George Soros: A Life In Full
"He built no company, developed no algorithm, possessed no IP that could be bottled and sold. He made money—extraordinary amounts—from what he mysteriously called the 'alchemy' of finance."
Once, at a dinner, a guest asked George Soros when he first realized that he liked making money. “I don’t like it,” Soros responded. “I’m just good at it.”
This paradox is at the heart of Soros who yearned to be a philosopher yet found that his skills and ideas were more valuable when applied to financial markets. A new book, George Soros, A Life in Full, presents Soros’s many identities through a collection of essays edited by Peter Osnos. Osnos describes Soros as a “survivor, billionaire, speculator, philanthropist, activist, author,” as well as “nemesis of the far right, global citizen, husband, father, and friend.” This holistic perspective, leaving family aside, is what he tried to capture in the book.
I found a lot of food for thought in the book but it is not a critical or unbiased perspective (several of the authors worked at Soros-funded organizations).
The essays cover Soros’s youth, his Jewish and Hungarian identity, his investment career, as well as his philanthropic and political efforts. Only one (excellent) chapter written by Sebastian Mallaby focuses on Soros the financier. Mallaby laid out how Soros’s background shaped him as an investor, how he evolved over time, and how he took advantage of changes in the structure of global markets. Soros’s philosophy and heritage provide the connective tissue between the different aspects and stages of his life.
I am fascinated by Soros who provided one of the inspiring quotes for my writing when he described himself as he “not a professional securities analyst” (that’s what he had Jim Rogers and others for) but rather “an insecurity analyst.” However, for anyone just starting to learn about Soros and mainly interested in his investment career there are better places to start (such as his biography by Michael Kaufman, The Alchemy of Finance, and The New Paradigm for Financial Markets).
Quotes with no attribution are quotes by George Soros. Quotes from the book about him will be attributed to George Soros, A Life in Full.
Youth and Survival
“Soros’s conceptual framework and political beliefs are rooted in the philosophy of liberal universalism born in the last decades of the Austro-Hungarian Empire.” George Soros, A Life in Full
Born in 1930 in Budapest, Hungary, Soros was profoundly shaped by his youth in the remnants of a “pluralistic, tolerant, patchwork empire” followed by the murderous chaos of the German occupation towards the end of World War II. Most importantly, Soros closely observed how his father navigated the dangerous revolutionary times.
His father Tivadar fought in World War I and escaped from a Russian POW camp in Siberia. “I learned the art of survival from a grand master,” Soros wrote later and called his Open Society Foundations “a monument to my father” and his principles.
“My experience with revolutionary moments started when Nazi Germany occupied Hungary in 1944. I was not yet fourteen years old. By some measures, it started even earlier, when I used to join my father in the swimming pool after school and he would regale me with tales of his adventures in Siberia during the Russian revolution of 1917. If I add my father’s reminiscences to my own experiences, I can claim to have a memory going back a hundred years.”
In those moments, a keen sense of risk and speed become extremely important.
“Tivadar, aside from his grasp of the news’ terrible implications, understood something that many others didn’t: he knew that he needed to be afraid.” George Soros, A Life in Full
His father’s resourcefulness taught Soros how to navigate revolutionary times:
“There are times when the normal rules do not apply, and if you obey the rules at those times you are liable to perish.”
The family went into hiding with false identities organized by Tivadar. Navigating the occupied country became an exercise in risk management and people judgement. The dangerous game of hide and seek shaped Soros forever. He later commented:
“It is a sacrilegious thing to say, but these ten months were the happiest times of my life. We were pursued by evil forces and we were clearly on the side of the angels because we were unjustly persecuted; moreover, we were trying not only to save ourselves, but also to save others. . . . What more could a fourteen year- old want?”
While it may have seemed like an adventure to a fourteen-year old boy, the reality was grim. After Nazi Germany occupied Hungary, more than half of its Jewish population was murdered in the Holocaust.
“The war years taught him about the unintended consequences of passivity and the pitfalls of unexamined adherence to seemingly civilized standards of behavior, including the routine respect for authority in the face of unprecedented and extreme conditions. Following rules and conventional thinking exacerbated the fatal risks created by abnormal conditions. Survival required intuition and courage; Soros was inspired to emulate the fierce independence of mind and appetite for risk his father displayed.” George Soros, A Life in Full
Decades later, Soros visited Russia after the fall of the Soviet Union. To a Russian host skeptical of his organization he pointed out that he was “not an innocent American.” Indeed, all innocence must have been lost and Soros’s life was guided by what Osnos called “the most cataclysmic event of the twentieth century.”
Failed Philosopher
After the war, Soros moved to London and eventually met his intellectual mentor, philosopher Karl Popper, at the London School of Economics.
“The similarities were unmistakable; both Karl Popper and George Soros were scions of Jewish households that had used the instruments of economic well-being, culture, and learning to integrate into the surrounding non-Jewish world of the two leading cities of the former Habsburg empire. They had also witnessed the shattering political realities created by modern anti-Semitism that had engulfed Jews, particularly the acculturated ones, in both Vienna and Budapest.” George Soros, A Life in Full
Popper’s work The Open Society and Its Enemies struck Soros “with the force of revelation.”
“Popper’s open society philosophy resonated with Soros because it best articulated in philosophical terms what Soros had learned on the ground in Hungary from 1944 to 1947. Facing, in turn, the Nazis followed by the Soviets, Soros was particularly drawn to the notion that those who make claims on ultimate truth put their societies on the road to dictatorship.” George Soros, A Life in Full
It was an expression of Popper’s belief in human fallibility. This idea became a core tenets in Soros’s life.
