Monday, May 18, 2009

Soros, The World's Most Influential Investor by Robert Slater

The subtitle to this book on George Soros, I believe, should be “What Makes George Run?” after the title to a novel originally published in 1942. Slater does a good job presenting his subject in an easy to read and interesting biography. Yet, the book seems incomplete because a question still remains as to why Soros does what he does. It is not so much that he is an investor and a very successful one. It is why he seems driven to be a philosopher, a philanthropist, and a political mover and shaker.

As one critic remarked about the subject of the novel just mentioned, he is running “always thinking satisfaction is just around the bend.” It is like Soros has never found a way to justify his existence and so must continually search for ways to prove himself worthy. Over and over he is described as an extremely self-confident man. Yet the things he does indicate a need for something more, something that will ultimately give him satisfaction, something that will give him peace.

Soros is successful. He generously shares his wealth. He wants to do good things and contribute to good government. He wants to be known as a thinker. These are all commendable things and we should certainly hold him in respect for them. It is just that as one reads of his life, as Slater presents it, one comes away feeling that he is not completely comfortable with who he is.

People talk about how both Barack and Michelle Obama seem comfortable with who they are. That is one reason, people contend, that they can project themselves so well to others. They are not trying to be someone they are not. I do not get the same feeling when I read this book about George Soros.

From everything that is public about him, it seems Soros has legitimately earned his fortune. He has worked hard, he has taken risks, and has guessed right more often and in larger amounts that he has guessed wrong. He has set up and led several organizations and has retained talented individuals who have remained loyal and supportive of him. And, he has sustained his position at or near the top of the performance ladder for many years. He remains very, very wealthy.

His secret? Slater tries to get at this, but the best answer he can come up with is that Soros has great intuition. Soros is quoted as saying, “In the final analysis, you must rely on your instincts for survival.” Work hard, read widely, study, study, study…and then…well…? We are told that investing “is a business that doesn’t necessarily lend itself to logical, rational thinking. It’s an intuitive process.”

Soros attempts to provide us with his insight into how markets work and how investors make money. In his major effort to comprehensively explain how he sees the world work, “The Alchemy of Finance”, he describes a world in which all views of the world are “flawed or distorted.” The ‘academic’ models that assume investors have complete information and act rationally with this information are best kept in the academy.

The price of an asset, he contends, is “a result of perceptions that (are) as much the outcome of emotions as of hard data.” Soros uses the term ‘reflexivity’ to describe the connection between these flawed perceptions and the course of events, a connection that, from time-to-time, produces a ‘self-reinforcing factor’ that interacts with ‘underlying trends’ to create wide swings in individual prices or in movements in whole markets. In other words, “Flawed perceptions cause markets ‘to feed on themselves.’”

The Soros effort to provide ‘intellectual’ support to how he views the world falls into the category of economic theories that blame “irrational” explanations for the movement of markets. A recent ‘academic’ presentation of this approach is the book by Robert Shiller and George Akerlof entitled Animal Spirits. Animal spirits, according to Shiller and Akerlof, are related to “noneconomic motives” that are major influences on people making economic decisions: motives like confidence, fairness, corruption and bad faith, money illusion, and stories. Because of these motives, they argue, financial markets will, from time to time, fall into chaos since animal spirits tend to drive the economy sometimes one way and sometimes another causing markets to fluctuate more excessively than if investors had complete information and acted rationally.

To perform well in these markets one must act intuitively and respond on the basis of instinct, attributes that Soros seems to have a plentiful supply of. However, intuition and instinct cannot be taught. They cannot be modeled. Soros, as a thinker and a writer, just does not possess the skills of a Shiller or Akerlof to present such a picture of the world coherently or cogently. And why should we expect this since we are told that Soros has never been more that an average scholar, even in college. Still he tries, for he wants to be a “philosopher.”

This, however, does not seem to satisfy the world famous investor and so he has branched out into ‘good works’ (his philanthropic efforts) and to changing how the world is governed (his efforts to promote liberal causes and open societies). People listen to him. Well, why shouldn’t they? He has lots and lots of money and he has been very willing to give it away to others. I’d listen to him too. It is a small price to pay.

Slater does a good job of relating the events in the life of George Soros: his upbringing in Hungary, his stay in London, his education at the London School of Economics (where he met and interacted with Karl Popper) and his move to New York. He follows Soros through the ups and downs of his investment career, spending a total of three chapters on his “greatest coup,” the “remarkable bet against the pound” in 1992, which “made him a world-famous investor.”

Read this book for the story of the man. Read this book as a history of the period. But, don’t read the book to learn how to invest like George Soros. And don’t read the book to see how all that George Soros has done has led to a contented life.

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