Lessons from George Soros

George Soros, the legendary hedge fund manager, philanthropist, and philosopher, is renowned for his profound understanding of financial markets and his development of the theory of reflexivity. His insights extend beyond investing, touching upon the nature of risk, the importance of acknowledging mistakes, and the principles of an open society.

On Investing & Markets

Soros's approach to the market is famously contrarian and built on the idea that markets are inherently flawed and driven by human psychology as much as by fundamentals.

"The prevailing wisdom is that markets are always right. I take the opposition position. I assume that markets are always wrong."
- Source: Soros on Soros: Staying Ahead of the Curve [1]
"Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected."
- Source: Goodreads, compilation of quotes. [2]
"It's not whether you're right or wrong, but how much money you make when you're right and how much you lose when you're wrong."
- Source: Widely attributed, found in multiple sources including Goodreads. [2]
"The worse a situation becomes, the less it takes to turn it around, the bigger the upside."
- Source: QuoteFancy, compilation of quotes.
"Stock market bubbles don't grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception."
- Source: QuoteFancy, compilation of quotes.
"If investing is entertaining, if you're having fun, you're probably not making any money. Good investing is boring."
- Source: Wikiquote, compilation from various interviews. [3]
"The fact that a thesis is flawed does not mean that we should not invest in it as long as other people believe in it and there is a large group of people left to be convinced."
- Source: The Alchemy of Finance [4]
"When a long-term trend loses its momentum, short-term volatility tends to rise. It is easy to see why that should be so: the trend-following crowd is disoriented."
- Source: QuoteFancy, compilation of quotes.
"The financial markets generally are unpredictable... The idea that you can actually predict what's going to happen contradicts my way of looking at the market."
- Source: Analyzing Alpha, compilation of quotes. [5]
"My peculiarity is that I don't have a particular style of investing or, more exactly, I try to change my style to fit the conditions."
- Source: Soros on Soros: Staying Ahead of the Curve [3]
"Find the trend whose premise is false, and bet against it."
- Source: QuoteFancy, compilation of quotes.
"Making an investment decision is like formulating a scientific hypothesis and submitting it to a practical test."
- Source: The Alchemy of Finance [6]
"The trouble with the argument [economic equilibrium] is that there can be no assurance that 'fundamental' forces will correct 'speculative' excesses. It is just as possible that speculation will alter the supposedly fundamental conditions of supply and demand."
- Source: The Alchemy of Finance, as quoted in a review. [7]

The Theory of Reflexivity & Fallibility

At the core of Soros's philosophy is the concept of reflexivity—the idea that our perceptions of the world can change the world itself, creating a feedback loop that drives markets. This is intrinsically linked to the principle of fallibility, the acknowledgment of our own imperfect understanding.

Learning: Understand Reflexivity. Soros's central theory posits that investors' perceptions don't just reflect reality; they actively shape it. This two-way feedback loop between perception and reality can cause prices to deviate significantly from their fundamental value, creating boom-bust cycles. [4][8]
- Source: The Alchemy of Finance, Investopedia
"The two principles [fallibility and reflexivity] are tied together like Siamese twins, but fallibility is the firstborn: without fallibility there would be no reflexivity."
- Source: CFA Institute Blogs, quoting Soros. [9]
"I believe the market prices are always wrong in the sense that they present a biased view of the future."
- Source: The Alchemy of Finance [6]
"Every bubble has two components: an underlying trend that prevails in reality and a misconception relating to that trend."
- Source: Open Society Foundations, transcript of a lecture on financial markets. [10]
Learning: Market prices can influence fundamentals. A rising stock price can make it easier for a company to raise capital, which in turn can improve its fundamentals, validating the initial price increase. This is a key example of a reflexive process. [11]
- Source: Capital Gains, "George Soros' Theory of Reflexivity"
"In situations that have thinking participants, the participants' views of the world never perfectly correspond to the actual state of affairs. People can gain knowledge of individual facts, but when it comes to formulating theories or forming an overall view, their perspective is bound to be either biased or inconsistent or both. That is the principle of fallibility."
- Source: CFA Institute Blogs, quoting Soros. [9]
"A boom/bust process is set in motion when a trend and a misconception positively reinforce each other."
- Source: Open Society Foundations, transcript of a lecture on financial markets. [10]
Learning: Bubbles have an asymmetric shape. The boom is typically long and drawn out, while the bust is short and sharp, often reinforced by forced liquidations. [12]
- Source: George Soros Lecture Series: Financial Markets
"The complexity of the world in which we live exceeds our capacity to comprehend it."
- Source: Novel Investor, compilation of quotes. [13]
Learning: Economics is not a hard science. Because the participants in the economy are thinking beings, their actions are not governed by immutable laws like in physics. Their thoughts and biases influence outcomes, making economics a social science with inherent uncertainty. [6][14]
- Source: The Alchemy of Finance, "Fallibility, Reflexivity, and the Human Uncertainty Principle"
"There is always a divergence between our perception and what actually exists."
- Source: QuoteFancy, compilation of quotes.
"My approach works not by making valid predictions but by allowing me to correct false ones."
- Source: The Alchemy of Finance [6]
"The generally accepted theory is that financial markets tend towards equilibrium... My proposition is that financial markets are self-destabilizing; occasionally they tend toward disequilibrium, not equilibrium."
- Source: Analyzing Alpha, compilation of quotes. [5]

On Mistakes & Risk

A cornerstone of Soros's success is his radical acceptance of his own fallibility. He views mistakes not as a source of shame, but as a source of learning and, ultimately, pride.

