Soros is a master-level financial theorist. He is always calm and calm. He does not laugh wildly or frown. He has a unique method of participating in the investment game and has the knowledge A special style necessary for financial markets, with a unique ability to penetrate the market. The primary secret to his success is his philosophy.
One of Soros’ investment secrets: unique philosophical outlook
In his early years, he wanted to be a philosopher and tried to solve the most basic propositions of human beings. However, he soon came to the dramatic conclusion that the possibility of understanding the mysterious realm of life was almost impossible, because first one had to be able to see oneself objectively, and the problem was that it was impossible to do this.
So he came to the conclusion that people are always unable to get rid of the fetters of their own opinions on the object being considered. In this way, people's thinking process cannot obtain an independent viewpoint to provide a basis for judgment or an understanding of existence. Give understanding. This conclusion had a profound impact on both his philosophical outlook and his perspective on financial markets.
The result of not being able to come up with an independent point of view is that people cannot penetrate the skin of things and arrive at the truth without bias. That is, the knowability of absolute perfection is rather questionable. As Soros said, when a person tries to explore his own environment, what he knows cannot become knowledge.
Soros deduced such a logic: because human understanding is flawed, the most practical thing he can do is to pay attention to human beings' flawed and distorted understanding of all things. This logic later formed became the core of his financial strategy.
Humans are not gods, and it is normal to be incomprehensible to market trends. However, when the vast majority of investors in the market have a complete understanding of the impact of fundamental factors and intend to continue to speculate , this kind of cognition is on the verge of danger. Why does a failed fifth wave appear in the market and why a V-shaped reversal often occurs after the fifth wave is extended? With Soros's philosophy, we can easily find out the answer.
Here, we will not comment on Soros’s philosophy for the time being, but aim to explore the problem that a successful investor should first solve, that is, his worldview and methodology, which will make him stand in a From a higher perspective, look at the market with a broader vision and dialectical thinking, keep a clear mind at all times, stay calm in the face of panic, deal with it calmly, and ultimately achieve success.
Soros’s investment secret No. 2: Market expectations
Soros believes that the completely free competition model established by classical economics theorists means that under certain conditions, it is beneficial to one’s own interests. The unrestrained pursuit of resources will optimally allocate resources and achieve balance. Not only does this balance never occur in real life, it is even more impossible in financial markets where prices fluctuate violently. He believes that the relationship between supply and demand is not only affected by objective factors, but more importantly reflects market participants' expectations of market behavior, and these behaviors are determined by these expectations. So the role of expectations plays a pivotal role in the development of supply and demand.
According to Soros's investment concept, people cannot fully understand their own environment, so people make buying and selling decisions based on expectations, which affects the market price. At the same time, this kind of market Behavior, in turn, affects the expectations of other participants. Not only is the surge in prices attracting many buyers, but the buying behavior itself also drives prices higher. A self-propelling trend develops. Therefore, Soros believes that it is precisely because of the interaction between supply and demand and market expectations that market behavior becomes an uncertain driver of future trends. That is, market trends control the development of demand and supply relationships.
In fact, Soros's behavior in the financial market is more speculative, seeking investment opportunities in exaggerated market expectations. On the surface, it ignores the inherent laws of price changes and focuses on the impact of participants' expectations on price changes. However, it is through correcting the deviation between market expectations and internal operating laws that he achieves the purpose of investment profits.
Different from the financial market, in the agricultural product market, the seasonal supply and demand changes are more obvious and dominate. The buying and selling behavior generated by market expectations can manipulate the relationship between supply and demand in the short term, but it cannot have a lasting impact.
Since agricultural products have poor value preservation, exaggerated expectations cannot truly reflect the relationship between supply and demand, resulting in drastic price fluctuations. Therefore, the exaggerated performance of expectations is particularly prominent in the agricultural product futures market, and corrections are particularly frequent, which deserves the attention of participants. .
