Possibly no investing legend is more polarizing than financier George Soros. Anyone who donates millions of dollars to further political agendas around the world is going to be controversial.
But whatever you think of his politics, his incredible success as an investor is undeniable. The refugee from Nazi-occupied Hungary who worked as a nightclub waiter in London is now one of the greatest investors of all time, with a net worth of $8.6 billion — and that’s after giving tens of billions of dollars away over the years.
It makes sense to at least understand the cornerstone of his investing philosophy.
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How to Bend Reality to Your Investing Will
According to Soros, almost everything about conventional theories of finance is wrong.
Forget the “efficient market hypothesis” stating that shares of companies are already fairly priced by all available information, making efforts to beat market returns a fool’s errand.
Instead, Soros has pioneered something called the theory of reflexivity. It states that economic fundamentals are malleable.
To oversimplify, reflexivity means that investors’ perceptions can become self-fulfilling prophecies.
This may seem obvious in the short term. For example, if investors think that gold is a good hedge against inflation, and they believe inflation is coming or already rampant, then gold prices will go up.
It doesn’t matter that, when you strip emotions and biases from your views on gold, it’s ultimately just a metal that “sits and looks at you,” as business magnate Warren Buffett put it.
But because of the power of reflexivity, gold has been an enormous force for wealth creation over the last few millennia. The same can be said of other assets with no intrinsic value like Bitcoin.
Soros Fund Management LLC has boosted Bitcoin before, with Chief Investment Officer Dawn Fitzpatrick announcing a stake in Bitcoin while declaring it had “crossed the chasm into the mainstream.” Bitcoin soared in the months ahead — and as the theory of reflexivity would predict, the validation from Soros didn’t hurt.
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Soros Is Boosting Another Industry
In August, Soros made another massive foray into electric vehicle (EV) stocks. According to second-quarter filings, he purchased $20 million worth of Tesla Inc. TSLA shares, while buying shares of Ford Motor Co. F for the first time.
Soros bought over $27 million of Ford in total, just before the company began delivering orders for its new electric F-150 pickup trucks. He also increased his fund's positions in EV companies Nio Inc. NIO and Lucid Group Inc. LCID.
This diversification across multiple EV companies amounts to a broad bet on the sector as a whole. And as the Biden Administration establishes America’s first-ever national network of EV charging stations, this catch-all bet may pay off handsomely for Soros and any investors who emulate it.
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