Tuesday, April 24, 2007

Trading Tactics of George Soros

Investment Ideas by Yaser Anwar

This post is lengthy but i promise that it will tremendously benefit
your investing/trading as it has mine. I would recommend you save this
post in word or notepad &/or save this link, so you can refer back
to it.

  • One of Soros’s most useful qualities has been his
    ability to detach his emotions from his dealings in the financial
    markets. In that sense, he is something of a stoic. Invest First and
    Investigate Later While others permitted their egos to get in the way
    of making intelligent market decisions, Soros understood that the wise
    investor was the dispassionate investor.

  • It made no
    sense to claim infallibility. Although it may have been difficult when
    a favorite stock suddenly took a plunge, it was far better, as Soros
    constantly did, to admit when he made mistakes.

  • One day
    in 1974, Soros was playing tennis with an acquaintance. The phone
    rang.It was a broker in Tokyo, letting Soros in on a secret: That year
    President Richard Nixon was immersed in the Watergate scandal that
    would eventually cause his downfall. The broker was calling to let
    Soros know that the Japanese were reacting poorly to Nixon’s troubles.

  • Having
    taken heavy positions in the Japanese stock market, Soros had to decide
    what to do-stay in, get out. His tennis partner noticed that sweat had
    formed on Soros’s forehead that had not been there during the match.
    Then and there Soros decided to sell. There was no hesitation, no
    feeling that he needed to consult anyone else before taking such a
    large step. It had taken him a fraction of a second to decide. That was

  • Allan Raphael, who worked with Soros in the 1980s,
    believed that Soros’s stoicism, a rare trait among investors, had
    served him well. “You can count them on one hand. When George is wrong,
    he gets the hell out. He doesn’t say, `I’m right, they’re wrong.’ He
    says, `I’m wrong,’ and he gets out, because if you have a bad position
    on, it eats you away. All you do is think about it-at night, at your
    home. It consumes you. Your eye is off the ball completely. This is a
    tough business. If it were easy, metermaids would be doing it. It takes
    an inordinate amount of discipline, self-confidence, and basically lack
    of emotion.”

  • Then there was the vaunted Soros
    self-confidence. When Soros believed he was right about an investment,
    nothing could stop him. No investment position was too large. Holding
    back was for wimps. The worst error in Soros’s book was not being too
    bold, but too conservative. “Why so little?” was one of his favorite

  • Finally, there was his instinct. Invest
    First and Investigate Later This was the immeasurable ability to know
    when to speculate heavily, when to pull out of an investment
    position-when, in effect, you were on the mark, and when you were not.
    “Basically,” said Soros, “the way I operate is I have a thesis and I
    test it in the market. When I’m short and the market acts a certain
    way, I get very nervous. I get a backache and then I cover my short and
    suddenly the backache goes away. I feel better. There’s where the
    instinct comes in.”

  • Summing up George Soros’s
    investment skills, Morgan Stanley’s Byron Wien suggested that “George’s
    genius is that he has a certain discipline. He views the market very
    practically and he understands the forces that in?uence stock prices.
    He understands there is a rational and irrational side of markets. And
    he understands that he isn’t right all the time. He is willing to take
    vigorous action when he is right and really take advantage of an
    opportunity, and to cut his losses when he’s wrong. He has great
    conviction when he’s sure that he’s right as he was in the sterling
    crisis in 1992.”

  • Part of Soros’s instinct was in
    detecting movement, one way or the other, in the stock market. This was
    not something one could learn in school; it was not part of the
    curriculum at the London School of Economics. This gift is one that few
    possess. And Soros had it.

  • Edgar Astaire, his London
    partner, had no trouble pointing out the source of Soros’s success:
    “His greatest key to success is his psychology. He understands the herd
    instinct. He understands when lots of people are going to go for
    something, like a good marketing man.”

  • Soros’s theory
    about currencies: One part of that theory had it that if a huge decit
    arose at the same time as an expansionary fiscal policy and a tight
    monetary policy, a country’s currency would rise.

Excerpted from: SOROS: The Unauthorized Biography, the Life, Times and Trading Secrets of the World's Greatest Investor.

hope you have found this guide helpful. Personally, I've read the above
points at least 14 times! The bullet points above distill the
psychology of one of the greatest investors of our time & i would strongly
recommend you get the book (mentioned above) as it's the only book on
Soros, other than Alchemy of Finance, that will reveal some of his
tactics & ways.