"I'm only rich because I know when I'm wrong."
- Source: Goodreads, compilation of quotes. [2]
"Once we realize that imperfect understanding is the human condition, there is no shame in being wrong, only in failing to correct our mistakes."
- Source: Soros on Soros: Staying Ahead of the Curve [1][5]
"To others, being wrong is a source of shame; to me, recognizing my mistakes is a source of pride."
- Source: Soros on Soros: Staying Ahead of the Curve [1]
"My sense of insecurity keeps me alert, always ready to correct my errors."
- Source: QuoteFancy, compilation of quotes.
Learning: Survival is the primary skill. Soros has stated that if he had to sum up his practical skills, he would use the word "survival." This involves a constant readiness to recognize and correct errors. [2]
- Source: Gracious Quotes, compilation of quotes.
"Risk taking is painful. Either you are willing to bear the pain yourself or you try to pass it on to others. Anyone who is in a risk taking business but cannot face the consequences is no good."
- Source: Soros on Soros: Staying Ahead of the Curve [1]
"The hardest thing to judge is what level of risk is safe."
- Source: QuoteFancy, compilation of quotes.
Learning: Act decisively when you identify a mistake. Soros is known for his willingness to cut losses quickly and without emotion once he recognizes a flaw in his investment thesis. [3]
- Source: Binance Square, "8 Powerful Investing Lessons from George Soros"
"It is when we are unaware of what could go wrong that we have to worry."
- Source: The Alchemy of Finance [2]
Learning: Embrace your fallibility. Soros turned the belief in his own fallibility into the cornerstone of his philosophy. This acceptance allows for critical thinking and the ability to forgive oneself for mistakes, which is essential for learning and growth. [1][5]
- Source: Soros on Soros: Staying Ahead of the Curve, Analyzing Alpha
"I couldn't recognize my mistakes if I couldn't forgive myself."
- Source: Soros on Soros: Staying Ahead of the Curve [1]

On Life, Society & Philanthropy

Soros's philosophy extends to his views on society, politics, and his extensive philanthropic work through the Open Society Foundations.

"The main difference between me and other people who have amassed this kind of money is that I am primarily interested in ideas, and I don't have much personal use for money."
- Source: Goodreads, compilation of quotes. [2]
"If we care about universal principles such as freedom, democracy, and the rule of law, we cannot leave them to the care of market forces; we must establish some other institutions to safeguard them."
- Source: Gracious Quotes, compilation of quotes. [2]
Learning: Circumstance doesn't have to define you. Born in Hungary and having survived the Nazi occupation, Soros's life is a testament to the power of action and the refusal to accept one's circumstances. He made his way to London and then New York, forging his own path. [12]
- Source: The Motley Fool, "4 Investing Lessons From Billionaire Investor George Soros"
"The main enemy of the open society, I believe, is no longer the communist but the capitalist threat."
- Source: QuoteFancy, compilation of quotes.
"It's more difficult, you know, to bring about positive change than it is to make money."
- Source: Goodreads, compilation of quotes. [2]
"Life can be seen as a fertile fallacy."
- Source: The Alchemy of Finance [4]
"I chose America as my home because I value freedom and democracy, civil liberties and an open society."
- Source: Gracious Quotes, compilation of quotes. [2]
Learning: Look for opportunities globally. Soros's success was built on a global perspective, identifying unique investment opportunities around the world that others often missed, most famously his bet against the British pound. [15]
- Source: Forbes, "Five Lessons Entrepreneurs Can Learn From George Soros"
"Whenever there is a conflict between universal principles and self-interest, self-interest is likely to prevail."
- Source: Gracious Quotes, compilation of quotes. [2]
Learning: Balance realism with hope. Having survived the Holocaust, Soros maintains a clear-eyed realism about the world but also a strong belief in the possibility of an open society, demonstrating a balance between acknowledging harsh realities and striving for a better future. [15]
- Source: Forbes, "Five Lessons Entrepreneurs Can Learn From George Soros"
"It is much easier to put existing resources to better use, than to develop resources where they do not exist."
- Source: Goodreads, compilation of quotes. [2]
"I'm not doing my philanthropic work, out of any kind of guilt, or any need to create good public relations. I'm doing it because I can afford to do it, and I believe in it."
- Source: Wikiquote, compilation of quotes. [3]
"The scope for improvement is infinite, precisely because perfection is unattainable."
- Source: QuoteFancy, compilation of quotes.

Learn more:

Lessons from George Soros

On Investing & Markets

The Theory of Reflexivity & Fallibility

On Mistakes & Risk

On Life, Society & Philanthropy

Written by Antoine Buteau

Lessons from Joseph Tsai

Lessons from Stanley Druckenmiller