Soros’s investment secret No. 3: Inefficient Market
The inefficient market theory is based on Soros’ philosophical research. He believes that human cognition cannot be perfect, and that all cognition is flawed or distorted. People rely on their own cognition to predict market operations, and interact with the inherent laws of value that affect prices, and even market trends. Manipulating the development of demand and supply, he came to the conclusion that the market we are dealing with is not rational and is an inefficient market.
This theory is incompatible with traditional economic theory. The efficient market theory believes that the operation of the market has its own logic and rationality, and the development of the market will eventually move towards a balance point. The prerequisites for reaching this balance point are that people can perfectly grasp market information at any given time, and that market prices can reflect all valid information.
Usually, most analysts adhere to the efficient market theory and use the information they have and their current price analysis to strengthen the development of the current trend. With the help of the public, the market becomes more irrational. become an inefficient market. We cannot say that we are moving closer to the equilibrium point of the market, and there is no need to criticize this kind of market. , because according to Soros's point of view, the market at this time is precisely the stage where ineffective market characteristics - irrational performance are most prominent, so the basis for analysts' judgments on the market at this time is also unreliable.
In the 1980s, Soros established a series of charity funds in Eastern Europe and the former Soviet Union. On the surface, they were charities. In fact, one of their important purposes was to change the original closed societies of these countries. Under the planned economic system, a free and fully market-oriented free economic system will be realized, because only in this way will it provide a broader space for the development of his fund. Understanding and making full use of market inefficiencies provides important prerequisites for Soros's investment.
Soros’s investment secret No. 4: Looking for gaps
After examining the development of various types of financial markets and macroeconomics, Soros found that they have never shown a trend of equilibrium. . In fact, it may make more sense to assert that the market tends to enter excessive disequilibrium, because sooner or later, this disequilibrium will develop to an intolerable level and will eventually have to be corrected.
People's decision to buy or sell a certain commodity is not so much based on the consideration that the market is in equilibrium, but rather based on the perception of market imbalance, or to be precise, on market psychology. Anticipate unbalanced perceptions. The disequilibrium that drives markets to excess is precisely the degree of deviation in expectations. Therefore, it can be said that looking for the gap between market expectations and objective facts is a shortcut for Soros to discover investment opportunities in the financial market.
He believes that the scientific method is based on the assumption that a successful experiment should confirm the validity of the hypothesis being tested. However, when the object involves thinking subjects, the success of the experiment does not guarantee the statement being tested. validity or truth. The participants' thinking has nothing to do with the facts, but it affects and complicates the development process of things. But scientific and objective facts will eventually correct those misunderstandings and cognitive gaps.
Taking the agricultural futures soybean market as an example, the gap in market expectations often occurs in the early stages of crop growth, the expectation of dry and wet weather conditions throughout the process, the final yield, and the expectation of excessive expansion or contraction of demand. , excessive expectations for the financial attributes of agricultural products, expectations for the duration and intensity of the impact of emergencies, and excessive expectations for the scale of funds amid the financial situation, etc...
Financial markets operate in imbalances , the gap between market participants’ perceptions and actual conditions is inevitable. Due to our limited energy and imperfect cognition, discovering the deviation between market expectations and objective things, and discovering that the market may have a tendency to be excessively imbalanced, is not only one of Soros' investment secrets, but also deserves the attention of public investors. .
Soros’s fifth investment secret: Discover connections
Financial markets belong to the category of social sciences. They are not only natural sciences, but also incorporate the subjective understanding of participants, and this Subjective knowledge and objective facts interact and influence each other, that is, there is a counterproductive relationship between imperfect concepts and actual development of events. This counterproductive connection increases the complexity of price movements and is not only closely followed by Soros, but has also become a classic theory used by market participants to explain financial market behavior.
