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Pioneer Natural Resources (PXD), Shutterfly, Inc. (SFLY) & More: How To Invest Like George Soros

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Billionaire investor. Philanthropist. Political provocateur.

His legendary investing acumen, vast net worth and political activism have made George Soros a feared and respected power broker worldwide.

Soros is driven by an investment philosophy built upon the scientific method combined with a focus on societal change. His reputation sends shivers of fear through the central banks with weakened currencies and disagreeable governmental policies. His political stances aside, this mentor to hedge fund legends like Jim Rogers and Victor Niederhoffer can offer critical lessons for any investor.

George Soros’ Biography
hedge fund researchBorn in 1930 in Hungary, Soros survived the Nazi occupation of his homeland. After fleeing communist-dominated Hungary in 1947, he attended the London School of Economics graduating in 1952. It was here where he began studying Karl Popper’s “The Open Society and its Enemies,” a critique of totalitarian societies and an examination of the scientific method. These two ideas became the guiding light for the rest of his life.

Making his way to New York in 1956, Soros accepted a job at Wall Street firm F.M. Mayer. After gaining experience at several financial firms, he launched his own hedge fund in 1973. First named the Soros Fund, the Quantum Fund had incredible success over the years. The success was so great that in 2012, Soros made the list as the 22nd-wealthiest person alive, with an estimated fortune of $20 billion.

Another way to picture Soros’ investing success: If you had invested $1,000 with him in 1969, you would have earned a cumulative annual return of 30%, or about $4 million by 2000. Talk about powerful investing returns!

It is this financial success from trading and investing that funded Soros’ foray into philanthropy. Launching the Open Society Institute in 1984 with the goal “to advance justice, education, public health, business development and independent media” on a global scale, Soros has given $8 billion via his institute to support human rights, freedom of expression and access to public health and education in 70 nations. No shrinking violet, he has written 12 books and remains chairman of the Quantum Fund.

George Soros’ Investment Strategy And Big Wins
Soros’ primary financial market philosophy is something he calls reflexivity. Reflexivity is a set of ideas that seeks to explain how a feedback mechanism can skew how market participants value assets in that market. He uses this framework as a means to predict financial bubbles, among other economic changes.

Soros also applies the scientific method to his financial trading strategy. This means that his first step in deciding what to trade is to develop a thesis about what he believes will happen, based on the available market-provided evidence. Secondly, he tests the thesis in the real market studying the results. If the position goes against him, he gets out. If it goes his way, thus confirming the original thesis, he adds to the position.

Most interestingly, when testing his investing thesis, Soros says he relies on bodily hints and intuition for clues. For instance, he has said that if he gets a backache after entering a trade, he takes it as a sign to close the position.

(On a personal note, my friend Dr. Flavia Cymbalista, an expert in uncertainty, was summoned by Soros to help him in quantifying these bodily and intuitive investing clues. In my opinion, this is fascinating research.)

Soros’ largest win earned him a reputation as “the man who broke the Bank of England.” He made more than $1 billion by betting that the British pound would have to be devalued due to the negative impact British high interest rates were having on asset prices. In addition, Soros simultaneously purchased British stocks based on the idea that stock prices would increase after currency devaluation.

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