Soros on Soros: Staying Ahead of the Curve
by George Soros
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Book Summary Information
Author: George SorosEdition: Paperback
Audio: English (Unknown); English (Original Language); English (Published)
Published: 1995-08-04
ISBN: 0471119776
Number of pages: 336
Publisher: Wiley
Book Reviews of Soros on Soros: Staying Ahead of the Curve
Book Review: Book Review from the Aleph Blog
Summary: 4 Stars
One trap you can fall into in life is to not learn from those that you disagree with, for one reason or another. George Soros would be an example of that. His politics are very different from mine, as well as his religious views. He's a far more aggressive investor than I am as well. I am to hit singles with high frequency over the intermediate term. He played themes to hit home runs.
The Alchemy of Finance made a big impression on me 15 years ago. Perhaps it was a book that was in the right place at the right time. It helped to crystallize a number of questions that I had about economics as it is commonly taught in the universities of the US.
First, a little about me and economics. I passed my Ph. D. oral exams, but did not receive a Ph. D., because my dissertation fell apart. Two of my three committee members left, and the one that was left didn't understand my dissertation. What was worse, I had moral qualms with my dissertation, because I knew it would not get approved.
My dissertation did not prove anything. All of my pointed to results that said, "We're sorry, but we don't know anything more as a result of your work here." I have commented before that the social sciences would be better off if we did publish results that said: don't look here -- nothing going on here. But no, and many grad students in a similar situation would falsify their data and publish. I couldn't do that. I also couldn't restart, because I had put off the wedding long enough, so for my wife's sake, I punted, and became an actuary.
That said, I was a skeptical graduate student, and not very happy with much of the common theories; I wondered whether cultural influences played a larger role in many of the matters that we studied. I thought that people satisficed rather than maximized, because maximization takes work, and work is a bad.
I saw how macroeconomics had a pretty poor track record in explaining the past, much less the present or future. In development economics, the countries that ignored the foreign experts tended to do the best. Even in finance, which I thought was a little more rigorous, I saw unprovable monstrosities like the CAPM and its cousins, concepts of risk that existed only to make risk uniform, so professors could publish, and option pricing models that relied on lognormal price movement.
Beyond that there was the sterility of economic models that never got contaminated by data. I was a practical guy; I did not want to spend my days defending ideas that didn't work in the real world. And, I felt from my studies of philosophy that economists were among the unexamined on methodology issues. They would just use techniques and turn the crank, not asking whether the metho, together with data collection issues made sense or not. The one place where I felt that was not true was in econometrics, when we dealt with data integrity and model identification issues.
Wait. This is supposed to be a book review. :( Um, after getting my Fellowship in the Society of Actuaries, I was still looking for unifying ideas to aid me in understanding economics and finance. I had already read a lot on value investing, but I needed something more.
On a vacation to visit my in-laws, I ended up reading The Alchemy of Finance. A number of things started to click with me, which got confirmed when I read Soros on Soros, and later, when I began to bump into the work of the Santa Fe Institute.
I was already familiar with nonlinear dynamics from a brief meeting with a visiting professor back in my grad student days, so when I ran into Soros' concept of reflexivity, I said "Of course." You had to give up the concept of rationality of financial actors in the classical sense, and replace them with actors that are limitedly rational, and are prone to fear and greed. Now, that's closer to the world that I live in!
Reflexivity, as I see it, is that many financial phenomena become temporarily self-reinforcing. We saw that in the housing bubble. So long as housing prices kept rising, speculators (and people who did not know that they were speculators) showed up to buy homes. That persisted until the effective cashflow yield of owning a home was less than the financing costs, even with the funky financing methods used.
Now we are in a temporarily self-reinforcing cycle down. Where will it end? When people with excess equity capital look at housing and say that they can tuck it away for a rainy day with little borrowing. The cash on cash yields will be compelling. We're not there yet.
Along with that, a whole cast of characters get greedy and then fearful, with the timing closely correlated. Regulators, appraisers, investment bankers, loan underwriters, etc., all were subject to the boom-bust cycle.
Expectations are the key here. We have to measure the expectations of all parties, and ask how that affects the system as a whole.