Alchemy, one of the theories used by Soros in the financial market, is not intended to fully understand or reveal the true nature of things, but to achieve the desired state. He believes that the operation of natural laws has nothing to do with people's understanding of them. The only way for humans to influence nature is to understand and use these laws, and financial markets do not follow natural laws that are independent of anyone's thoughts.
Those who uphold the rational logic of economic life believe that the market is always correct, because the market has already taken into account future development trends and prices tend to be discounted. Soros believes that any idea of ??predicting the future is biased and incomplete. Participants operate on a skewed basis, and the skew itself has an impact on the progress of events, so it may give people the impression that the market Possibility to accurately predict the future. But in fact, current expectations do not reflect purely future events, but future events that have been affected by current expectations.
The counterproductive relationship between market expectations and the actual development of events may appear as self-propulsion, or may act as an avoidance of deterioration of events due to the expected warning effect. For example, there are exaggerated expectations of the impact of weather on the agricultural product market, and increased price deviations due to market expectations for inflation. However, such concerns often lead government departments to introduce policies to turn the tide and inhibit further deterioration of the situation.
For us, especially market participants who operate with the market-following system, discovering this reaction connection and understanding the intensity of the reaction force’s impact on the market is of great significance to their goal of maximizing profits. help.
Soros’s investment secret No. 6: Reveal bias
Since market expectations and the development process of events themselves are both interconnected and interactive, market expectations play a decisive role in the development of events. , becomes an important part of the thing itself, then the greater the expected deviation caused by the imperfection of people's understanding, the greater the possibility that relatively rational investors will discover profit opportunities.
Soros believes that market volatility stems from people's perception of biases and flaws in the market. This feeling comes from the fact that accurate feedback on known information has little effect, but is the product of the dual effects of rational analysis of hard data and one's own emotional tendencies. Investors rely on this feeling to form tendentious opinions and run buying and selling investments, which reacts on the market and affects investors' expectations. Therefore, the development of events is not from fact to fact, but from fact to feeling, and then from feeling to fact.
In the previous article, we mentioned that it is very important for investors to recognize the connection between market expectations and the development trend of events themselves, and to understand the impact of deviations in such expectations on the development of things. . One of the focuses of Soros's theory is to explore the role of misunderstanding or prejudice in the development of events.
Revealing the expected deviation and tracking the development of its deviation from objective things are very helpful for us to capture market opportunities on the one hand. On the other hand, as the market itself adjusts to the deviation from expectations, or* With the self-propulsion of the ** oscillation, we can adjust our own investment strategies and make adjustments to continue to hold or reduce existing positions. For example, the rise in CBOT soybean prices in May and June last year was mainly caused by drought in the Midwestern United States. The market believed that it might cause a reduction in soybean production. In fact, rainfall distribution in the soybean growing belt in the United States was uneven, and the drought areas were mainly in Illinois. It has little impact on soybean crops, especially since the late rainfalls have improved growing conditions. The market's exaggerated speculation about local droughts has resulted in a large deviation between expected yields and actual results, ultimately leading to a retaliatory decline in the market.
From the above analysis, it can be seen that when the deviation between participants' expectations and reality is very small, the market can correct itself, and its impact is negligible. Soros said that the market at this time is in a quasi-equilibrium state.
The investment value is not great; when the deviation is too large, there are two aspects of performance. One is that the idea and reality are very different, but the situation is still stable. For example, when the market is less open, the situation can be effectively controlled, which is meaningless to Soros. , the other is a high degree of marketization, large deviations from expectations, rapid development of events, no time for participants to respond, and unstable situation. This state is extremely beneficial to Soros and becomes a favorable opportunity for him.
Soros’s Seventh Investment Tip: Invest in an Unstable State
Market instability refers to when the deviation between market participants’ expectations and objective facts reaches an extreme state. After the reaction force makes the market push itself to a certain extent, it becomes difficult to maintain and self-correct, causing the market imbalance to develop to a considerable degree. At this time, the market is unstable.
