- Soros invests along three dimensions: equities, interest rates, and currencies. Options and derivatives are used sparingly, largely because they are excessively complicated. His strategy tends to be trend buckling, identifying nascent trends, and spotting established trends reversing.
- Major trends are initially self-reinforcing, but eventually self-defeating. The trend is your friend until the inflection point where the trend changes. You can follow the herd but always look ahead for the inflection point.
- Philosophy of self-fallibility—critical of self as well as others. To others, being wrong is a source of shame; to Soros, recognizing mistakes is a source of pride. Being insecure is an edge for Soros. He constantly questions and challenges his theses. “When you take success for granted, then you are in trouble.”
- Look for the flaw in every investment thesis. If Soros can’t find the negative, he is worried and cautious. However, be keen on sound investment theses that the market is reluctant to recognize— “the market climbs a wall of worry”.
- Wall Street wisdom is, by definition, conventional wisdom. Jim Rogers believed the prevailing view was always wrong, whereas Soros thought that they (he and Rogers) may also be wrong.
- One should own a stock after it has successfully passed a difficult test, but avoid it during the test.
- Our understanding of reality is inherently imperfect. People not only analyze reality, but their decisions affect reality, thereby creating a two-way reflexive feedback system. When systems are in near-equilibrium, reflexivity may be insignificant, but it (feedback) is important when systems are in extreme disequilibrium.
- Boom/ bust cycles: a ‘period of acceleration’ where initial biases grow and pass a series of tests; then a ‘moment of truth’ where belief and reality diverge so greatly that it begins to be recognized; then a ‘twilight period’ of stagnation, and finally a ‘reversal’ of the trend accelerating towards a crash.
- “The market destroys the weak”. Need to have conviction in your ideas to avoid being faked out by market fluctuations but having the wrong conviction can wipe you out. Therefore, only bet on well-researched and well-founded convictions.
- Open society concept is a recognition that humans are fallible and nobody knows the ultimate truth. Therefore, institutions (governments) should be enacted to promote critical thinking and permit differing opinions. When a system is subjugated to a dogma that claims to be the ultimate truth (e.g. communism), this leads to a closed society.
- Soros believes the Darwinian/ laissez-faire economic model is inadequate. Unrestrained competition/ survival of the fittest do not naturally produce the most desirable outcome. Open society is abstract and can easily be taken for granted. People must strive for certain fundamental values and deliberately take steps to preserve the system.
Finished: Jun-2008