst cycle in the 1960s in America.
An electronic firm buys components from other electronic firms. When one was successful, say, its new TV model is a big hit, it buys more from its suppliers. And it get imitates and its competitors are buying more from their suppliers. Suddenly, there are many electronic firms and everyone seems to have a bright future, i.e. ever growing sales. This in turn makes investment in electronic firms seem a sure ticket to win. And they do, their stock prices just shoot off the roof.
But then, the public can only take so many new TV, even you buy an extra one for your mother-in-law, because it is a cool new trend, there is a limit how many they can sell. Then one of the TV manufacturer fells, so are their suppliers, and the suppliersˇ¦ suppliers. Once the chain reaction begins, there is no going back. Companies fell and their earnings become losses. Stock prices of electronic firms tumble and tumble. With that goes the money of many papas and mamas, and ˇ§intelligentˇ¨ investors like you and me.
George Sorosˇ¦ way is to buy during the up-trends, take profit and wait for a while, then sell shorts during the downward cycle. He described what he did during those days in details.
Another boom-burst cycle he described is on LBO ˇV ˇ§Leverage Buy Outˇ¨ in the 80s. I am going to leave you to read the book to find out.
Or until, I have time and read it again.
There is an account of his biggest winner ˇV the bet on Pound against Bank of England. But it is not very good, because I canˇ¦t remember a thing about it.
His philosophical tenet, Reflexivity, denotes a feedback loop: Individuals act on their views of a situation, thereby changing the situation. For example, if traders believe a stock is going up, they buy it, thereby bidding it up. But their belief caused the result; there may be no fundamental reason for the rise.
Thus what we think determines what we do and has consequences, but typically it is not correct.
Inspired by Heisenberg's rule about quantum particles, Soros proclaims a human uncertainty principle which suggests our understanding is often incoherent and always incomplete. From his case study, one notices that uncertainty continually besets Mr. Soros in managing his hedge fund, which has the same name as the particles subject to Heisenberg's uncertainty principle.
General models do not always translate into money making practice. But Soros provides an insight of great practical significance: traders need to be adaptive, because there is no way of knowing beforehand how a market situation will turn out.
The Quantum Fund experience demonstrates how that works. This exercise in global macro strategy, a master speculator's take on commodity, currency and equity markets, is a a litany of doubts and hazards.
He's been losing on currency trades for several years. Then in September 1985, he makes a killing by buying a lot of yen just before central banks switch to a new exchange rate system and the yen rises. There is a pattern: he sustains losses, reduces positions, gets out, then sees a great opportunity and pounces. In short, he constantly and quickly adapts to events.
Despite various setbacks, Quantum Fund's NAV per share rose 121% in 1985 and 43% in 1986. Such numbers make for legend and Mr. Soros became one.
How did he do it? He keeps an open mind and continually modifies his outlook with new information. As he remarks, "the markets provide a merciless reality check," and Mr. Soros never stays with an idea that fails the test. Most of the time he can't predict what's coming, but he promptly corrects course in response to feedback. That limits losses. On rare occasions he can see through the fog of uncertainty and hauls in the booty.
This is not an easy book to read, but as another hedge fund manager, Paul Tudor Jones, describes it in the foreword, it is a timeless guide.