The unbalanced market state stems from the strong contrast between the mainstream bias formed by market expectations and the objective reality. Sober investors in the market began to reflect on this bias and challenged the mainstream bias. The original dominant factors in the market have become fragile, but the inertia of the market has made the original trend crazy. Things must go from extreme to extreme. One of the secrets of Soros's investment success is to be good at discovering the unstable state of the market and seizing the opportunities when booms and busts occur.
For example, in a case that occurred in the mid-1980s, a bidding company's bid caused the company's assets to be revalued, so the bank granted more loans to other bidders, making their bids higher and higher. . Finally, bid prices skyrocketed and the market became shaky due to overvaluation. According to Soros' theory, a collapse will be inevitable. The possibility of booms and busts is greatly increased, and unstable market conditions provide opportunities for investors.
There are also examples of ups and downs around us. When the price of US soybeans rises to 1,000, the market predicts that it will reach 1,400 or 1,600. According to market psychology, soybean stocks were extremely underestimated at this time, and the value of soybean prices was greatly exaggerated. Eventually, a boom-and-bust phenomenon occurred, soybean prices plummeted, and domestic importers defaulted one after another. The high price of soybean imports caused oil and fat companies to reshuffle their fortunes.
It is also very critical to grasp the timing of booms and busts, because this is often when the mainstream market bias is strong and the lethality is relatively strong. Only by adopting appropriate investment strategies and building positions in a planned way can we make full use of this trend. The investment opportunities brought to us by this unstable market state.
Soros’s Investment Secret No. 8: Confirm Chaos
Unstable market conditions have always been a position for Soros to test his theory of reflexive effects. Soros believes that financial markets Unrest and chaos. The rule of the game is to grasp this disorder. This is the way to make money. By investing in unstable markets, although his theory was not perfect, he eventually won the title of investment master and the best investment manager in the world.
According to Soros’s theoretical understanding, the inherent laws of financial market operation do not operate independently. The opinions, prejudices and psychological factors of market participants all play a role in promoting or restricting the development of things, so that The final development may be beyond most people's expectations. It can be said that the operation of the market is not logical, but more psychological and based on group instinct. Different understandings and predictions of a certain thing are often the main reasons for confusion. Soros believes that the secret to success in the financial market lies in the extraordinary ability to foresee general expectations, and that accurate predictions of the real world are not necessary.
Chaotic markets depend on clear differences in how participants perceive things. The greater the divergence, the more chaotic the market will be, and the mainstream direction is often not clear at this time. Due to the persistence of all parties, the price trend is also volatile.
Soros is addicted to chaos because that's how he makes money: understanding the revolutionary processes in the market. For example, after the reunification of Germany and the United Kingdom joining the European Exchange Rate System, a new monetary system created by Western European countries, Soros seemed to see the impending chaos in the unstable European financial markets. Through years of observation, Soros accurately captured its instability. When the vast majority of people did not admit the existence of such instability, chaos occurred. This British Pound Blockade earned nearly $1 billion from a single transaction.
From Soros’s investment process, we can see that objective macroeconomic analysis and a good psychological state are indispensable factors for us to identify chaos, seize opportunities, and win in chaos.
Soros’s investment secret No. 9: Invest first, investigate later
Soros’s interaction theory only provides him with the direction of investment goals and methods to seize potential opportunities, and It cannot provide accurate directions and important turning opportunities. One of the secrets to converting theory into practice to gain profits is to invest first and investigate later.
Investing first and investigating later means formulating hypotheses, establishing positions, testing the hypothesis on a small scale, and waiting for the market to prove whether it is correct or not. If the hypothesis turns out to be correct, add to the position, otherwise exit in a timely manner.
Sometimes it takes a long time to confirm a trend. It is very likely that when he hesitates, the market trend has begun to reverse. Therefore, establishing a position immediately after making a hypothesis will help him seize the best opportunity. Investment timing.
