Known as the man who broke the Bank of England, revered investor George Soros amassed a huge personal fortune which he is committing to philanthropy.
Born in Hungary in 1930, Soros is currently worth $6.7 billion and has committed more than $32 billion to the Open Society Foundations, the philanthropic organisation which he started.
In a 1995 interview with Charlie Rose, Soros said that the reason for his hedge fund, Soros Fund Management’s, good track record is because they never lost their principles.
In a 2014 academic article published in the Journal of Economic Methodology, Soros explained that his principles are founded on two simple propositions.
The first is that people’s views never perfectly correspond with reality, which he calls fallibility. While people can come to know individual facts, their theories and world views are “bound to be either biased, inconsistent, or both”, he said.
The second proposition, known as the principle of reflexivity, is that the people who hold these imperfect worldviews act on them and influence their environments.
By way of example, if an investor believes that markets are perfectly efficient, that will change the way they invest, which influences the market they are participating in.
Soros calls these ideas his “conceptual framework”. Since markets do not reflect true reality, opportunities for profit are created when people’s expectations are out of alignment with reality.
“Markets are constantly in a state of uncertainty and flux, and money is made by discounting the obvious and betting on the unexpected,” he said.
Here are the principles that Soros used to become one of the richest people in the world.
- The market can be wrong: The market price reflects people’s expectations, and people’s expectations are often out of alignment with reality.
- Bet on the unexpected: Whenever your expectations differ from the expectations of the market, there is an opportunity for profit.
- Test your beliefs: If market prices contradict your thinking, you have to test your thinking.
- You will be wrong: Soros said that sometimes the market would be right, and you will be wrong. You should plan for that and take calculated risks.
- Double down: When your bet is right, you should increase it.
George Soros’ investment principles, according to ChatGPT
Daily Investor also asked the artificial intelligence (AI) chatbot ChatGPT about Soros’ investment principles.
ChatGPT is a chatbot launched by OpenAI in November 2022, which is built on top of OpenAI’s GPT-3 family of large language models.
ChatGPT said that Soros is a well-known investor, a philanthropist, and the founder of the Soros Fund Management.
He is often referred to as “The Man Who Broke the Bank of England”, due to his successful bet against the British pound in the early 1990s. Soros is known for his distinctive investment style, which is based on a few key principles:
- Reflexivity: Soros believes that markets are not always efficient, and that market participants can affect the prices of securities. He argues that the beliefs and perceptions of market participants can create a feedback loop, where the perception affects the reality, and the reality affects the perception, causing the market to become inefficient.
- Risk Management: Soros places a great emphasis on managing risk and avoiding large losses. He believes that taking too much risk can destroy an investor’s capital, and that it is essential to have a well-thought-out exit strategy.
- Focus on Long-Term Trends: Soros believes that long-term trends are more important than short-term fluctuations and that it is essential to identify and invest in these trends.
- Adaptability: Soros is known for his ability to adapt to changing market conditions, and to adjust his investment strategy accordingly. He believes that the market is always changing and that it is essential to be flexible and open-minded in order to succeed as an investor.
- Disciplined Approach: Soros is known for his disciplined approach to investing, which involves a rigorous evaluation of investment opportunities, a clear understanding of market conditions, and a well-thought-out investment plan.
These principles have helped Soros to become one of the most successful investors in history, and his investment style continues to inspire and influence many investors today.