The Hindu Business Line : Investment Nuggets

George Soros, founder of the Quantum Fund, is one of the most successful hedge fund investors ever. He was a master at translating economic trends into highly leveraged plays in bonds and currencies. As an investor, Soros was a short-term speculator, making huge bets on the directions of financial markets. He believed that market participants influenced one another and moved in herds. He said that most of the time he moved with the herd, but always watched for an opportunity to get out in front and “make a killing”. George Soros knew well when to be cautious and when to be aggressive. His top investment tenets are:

The first priority is preservation of capital.

Be risk averse.

Develop a personal investment philosophy, an expression personality.

No two highly successful investors have the same approach.

Develop a personal system for selecting, buying, and selling investments.

Diversification is for the birds.

Do everything possible to legally minimize taxes.

Only invest in what is understandable.

Do not make investments that do not meet personal criteria. Learn to effortlessly say no.

Always search for new investment opportunities that meet personal criteria, and engage in research.

Soros’s skill as an investor is simply the successful application of his philosophy. Below are a few of his nuggets:

“Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.”

“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”

“If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.”

“The usual bull market successfully weathers a number of tests until it is considered invulnerable, whereupon it is ripe for a bust.”

“Stock market bubbles don’t grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception.”

“The prevailing wisdom is that markets are always are right. I take the opposite position. I assume that markets are always wrong. Even if my assumption is occasionally wrong, I use it as a working hypothesis. This line of reasoning leads me to look for the flaw in every investment thesis. Also, when there is a discrepancy between my expectations and the actual course of events, it doesn’t mean that I dump my stock. I re-examine the thesis and try to establish what has gone wrong. I may end up actually adding to my position rather than dumping it. But I certainly don’t stay still and I don’t ignore the discrepancy.”

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