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George Soros: The Man Who Moves Markets

From time to time I like to augment this blog with profiles of investors who have changed the face of Wall Street. George Soros is one such man.

He's worth a closer look.

When George Soros shorted the pound sterling with $10 billion worth of leverage (as he did in 1992), the man who would become famously known as “The Man Who Broke the Bank of England” sent the world a message on just how exactly world-class risk managers operate.

Soros, who is fond of saying that risk comes from “not knowing what you are doing,” knew going in that the most he could lose was about 4% of his portfolio. “There was really very little risk involved,” he said after walking away with $2 billion in profits.What’s more interesting to Soros - -and vital investment advice to the rest of us – is not the amount of risk one takes but, more importantly, how much money you make when you’re right about a stock and how much money you lose when you’re wrong about a stock.

The key to Soros’ investment legend is embedded in that simple philosophy – to invest in a handful of positions that generate big profits that can offset losses on other investments.That’s not diversification – one of the top commandments from Wall Street types -- but Soros doesn’t believe in diversification. He believes in getting a few big picks right and sticking with them.

A Life Well Lived

After a lifetime of picking stocks – and then taking on global political causes, George Soros should be tired. At 76 years old, he’s survived the war, the Holocaust, the devaluation of several foreign currencies, the chaos of global financial speculation, a conviction by France’s highest court for insider trading, international criticism, the democratic upheavals in Eastern Europe and the former Soviet states which his Soros Foundation has helped to foster, and has been a key player in the increasingly fractured political environment in the U.S.It’s not been easy. But Soros shows little signs of slowing down. He has just released a new book The Age of Fallibility: Consequence of the War on Terror, in it he argues why President Bush’s war on terror is actually a disservice to the tenets of democracy, human rights and freedom. He’s hit the talk show circuit, appearing on NPR and has been interviewed recently for the Wall Street Journal,, New York Times magazine, and

Soros commands attention not so much for his political views, but the bank account he puts behind his political agenda.His personal fortune is estimated at $7.2 billion. In 2005 Forbes listed him as the 28th richest person in the United States and for 2006 he checks in as the 71st richest person in the world – that out of the more than 6.5 billion people who inhabit this earth.While George Soros has had some pretty heady hills to climb, his intellectual, political, and financial crampons have been strong. And today, the president of Soros Fund Management, chief investment advisor to Quantum Fund N.S. is not only still climbing them—he’s moving them aside.

Quantum Leap

Soros’ investment story dates back to 1970, when he co-established the Quantum Fund with Jim Rogers, another accomplished trader. Rogers would go on to be a world famous investor as well. The Quantum Fund was a private company that would, over the next decade, create the bulk of his fortune.

To say its performance has been stellar is an understatement. If $1,000 was invested with Soros in 1969 it would be worth nearly $6 million today. Compare that to a $1,000 investment in the Standard & Poor’s Index in 1969, which would be worth a little more than $34,000 today.

In fact, with a compounded annual rate of return in excess of 28 percent, the Quantum Fund makes Soros known as the most powerful and profitable investor in the world.

The Man Who Moves Markets

While Soros’ rise to wealth—an estimated $11 billion by the mid-eighties—was relatively steady, it wasn’t without its challenges. In 1988, Soros was asked to join a takeover attempt of a French bank. He declined, but did buy the bank’s stock, later claiming the takeover was public knowledge. The French court didn’t buy it. And, in 2002, it accused him of insider trading. He was fined $2.3 million and appealed the conviction, but in June 2006 it was upheld by France’s highest court.Still, the incident didn’t stop him from betting against the British pound in 1992, hastening its devaluation. It was another defining moment for Soros, since it marked the making of his first billion—and instant fame.

Since then, Soros has greatly leveraged his fortune as a shrewd investor, a trend spotter, and a savvy manager. In addition to managing the Quantum Fund, now valued at $12 billion, and acting as President of Soros Fund Management, valued at $2.72 billion, he is also a renowned author, philanthropist, political activist, speculator, investor and overall financier.

He’s also a man who draws great criticism for claiming that the current system of economic globalization undermines healthy development in many underdeveloped countries.

Still, his critics have accused him of being personally responsible for many financial debacles, including the British collapse. Soros, however, is nonplussed. He continues to work on furthering his own economic self interests and lobbying for an overhaul of the global financial system simultaneously. “As a market participant,” he’s said, “I don’t need to be concerned with the consequences of my financial actions.”

(Continued Tomorrow)

Published Sep 22 2006, 12:15 AM by moneycoach
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