How George Soros became the greatest speculator in history

Today, George Soros is famous for being one of the richest men alive. He is also widely regarded as one of the greatest investors in history, having returned over 25 percent per annum over a period of more than 45 years. This remarkable achievement is largely the result not of drive or ambition, although Soros has plenty of that, but of a peculiarly philosophical approach to the markets and Soros’ ability to accurately assess the ways in which real world transactions function.

Unlike many of his billionaire peers, Soros had no inclination to become fantastically wealthy, until much later in his life. This was only a product of the realization that Soros could use that wealth as a means to affect the kinds of society-wide changes that he deemed to be necessary in order to maximize personal freedom and the openness of societies across the globe.

Soros was always heavily influenced by the field of philosophy in general and his old philosophy professor, Karl Popper, in particular. The latter was most famous for his seminal work, ‘The Open Society and Its Enemies’. This book had such a profound effect on the young Soros’ intellectual development that he would later go on to name his flagship philanthropic organization, The Open Society Foundations, after its title. Learn more on about George Soros.

But the study of philosophy did not merely awaken in Soros a desire to pursue philanthropic goals, it also provided a framework from which to view how markets themselves function. After bouncing around Wall Street for a number of years, Soros begin to have a series of epiphanies about the ways in which actual markets function.

The reigning orthodoxy of the time was something called the efficient market hypothesis. This theorem postulated that markets were nearly perfectly rational machines, taking into account all information about the pricing of assets and perfectly signaling to buyers the underlying value of the securities being traded. George Soros turned all of this on its head. He developed a theory that he turned reflexivity. This theory held that markets were anything but efficient. Instead, Soros saw markets as being driven by actors who were completely fallible and mostly irrational. The ways in which securities actually are priced he saw as being a function of the perceptions that market participants had of the perceptions of other participants, not the fundamental value of the underlying assets.

In the mid-60s, this was a totally heretical view. It ran completely counter to the state of academic knowledge and made Soros a somewhat amusing outcast and fringe figure. However, Soros would roundly prove the merit of his theories. Over the next 45 years, he returned some of the highest earnings in the history of the financial markets, becoming, unquestionably, one of the greatest investors who have ever lived. Learn more about George at Biography.