George SorosTrading Legends: George Soros. Photo: (Flickr)

Trading Legends: George Soros

Not only did we survive, but we managed to help others. This left a lasting mark on me, turning a disaster of unthinkable proportions into an exhilarating adventure. That gave me an appetite for taking risk. George Soros

It’s impossible to separate George Soros’s trading career from his personal life, or his love of making money from appetite for giving it away. This is perhaps why he’s one of the world’s best-known and most controversial traders.

Soros was born into a Jewish family in Budapest in 1930. These facts meant he was destined to be affected by some of the darkest events in recent European history. “The formative experience of my life was the German occupation of Hungary in 1944,” he has written.

Soros, and also both his parents and his brother, survived the Nazi persecution of Hungarian Jews during this time. This was largely thanks to the initiative of his father, who obtained false identities for them, and a number of others.

Soros’s father was an important influence on the young George. “Using what life had taught him,” says Soros’s biographer Michael Kaufman, “[he] prepared his sons for the unpredictable and unforeseen”.

Soon after the end of the war Soros left Hungary for the UK, where he studied at the LSE. He found life in post-war London hard, especially a period after breaking his leg, but persevered. After completing his degree studies a year early, he chose to study with philosopher Karl Popper and developed what he refers to as his personal “conceptual framework” centred around the idea of “reflexivity”.

In a nutshell, this is the belief that humans have a faulty understanding of how systems work, which affects the operation of these systems and further modifies understandings of them, leading to periods of turbulence. His eventful youth inspired him to not just attempt to survive these processes, but also to benefit from them.

After refining his thinking during fifteen years working at banks and investment houses, Soros eventually set up his own investment vehicle, which was soon seeing significant returns. What is now known as the Quantum Fund has made over $40 billion since it was founded, and at one point had an average annual return of over 20 per cent.

But not everyone took Soros seriously. In 1994, renowned financial journalist and Liars’ Poker author Michael Lewis described Soros’s way of investing as simply speculation on market skittishness during times of uncertainty.

“The bets generally arise from nothing more scientific than Soros's reading of the newspapers,” Lewis wrote in an article. “They tend to have as much to do with political as with financial events. All of his extraordinary profits are the result of…giant gambles paying off big.”

This is an exaggeration, but it is fair to say that Soros’s most famous wins have come from the effect of big events on the markets – which he has sometimes been accused of magnifying.

Take Soros’s involvement in 1992’s Black Wednesday. He made around $1 billion by betting against the Pound as it struggled to stay in the ERM – and arguably helped to force its withdrawal. Or his trading in connection with the Asian financial crisis a few years’ later. Following this, the then-prime minister of Malaysia accused him of causing a 15 per cent crash in the value of the Ringgit.

With characteristic daring, Soros decided to turn this kind of negative publicity to his advantage. “He made a conscious decision to exploit his new notoriety as ‘The Man Who Broke the Bank of England’ to gain influence among world leaders,” says Kaufman.

This made sense as Soros was shifting the focus of his activities to politically-tinged philanthropy, mostly conducted through his collection of Open Society foundations. Among the most significant in a vast range of achievements is the founding of the Central European University. Another is the provision of a tap water filtration plant in occupied Sarajevo that enabled inhabitants to avoid being fired on by snipers while collecting well water. Long before Bill Gates began his Giving Pledge campaign, Soros had committed to giving half of his wealth away to causes he believes in.

Not the classic remorseful rich man pondering camels and needles, Soros remains a trader at heart. You could see his philanthropic activities as long investments in the kind of freewheeling political and economic climate that he has prospered in. “I am passionately interested,” he says, “in improving the system that has allowed me to be successful so that it will become more enduring.”

There are many truly charitable people in the world, but few of them amass the kind of wealth that is necessary to be a philanthropist.George Soros