Soros's investment secret: Value does not exist, the world is an illusion, right and wrong do not matter, profits and losses determine heroes.
How did he manage to be wealthier than 42 countries? Below, I summarize the 18 investment maxims Soros has realized.
1. Break Through Distorted Concepts
Soros discovered through early philosophical studies that human cognition has flaws, leading to distorted views of reality. The essence of financial investment is to capitalize on the gaps and distortions in human understanding.
2. Focus on Market Expectations
Soros is not convinced by the completely free competition model established by traditional economic theory. He believes that the development of supply and demand relations can be manipulated by the market, leading to price fluctuations rather than moving towards equilibrium. Furthermore, future price trends are determined by current buying or selling actions. Therefore, one must rely on one's own understanding to anticipate the market.
3. The Ineffectiveness of the Market
The efficient market theory of classical economics assumes that financial markets will ultimately reach equilibrium. However, according to Soros, the way financial markets operate makes them inherently inefficient, meaning they are irrational. Judging market conditions based on the efficient market theory is also unreliable. By utilizing and seizing the investment opportunities provided by the inefficient market, Soros's fund has grown.
4. Find Deviations
Financial markets operate in imbalance, leading to unavoidable deviations between market expectations and objective realities. Finding tendencies of excessive imbalance in the market is a shortcut to discovering investment opportunities.
5. Discover Connections
Market participants operate with biases, and those biases can also influence the progression of events. Soros believes there is a feedback relationship between the biases of market participants and the unfolding of reality, where future events are shaped by expectations.
6. Reveal Market Biases
According to reflexivity theory, markets are inherently unstable, and biases and cognitive flaws further lead to market volatility, which in turn affects investors' expectations—creating a two-way feedback between cognition and reality. This instability is extremely beneficial for speculators.
7. Utilize Market Instability
When market expectations deviate from objective realities, the financial market enters a state of continuous instability with 'ups and downs', providing investors with opportunities to understand the market's thoughts.
8. Grasp the Chaos
The operation of the stock market is based not on logic but on the psychological level of group instincts. Understanding the roots of chaos in financial markets is the key to making money.
9. Make Good Use of Overreacting Markets
The cognitive flaws and blind following of retail investors can lead to excessive market expansion. When deviations become too large and exceed a certain threshold, opposite trends may emerge. Soros often follows the trend while looking for turning points to prepare for counter-investments.
10. Fundamentals
Soros believes that the biases of market participants not only determine market prices but also affect the 'fundamentals', and thus reflexivity theory comes into play. Once one realizes that fundamentals are affected, they can act ahead of others.
11. Invest First, Investigate Later
In his investment practice, Soros always hypothesizes a development trend based on research first, then establishes a small position to test the market. If the hypothesis holds, he continues to invest heavily; if the hypothesis is wrong, he withdraws without hesitation.
12. Predicting Trends
Soros is skilled at analyzing industries and stocks from macro social, economic, and political factors, aiming to discover the significant gap between expected and actual stock prices to profit.
13. Be Brave to Break Through
Many investors' mistakes lie in accurately grasping market trends but missing opportunities due to a lack of confidence. Soros's view is that if you have a strong conviction about a trade, you should be brave enough to invest heavily and maintain balance at high leverage.
14. Listening to Multiple Opinions
Soros believes that besides analyzing based on professional knowledge, intuition is also very important in investments. His intuition often comes from macro considerations of international trade conditions and insights from various international financial authorities about their views and strategies regarding macroeconomic development trends.
15. Survival and Self-preservation
Although investing with credit leverage can amplify profits, mistakes can lead to heavy losses. One of Soros's reasons for success is his skill in surviving desperate situations, closing positions early when errors are detected, and retreating in time to avoid greater losses.
16. Accepting Mistakes
Soros believes that while making mistakes is not something to be proud of, it is nevertheless part of the game. Therefore, at the beginning of his investments, he often assumes that the positions he has established may be wrong, and remains vigilant. This way, he can discover and correct errors more promptly than most people.
17. Avoid a Gambler's Mentality
In Soros's view, taking risks is not inherently wrong, but that kind of all-or-nothing gambling risk should be curbed in time.
18. Think and Self-reflect
Soros has a detached patience towards financial markets. He believes that the effects of interest rate and exchange rate changes require time, and thus the entire investment is often a protracted battle. Spending time thinking, learning, and self-reflecting is often an important part of the waiting process. Soros has said: Financial markets are inherently unstable, and international financial markets are even more so. The flow of international capital has both booms and busts, both bulls and bears. Where the market is chaotic, there is money to be made. If you can identify the chaos, you may become wealthy; the more chaotic the situation, the more chances for bold and meticulous investors to shine. — Isn't this the case in the cryptocurrency world, brothers!
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