In The Alchemy of Finance, Soros goes through how reflexivity applied to the Lesser Developed Country lending, currency trading, equities, including the crash in 1987, and credit cycles generally. He gives a detailed description of how his theories worked in 1985-6. He also gives you some of his political theorizing, but that's just a small price to pay for the overall wisdom there.
Now, Soros on Soros is a series of edited interviews. The advantage is that the interviewers structure the questioning, and forces more clarity than in The Alchemy of Finance. The drawback (or benefit) is that the book is more basic, and ventures off into non-economic areas even more than The Alchemy of Finance. That said, he shows some prescience on derivatives (though it took a long time to get to the promised troubles), though he missed on the possibility of European disintegration.
On the whole, Soros on Soros is the simpler read, and it reveals more of the man; the Alchemy of Finance is a little harder, but focuses more on the rationality within boom/bust cycles, and how one can profit from them.
Summary of Soros on Soros: Staying Ahead of the Curve
George Soros Ends the Speculation"The outcome [of this book] is a summing up of my life's work. . . As I finish the book, I feel I have succeeded."-George Soros from the Preface
Critical praise for Soros on Soros
"If you have ever wanted to sit down for a candid conversation with a phenomenal financial success, George Soros's book provides the opportunity. You will meet a complex man and a first-rate mind."-Henry A. Kissinger
"The best expert on Soros is undoubtedly George Soros! After all, who is better equipped to tell us what he really thinks and how he thinks, a matter of some importance given the fact that he has translated a remarkable personal financial success into a truly generous and historically significant effort to promote postcommunist democracy." -Zbigniew Brzezinski
"The best X-ray of the mind of the master yet." -Barton M. Biggs
"George Soros brings a lot more to the world of finance than the intuition and nerve of a born trader-and in Soros on Soros he's no longer bashful about telling us about it. A philosopher at heart, George attributes his success at investing to a theory of the interaction of reality and human perception. What really drives the man now, with a personal fortune beyond all personal need, is a different kind of strategic investing-investment to build in Eastern Europe the kind of open societies he came to value in his own life." -Paul A. Volcker
Financial guru George Soros is one of the most colorful and intriguing figures in the financial world today. Now in Soros on Soros, readers are given their most intimate and revealing look yet into the life and mind of the one BusinessWeek dubbed, "The Man Who Moves Markets."
Soros on Soros interweaves financial theory and personal reminiscence, political analysis and moral reflection to offer a compelling portrait of the world (and its markets) according to Soros. In an interview-style narrative with Byron Wien, Managing Director at Morgan Stanley, and with German journalist Krisztina Koenen, Soros vividly describes the genesis of his brilliant financial career and shares his views on investing and global finance, politics and the emerging world order, and the responsibility of power.
Speaking with remarkable candor, he traces his progress from Holocaust survivor to philosophy student, unsuccessful tobacco salesman to the world's most powerful and profitable trader and introduces us to the people and events that helped shape his character and his often controversial views.
In describing the investment theories and financial strategies that have made him "a superstar among money managers" (The New York Times), Soros tells the fascinating story of the phenomenally successful Soros Fund Management and its $12 billion flagship, Quantum Fund. He also offers fresh insights into some of his most sensational wins and losses, including a firsthand account of the $1 billion he made going up against the British pound and the fortune he lost speculating on the yen. Plus: Soros's take on the devaluation of the peso and currency fluctuations internationally.
He tells of the personal and professional crises that more than once threatened to destroy him and of the personal resources he drew upon to turn defeat into resounding victory. And he explains his motivations for establishing the Soros Foundation and the Open Society Institute through which he worked to build open societies in postcommunist countries in Eastern Europe and the former Soviet Union.
Finally, turning his attention to international politics, Soros offers keen insights into the current state of affairs in Russia and the former communist bloc countries and analyzes the reasons behind and likely consequences of the West's failure to properly integrate them into the free world. He also explores the crisis of the ERM and analyzes the pros and cons of investing in a number of emerging markets.
Find out what makes one of the greatest financial wizards of this or any age tick. Soros on Soros is a must read for anyone interested in world finance and international policy.
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