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George Soros

George Soros — is a famous American investor, philanthropist, and one of the richest people in the world. His personality is surrounded by numerous conspiracy theories. These theories are related to his lobbyism and support of democratic movements in East Europe.

Career of George Soros

George Soros is a Hungarian. His parents have moved to Great England to escape persecution. In London Soros was studying philosophy and attended the lectures of Popper. His idea of an “open society” significantly influenced Soros. 

The career of George Soros in the USA started with international arbitration. Soros created the new method of trading and called it an “inner arbitrage”. However, the government had entered the additional tax for investments, and he closed the business. 

First, George Soros hadn’t planned to stay in America for too long. He wanted to return to Europe and continue to study philosophy. But his successes in investing made him change his mind. His work in the company Arnhold & S.Bleichroeder was quite fruitful, he has founded several funds. When regulators curtailed Soros' ability to manage funds, he stepped down from his senior positions. In 1969 George Soros established the Quantum fund.    

George Soros has a nickname — “the man who broke the Bank of England”. In 1979 European countries created the European Monetary System (EMS). This system was intended to maintain the stability of exchange rates, reduce inflation and provide monetary integration. 

After German reunification, government expenditures increased, which forced the authorities to put more money into circulation. It led to inflation, and the government had to raise interest rates. The increase in rates led to the appreciation of the German mark, and other central banks also had to raise interest rates to maintain their national currencies at the same level as the German mark. Realizing that the weak economy and high unemployment would make it impossible for the UK government to stick to this policy for long, Soros took action.

George Soros assumed that the rate of the GDP will fall because the UK will either devalue the national currency or refuse to participate in the exchange rate mechanism. Due to the abolition of capital controls, investors were free to exploit market disequilibrium to profit. Soros started to open short positions on the British pound and long ones for the German mark, borrowing pounds and buying assets denominated in marks. In addition, he actively used options and futures. As a result, the cost of all positions amounted to an impressive sum.

At first, the Bank of England tried to keep the pound and the European currencies pegged to it from falling. Bank bought several billion pounds using its reserves. But this didn’t help, the pound was very close to its lower limit. The Bank of England announced an increase in interest rates. A few hours later, the bank again promised to raise interest rates, but investors couldn’t be persuaded. They were waiting for a significant benefit and continued to sell. Then the paymaster general announced that the UK was withdrawing from this exchange rate system.  

This situation is surrounded by numerous rumors till the present day. Many traders think that George Soros used insider information from politicians. One way or another, Soros showed how vulnerable central banks can be.

Trading Strategy of George Soros

Many individuals try to figure out what strategy Soros uses. Soros says he applies trading skills and fundamental analysis. However, many traders suppose that he uses the material nonpublic information and creates rumors to affect the market.   

Nevertheless, George Soros had set out some of his rules in the book “Reflexivity and Economics”. According to this theory, the decision to buy any asset is based on its probable future value. Since the expectation of a value is a psychological category, it can be easily influenced in the information space. Thus, if the market participants buy up assets, and Soros begins to actively influence large players using false information through the media, the expectations of the participants change, and his plan comes true. However, friends and family of Soros say that he had never used this strategy.

Some rules of his strategy may be applied by the other traders. The first step for beneficial trading according to George Soros is the analysis of a company whose securities they want to use. It is necessary to understand the activity of the company. Also, the trader should analyze its financial data: profit statistics, capitalization, dividends, the direction of investments, and balance sheets. Then, the trader should predict the prospects of the firm and its future income.

Stages of analysis according to George Soros:

  • Analysis of non-recurring events. 
  • Exclusion of the unprofitable positions.
  • Assessment of income tax;
  • Assessment of missing liabilities and assets;
  • Assessment of direct postings and retained earnings. 
  • Assessment of reserves. George Soros defines three types of reserves — commitments, accounts related to the evaluation of prices, reserves for future incomes, and expenses.

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