The key to Soros’s investment success lies in his philosophical thinking. He knows that people’s understanding of things is always flawed. No matter what assumptions are established, investors’ imaginations in a certain period of time must be wrong, which means that this assumption is based on certain flaws that must exist in the assumption. The key to success is to constantly look for flaws that are crucial to you in the market's interpretation. Pay attention to its impact on investment behavior. When Soros and Rogers started Quantum Fund, they had a division of labor. Rogers acted as an analyst, while Soros was the decision-maker. They followed the routine of investing first and investigating later. Soros invested first and Rogers investigated later.
Sometimes investments made in search of feelings will be consistent with the current market trend, reflecting the convergence of this assumption with public investment psychology. This is often what Soros is most worried about, because there are The recognition of defects has become the mainstream trend of the market, which is the prosperous side of the market. Once Soros discovers flaws in his investigation and pays close attention to them, he will be sensitive to the signals sent by the market entering a boom or bust. This is also the critical point of the trend he is looking for. At this time, he will leave the public and act alone, close all previously established positions, establish new investment concepts, establish new positions, and obtain maximum profits in a new trend. When his hypothesis is correct, he will add to the position, and when the prediction of his hypothesis fails, he will work hard to study the reasons for the failure, withdraw the position without hesitation, and get out of the game.
Based on assumptions, investing first and investigating later is one of Soros's investment secrets to feel the market more accurately and comprehensively, seize opportunities, and obtain maximum profits.
Soros Investment Secret No. 10: Discover Overreacting Markets
The important practical value of Soros’ investment theory lies in its use of reflexive theory to discover overreacting markets and track the market After the trend is formed, it will be self-propelled and strengthened and finally lead to decline. Finding the turning point is exactly the investment opportunity that can obtain the maximum benefit.
The formation of an overreactive market is mainly due to the mainstream bias formed by followers who follow the trend and promote the market. The actions of followers have a certain degree of blindness, but they can also make the market itself trend strengthens. Due to the complexity of market factors, the more uncertain factors there are, the more people will follow the market trend, and the greater the impact of this kind of speculative behavior following the trend. This impact itself has become one of the fundamental factors that affect the market trend. First, the wind helps the fire, and the market is swayed by the exaggerated biases of investors. The interaction between the two makes investors fall into blind mania. The stronger the trend, the farther the bias deviates from the truth, which actually makes the market become more and more biased. Coming closer to vulnerability. The ultimate result of an overreactive market is the occurrence of booms and busts.
According to Soros’s theory, the main sequential characteristics of the boom and bust phenomenon are:
1. The trend of market development has not yet been identified
2. Once the trend is identified Identification, which will strengthen the development of the trend and lead to the beginning of a self-propelled process.
Prejudices are increasingly exaggerated as current trends and current skewed perceptions reinforce each other. When this process develops to a certain stage, the conditions for "extremely unbalanced state" will become mature.
3. Market trends can be successfully tested: Market trends and the biases of market participants can be tested over and over again through various external shocks.
4. Increase in certainty: If prejudices and trends can remain unchanged after withstanding various shocks, then in Soros's words, they are "unshakable." This stage is an accelerated process.
5. Break between reality and concept: The emergence of this stage marks that the rift between belief and reality is so big that the bias of market participants has become obvious, and the climax is about to come.
6. Finally, a mirror-reflective, self-propelling process occurred in the opposite direction. At this time, people's views on the market no longer play a driving role, the original trend stagnates, another voice begins to affect the market, and the original market confidence begins to lose. At this time, the market begins to switch in the opposite direction. This switching point is called the "crossing point." . It is the collapse acceleration stage.
Booms and busts occur from time to time in the financial market, especially for the agricultural product market. Due to seasonal characteristics, the fluctuation cycle is short, and seasonal factors have a greater impact on the market. It is very easy to over-hype one of the fundamental factors, and the market will frequently show a frenzied state, such as continuous rise or fall, with limited time and space for correction. This kind of market situation often leads to the occurrence of boom and bust phenomena (market. For the metal market, because its cycle is closely related to the macroeconomic environment, the cycle is relatively longer than that of the agricultural product market, and the confirmation of its turning point should be extremely cautious as it will be overwhelmed by a self-propelled trend.
