He Foresaw the End of an Era

George Soros has been an active investor for more than half a century. In the mid-1980s, when I started writing about Wall Street, he was already a leading hedge fund manager. Not many people understood hedge funds back then, but for those in the know Soros’s Quantum Fund, which he founded in 1973, was the model: year after year, it had achieved returns in excess of the broader market. After weathering the 1987 stock market crash, Quantum, since 1989 under the day-to-day management of Stanley Druckenmiller, racked up more big gains, culminating in a huge bet against the pound sterling in 1992, which reportedly netted more than a billion dollars. (Soros has never publicly confirmed the exact figure. The British newspapers put it at $1.1 billion.)

Thereafter, Soros spent an increasing amount of his time on philanthropic activities throughout the world, including many laudable efforts to promote the spread of democracy in his native Eastern Europe. (He was born in Budapest in 1930.) After 2001, he also involved himself in domestic politics. A vocal critic of the Bush administration, in the run-up to the 2004 election he donated considerable sums to MoveOn.org, the liberal Internet organization. More recently, he and his family have contributed to Barack Obama’s presidential campaign.

But Soros remains first and foremost a speculator. In 2007, after the subprime crisis erupted, he returned, at the age of seventy-seven, to directing Quantum’s investments, with results suggesting he hadn’t lost his touch. Alpha magazine, a glossy publication that covers hedge funds, estimates that he made $2.9 billion in 2007, placing him second on its list of mega-speculators, behind only John Paulson, of Paulson & Co., who raked in an even more astonishing $3.7 billion.

At the start of this year, Soros, convinced (correctly) that the financial crisis was far from over, adopted a bearish investment strategy, which he describes thus: “short US and European stocks, US ten-year government bonds, and the US dollar; long Chinese, Indian, and Gulf States stocks and non-US currencies.” Initially, some of these positions didn’t pay off. Between January and March, US bonds rallied and Indian stocks tumbled, wiping out gains in other parts of Quantum’s portfolio. Just how Soros has fared in the past few months of market turmoil may be known only to investors in Quantum, but it would be foolhardy to bet against him.

Forbes magazine recently estimated Soros’s net worth at $9 billion. For all his worldly success, though, he still has an unfulfilled ambition: to be taken seriously not just as a financial practitioner but also as a theoretician. In 1987, Simon and Schuster published his first book, The Alchemy of Finance, in which he revisited some of his investments and expounded his theory of “reflexivity,” which claims that major market movements, such as the recent rise in commodity prices, sometimes take on lives of their own, entrapping investors in illusions and imparting a fundamental instability to the economic system.

The book proved popular with other investors. Paul Tudor Jones…


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