“We are capable of acquiring knowledge but we can never have enough knowledge to allow us to base all our decisions on knowledge. It follows that if a piece of knowledge has proved useful, we are liable to overexploit it to areas where it no longer applies, so that it becomes a fallacy. … If there is anything really original in my thinking, it is this emphasis on misconceptions.” Soros: Open Society
Philosophy became Soros’s “true lifelong passion” and he spent years on a book he never published called The Burden of Consciousness. Instead, his philosophy found its practical expression in his work. First he applied it in financial markets, then, armed with capital, in philanthropy and politics.
“I would value it much more highly than any business success if I could contribute to an understanding of the world in which we live or, better yet, if I could help to preserve the economic and political system that has allowed me to flourish as a participant.”
First off, fallibility meant that Soros viewed his own strength differently from other traders. His predictions weren’t necessarily better but he was much more willing to quickly move on from mistakes. Seeing himself as fallible allowed him to remove his ego from his trades and see them as hypotheses to be tested. If he was a practical philosopher in a search for better explanations, then there was no shame in failed experiments.
“Once we realize that imperfect understanding is the human condition, there is no shame in being wrong, only in failing to correct our mistakes.”
Soros recognized that investors’ fallibility could lead to self-reinforcing feedback loops - what he described as reflexivity. The misperception affected reality and the interaction of the two could drive markets far from their fundamentals until they reached an unsustainable level and collapsed. (You can find a detailed explanation in this paper)
“The gap between expectations and reality becomes wider (EF) until the moment of truth arrives when reality can no longer sustain the exaggerated expectations and the bias is recognized as such (F). A twilight period ensues when people continue to play the game although they no longer believe in it (FG). Eventually a crossover point (G) is reached when the trend turns down and prices lose their last prop.” Fallibility, Reflexivity, and the Human Uncertainty Principle; Journal of Economic Methodology
When this boom-bust sequence occurred during the financial crisis, Osnos writes, Soros took “exceptional pleasure in finally being recognized for this philosophy.”
This philosophy also shaped his vision for the Open Society Foundations:
“Open society is based on the recognition that we all act on the basis of imperfect understanding. Nobody is in possession of the ultimate truth. Therefore, we need a critical mode of thinking; we need institutions and rules that allow people with different opinions and interests to live together in peace; we need a democratic form of government that ensures the orderly transfer of power; we need a market economy that provides feedback and allows mistakes to be corrected; we need to protect minorities and respect minority opinions.
Above all, we need the rule of law. Ideologies like fascism or communism give rise to a closed society in which the individual is subjugated to the collective, society is dominated by the state, and the state is in the service of a dogma that claims to embody the ultimate truth. In such a society, there is no freedom.”
The Importance of Networks
Another shared element between Soros’s investments and philanthropy is his effort to build networks among people and institutions. One essay describes trips to China (before he became persona non grata) and gatherings at his Hamptons estate. It showed the importance he places on a constant rotation of interesting people.
This network could be of supreme importance in his investments, such as when he personally knew key central bankers while shorting the British pound in 1992. While bottom-up research was important, Soros’s understanding of key actors, institutions, and their motivations and constraints was a key factor in having conviction.
“While the web of networks was global, it came to life in miniature cell-like form through the meetings that Soros and his wife, Tamiko, tirelessly convened over lunches and dinners … and numerous more public get-togethers and conferences.
Each gathering was irrigated by the many tributaries feeding Soros’s networks, whose headwaters all rose in the activities that composed his enormously diverse life. And as these tributaries fed into these intimate salon-like gatherings, they slowly formed a greater body of interconnected, interesting, and politically active people whose portfolios ranged from finance, banking, and investment to world affairs, revolution, election reform, technology, democracy, human rights, and even drug use, education, and palliative care.” George Soros, A Life in Full
Renaissance Man
“He stood for an oddly antiquated, Renaissance ideal: that one thinker—worldly, multilingual, curious about politics, psychology, philosophy, and economics—can wrap his mind around the world, blending gossip from the corridors of power with statistics about companies.” George Soros, A Life in Full
One thing that is both fascinating and frustrating about Soros is that his style seems so personal and irreplicable. After studying markets for decades, he had such strong pattern recognition and intuition that his body, through back pain, would warn him of impending volatility. While fascinating this is not something we can simply replicate.
However, Mallaby’s chapter clearly outlines how Soros himself had to learn and grow as an investor and how his evolution often occurred in response to the changing structure and opportunity set of global markets..
Soros started in a profitable niche that uniquely suited his background. As his experience and scope expanded, and with the benefit of having a highly capable analyst, he expanded to more sector-focused trades. After he incorporated his philosophy and in response to a new regime of higher interest rates and the end of Bretton-Woods which made trading in currencies possible, Soros evolved into the global macro trader he became known for.
“During his first years as a financial analyst, Soros grew wealthy by exploiting the distortions created by those capital controls. Later, he made a larger series of fortunes from the pressures arising from their removal.” George Soros, A Life in Full
Soros retired from active investing with an astonishing record.
“Soros was one of the great investors of his generation—possibly the greatest Quantum and its predecessor, Double Eagle, averaged annual returns of 36 percent between 1969 and 1989, the period of Soros’s direct control, and 33 percent if you add in the Druckenmiller era running to 2000.” George Soros, A Life in Full
Soros the Investor
A unique background
Navigating revolutionary periods
Risk tolerance
Global citizen
Practical philosopher
Fallibility
Reflexivity
Importance of networks
A career reflecting the change of global markets
International arbitrage
Adapting to change
Applied philosophy
Sizing up
Post Bretton-Woods: profiting from the tension between markets and politics
End of an era: politics over profits
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