In other words, the key to investment success is to recognize the moment when the market begins to drive its own development momentum. Once this critical moment is confirmed, investors will be able to discern whether a boom or bust is beginning. It is already running. After discovering the turning point, the operation may appear as a counter-trend operation in the short term, so it is very necessary to set a stop loss and adjust the strategy in time.
Soros Investment Secret No. 11. : Broaden access to information and look at the macroeconomics
Soros’ investment method of investing first and investigating later is not a blind, gambling operation, but is based on well-thought-out assumptions and takes a broad view. In his opinion, the investment decision made after macroeconomic environment and collecting a wide range of information is exactly an economic decision.
The price trends of trading varieties have long-term trends, medium-term trends and Short-term trends and short-term market fluctuations are crucial at the turning point of the situation, but when a trend has been established, its effect is minimal. As Soros's huge investment fund, in order to obtain good returns, it has an important impact on the economic operating environment. Macro grasp is very necessary. Only by standing high can you see the local changes in the market and grasp the fulcrum of the trend.
For example, when Soros looks for sudden changes in the stock market, he focuses not on a company's next quarter's revenue, but on the broader social, economic and political factors that affect a certain industry or product. When tracking, he always runs through the overall macroeconomic theme involving complex international trade conditions. The transformation of the banking industry in the 1970s marked the beginning of the massive lending boom that promoted the expansion of American companies in the 1980s. and merger. According to his interaction theory, Soros identifies the beginning of prosperity in the process of boom and bust.
Soros has a wide range of information channels and extraordinary communication skills. Find the right person among your friends and learn about the macroeconomic development trends around the world from them. He attaches great importance to the opinions expressed by other international financial authorities and their decisions.
If event A occurs, it will be followed by event B, and then event C. Similarly, analyzing this complex information, his philosophical worldview and methodology gave him a unique understanding of the cause and effect of the world economy. In fact, this is one of the most important investment secrets behind Soros's success.
Soros’ investment secret No. 12: Keep the green hills without fear of running out of firewood
Soros once said that risk is crucial to him and can stimulate his adrenaline secretion. , danger can stimulate him. It's not that he loves danger, but that he needs a feeling of being fully committed to the market. The high-risk financial market has an incomparable attraction for him and has made him a generation investment master.
Soros is known as a classic adventurer and leverage king. In high-risk market operations, he has had great successes and suffered disastrous failures, but in the end he did not become a passer-by and gained. Success, in addition to his keen vision, rational analysis, and superb ability to grasp opportunities, is more importantly his awareness of self-protection as an investor and his ability to protect himself. Keeping the green hills and not worrying about running out of firewood is one of the sacred laws he adheres to, and it is a crucial guarantee for his success.
The desire to survive tells him that there is no blame for taking risks, but at the same time, he must remember not to take desperate risks. Soros never plays the tightrope game, so the most important judgment he makes when making investment decisions is how much risk he should take while still ensuring his own safety. When things go against his expectations and his prediction fails, he would rather make a premature decision. Close your position and don't stop your losses too late. This is Soros's typical approach. Only by giving up the battle in time can he survive to fight the next battle.
Explorers who can cross Lop Nur, which is known as the restricted area of ????life, must also prepare meticulously. Even so, in the end, they may have to rely on their instinct for survival. The greatest adventurers often appear to be wild and uninhibited, but in fact they are the most careful and careful people. Because they must remain eligible to participate in the game. The courage to take risks is commendable, but the important thing is that there is still room for a comeback. The god of fate is turning in the securities field. It makes the risers decline and the decliners rise. Everything will eventually pass and return to the mean.