Financial-markets

See Dec. 20th, 2002 on the BBC web site. George Soros was convicted of inside trading in the stock of Societe Generale.

Alchemy is pretty easy when you trade on inside information. Ivan Boesky made millions too by cheating.

In this book, Soros openly admits that he is completely unable to predict major developments in finance and economics. In addition, he admits that he has never been able to profit consistently in commodities markets. What does that leave us with? Soros is a glorified stock picker, and the Quantum Fund, a glorified mutual fund. Soros does not discuss equity analysis techniques, however; the book is comprised of macroeconomic analysis and prediction which is - by Soros' own admission - of questionable value.

Indeed, it is almost embarassing to read Soros' predictions - that the dollar will depreciate dramatically in the 90s, that Japan will surpass the US as economic leader, that the US economy will succomb to fiscal and trade deficits. Soros' predictions are not just wrong, they are the complete opposite of what actually has occurred.

Soros argues that he cannot predict anything, he can only explain economic developments as they unfold. If his predictions are invalid, however, why are his explanations valid? His predictions and explanations are premised on the same set of erroneous beliefs.

Those seeking practical and accurate financial theory should not read this book. Those seeking chapters like The Quandary of the Social Sciences and Reagan's Imperial Circle are invited to tackle this self-aggrandizing book. Better choices: Intermarket Technical Analysis by Murphy or Macro Trading and Investment Strategies by Burstein.

Soros is the greatest publicly known investor of our times. His Quantum Fund numbers attest to that. In this book, he makes a Herculian effort to explain how he did it, including a real-time diary, which is as informative in revealing how often he is wrong-headed (and so exits) as it reveals how he piles on more leverage on a winning position. He also tries to honestly write about how some decisions are simply intuitive, and not the result of reasoned analysis. Though most investors will not be involved in macro-investing, where Soros simultaneously considers equity prices, forex, commodities, politics and economics, and using 5 to 1 leverage invests accordingly in stocks, bonds, currencies, both long and short --- still this is a must-read for anyone considering a carreer as a money manager. If you wanted to be an artist, you would read the biography of da Vinci, a master of art. Soros is a master of finance. The way the Beatles inspired a generation of musicians, so Soros inspired a generation of hedge fund managers.

Why is Paul Volcker writing books with convicted inside traders?
Volcker supposedly had a good reputation.

Soros was convicted of inside trading in December 2002. There should be a section in this book on how to make piles of money by trading with non-public information.

Anyone who has had as much success as Soros must be doing something right, so I respect his mind. Unfortunately, he is a terrible writer. He could take ten pages explaining why 2 + 2 = 4.

Here's an example:
"[the shoelace theory]...can be interpreted as a synthesis of Hegel's dialectic of ideas and Marx's dialectical materialism. Instead of either thoughts or material conditions evolving in a dialectic fashion on their own, it is the interplay between the two that produces a dialectic process."

This passage is a microcosm of the entire book: he makes a valid point, but it's not a particularly significant or difficult point. The only difficulty is in parsing his turgid language. I sense he is a great investor who wants to be considered a great thinker, and he believes that in order to accomplish this he has to use big words to express his theories.

Soros's widely praised theory of reflexivity is a valuable contribution, but he doesn't need 400 pages to convey it. I didn't read this book expecting a "how to make money in the stock market" tutorial, but I did expect to gain a better insight into how the markets function. I did not get that.

Don't waste your time.

Soros wrote this book several years ago as a self proclaimed "life's work" about his techniques for trading in the currencies and commodities markets. He became famous for making a billion dollars in one day by shorting the British pound against the dollar and other currencies. More recently, Soros has become famous for his financial backing of neo-communist media-hit organizations, like moveon.com and international A.N.S.W.E.R., due to his pathological and self-acknowledged hatred of G.W. Bush. This seems at odds with the cooler countenance of a financial markets trader such that he is, and a successful one at that, but, it's a funny and inconsistent world, is it not?

Soros demonstrates throughout this somewhat turgid tome a masterful knowledge of the seemingly ceaseless elements of the fundamentals underlying the trading decisions of a fin-mkt operator. His theory of reflexivity, a play on Einsteins theory of relativity, is a commentary on the human capacity to change events by taking actions ahead of perceived expections only to distort the outcomes expected in the first place. Put simply, it's an understanding of how markets actually work in real life, not in the void of an academic lab setting.

When you're capable of making a billion in a day it's easy to gain a messianic complex and there's a bit of that on display in this book. Couple that with Soros' having escaped totalitarianism as a young Jewish boy in Hungary, and you can only marvel at his skill, talent and tenacity.

Being a creature of the fin-mkts myself I thoroughly enjoyed this book, however it would be tedious for almost anyone not consumed by the prospects of i.e. shorting palm oil in Asia while going long soybeans in the west, or someone bent on knowing the open interest represented in the oil tanks of Rotterdam; not something one hears discussed nightly on the news.

For a look into the mind of the money behind the Kerry campaign of 2004, read this book. But, read it dlowly and take copious notes. And, good luck on your foray into currency trading, you'll need it.