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Insights into George Soros, the Greatest Hedge Fund Manager in History

Newswire CNBC recently ran an article titled And the world’s most successful hedge fund manager is…, naming George Soros’ Quantum fund as the world’s most successful hedge fund, earning total gains of US$39.6 billion since its inception in the 1970s.

Those cumulative returns are the largest that’s been achieved in history and helped the Quantum fund, now renamed as the Quantum Endowment Fund, overtake fellow hedge fund superstar Ray Dalio’s Bridgewater Pure Alpha fund.

The history behind the man

George Soros was born in 1930 and grew up in Budapest, Hungary. He witnessed the cruelty of the Nazi regime and the darker side of the communist system while growing up in the country of his birth. Eventually, he managed to flee to London in 1947 and wound up studying in the London School of Economics. It was there that his philosophical concepts on science and politics started to come into being.

Soros started investing in the 1970s with a sum of around US$12 million and grew it into US$20 billion by 2000, raking in annualised returns of more than 30%. It’s also interesting to note that Soros has famously said in his lectures that he went into money management to test his theories about how the world works, which brings us to his investing methods.

His methods

Soros was the one who coined the term “reflexivity” in a bid to better describe how financial markets actually function. While his theories are distinctly unique compared to the mainstream theories existing in finance, he’s used the idea of reflexivity quite successfully to predict the development of market bubbles and exploit opportunities. Soros’ ideas are also somewhat different from other investing superstars like Peter Lynch, Sir John Templeton or Warren Buffett. The latter trio are more about looking at a share as a piece of a business and understanding the economic fundamentals underlying it.

Using reflexivity, George Soros has made large calculated bets that are either “long” or “short” ideas (when you go long, you are betting that prices will rise; when you go short, you are betting that prices will fall). When investing, Soros also utilises prevailing macro- economic trends as a crucible for investment ideas.

One of Soros’ most famous feats in the financial markets – and arguably the investment that propelled him into the public’s consciousness – was his 1992 bet against the United Kingdom’s currency, the British pound. That year, he shorted the British pound and earned US$1 billion in the trade. Along with that extraordinary return, he also earned the nickname of “The Man Who Broke the Bank of England”.

Closer to home, Soros had also made successful short bets against the Thai Baht and Malaysian ringgit in 1997 during the Asian financial crisis, a harrowing period which saw the Straits Times Index (SGX: ^STI) here in Singapore fall by 65% from a pre-crisis peak of 2,450 points in Jan 1996 to a trough of 857 in Aug 1998.

Where will he be looking in SGX?

Soros’ success in the financial markets has led to an interesting question for me: Where would he be looking if he were a market participant here in Singapore?

Perhaps, companies with a growing volume of daily trades made on their shares would interest him to conduct further research. If so, companies such as HanKore Environment Tech Group  (SGX: B22) and SunVic Chemical Holdings (SGX: A7S) might catch his attention for deeper analysis. Macro trends happening in Singapore, such as the property cooling measures and the effects of the ongoing ultra-low interest rate environment, might also be something that could prompt Soros to start digging deeper.

Foolish Summary

The above is just a fun exercise on how Soros might invest in the Singapore market. However, it should be noted that the way this great investor invests is not for the faint hearted; he is well known for making concentrated bets and when they go wrong, they can backfire spectacularly. For instance, Soros bought shares of US bank Bear Stearns back in March 2008 at around US$54 apiece, only for those shares to tumble to a price of US$2 each barely a few days later after the bank was forced to sell itself to another bank, JP Morgan.

Nonetheless, there’s much we can learn from Soros. I’ll leave the last word here to his piece of sage advice: “Markets are constantly in a state of uncertainty and flux, and money is made by discounting the obvious and betting on the unexpected.”

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.