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George Soros

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2016-02-21
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2016-02-21
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  1. “All right, all fantastic questions. And for everybody that asked their question, we're going to send you a free signed copy of our book, The Warren Buffett Accounting Book. And again, if you want to record your question and get it played on our show, go to ask theinvestors.com and you can record your question. So we'd love to thank all of our guests for submitting those questions. We enjoyed the book, The Alchemy of Finance. It's not really quite exhilarating, if you will, but it's a very good read. And I think it makes you think about commodities, currencies, this idea of reflexivity is an interesting and really kind of neat idea. So fantastic. We're just so thankful for everybody that listens to our show and submits your questions. So that's all we have for you. And we'll see you guys next week.”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  2. “So, my expectation is that it's not going to go higher than the $18,300, at least not for quite a few years. But that's my position. So I'm curious to hear Stig's thoughts.”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  3. “Period there, and maybe not even 30 years. Actually, there's about 15 years where there was no Federal Reserve in the system. The Fed had stood up in 1914. I believe that's the year, I might be wrong, but it's around that timeframe where the Fed was stood up. And I think that something that we aren't really necessarily accounting for as we do this transition from the timeframes that you're talking about is what impact is the Fed going to have with this long-term debt cycle that was created and what impact is that going to have in the next 10 to 20 years? My opinion is that it's going to handicap the performance quite significantly. I could be wrong about that, but I think that that's a variable that we've got to talk about as far as our expectation moving forward. But who knows? I think that 5% is probably a good number to really kind of focus on. I think that the Dow got up to $18,300 is the highest it got. And I think that the credit cycle is now controlled.”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  4. “All right, let's look at the intent of what Buffett was writing about. He's basically using that, this is my opinion at least. He was using that exchange in his shareholder letters to highlight the fact that the market, on average, was moving at 5% over the last hundred years. And if it's going to move 5% again, this is the super high number that represents that. I think reading into that any more than that piece of it, I think is maybe reading into it too much. And I think that you can kind of use that maybe as a trend line moving forward as far as maybe 5%. But to go, what would it be 15 years after the start and say, hey, we didn't hit the mark of where it should be on the trend line, I think is a little bit narrow in scope. And so for me, I'm looking at the market from this vantage point as well. I think that if you're starting in the late 1800s and you're going to 1999, there's a 30 year”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  5. “So, you know, the energy sector has been just hammered. So, that might be a sector that I'm looking at internationally. I completely agree with Stig. I think that when you distribute your risk across a breadth of stocks and you're maybe stepping into an industry that's been pummeled, that's probably the best approach when you're talking international. And he's right. Some of these PE ratios and countries right now are like a five or under 10, which is fantastic for returns. So, you know, intrinsic value-wise, you're taking the PE ratio for that country, and I would strongly recommend that you use a CAP PE ratio for the country. You just take that, you invert it in order to get your yield, your expected yield. So if the PE is 10, you go 1 divided by 10. That gives you 10%. That should be your expectation of the value that you'll continue to get by holding that ETF. Okay, and this is the last question we're going to take. And this one's from Derek Randall.”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  6. “So, my response for this one is really just quite simple. I always use an ETF whenever I do international investing, anything outside of the United States. A lot of that is because I don't understand the accounting the same way that I understand the accounting in the US. So whenever I look at things over in Europe or anywhere, really, Japan, which I don't look there very often these days. But if I'm looking internationally, I'm really looking at ETFs and I'm looking at specific.”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  7. “I definitely like to say I think she's wrong. But no, that's a good point, the show. There's some people out there looking at it from a historical standpoint. There's other people that are looking at it from maybe a bigger context of the global economy and that the Fed's hands are pretty much tied. They're not going to be able to raise rates and that this time is different because you're at the end of a long-term debt cycle. There's a lot of different opinions out there. And people are all looking at it from a different vantage point. And so my opinion is, is if you're the person who's looking at it from more vantage points than the others and your expectations are right, you can do well on commodity. I will say this. Typically, currencies and commodities move in like three year trends. Okay. So if you think that it's going to flip in a quick amount of time, historically, that has not been the case. Typically you see these things move in like three-year cycles is a currency or a commodity. Okay, so our next question is from Jeff Hinchman. And here we go.”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  8. “A lot of people, but unfortunately, I think when you're dealing with currencies and commodities, it's much more qualitative and you're looking at things from a left and right limit. So I'm curious to hear what Stig has to say on this one.”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  9. “Push the price higher. My concern at this point is not necessarily the supply side, even though that was the major issue for the last year and a half, two years. My concern at this point now is the demand side as we're coming out of the winter months in the northern hemisphere. You also have the concern that the global economy is starting to slow down. And as that happens, the demand might pull back enough that it actually doesn't offset the oversupply. So that's why I'm discontinuing to sit and watch this oil thing. And I might be late to the show and I might not be late to the show. But I'm not anxious to get into it just because I have that concern with the supply and demand imbalance. It's continuing to happen and my expectation for the global economy that continue to contract more. So there's two examples of how I'm looking at oil. It's how I'm looking at the dollar kind of, you know, I can't give you anything quantitative, which is probably really going to annoy.”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  10. “Now, where this gets a little bit tricky when you're talking about commodities like oil versus gold, which kind of has a fixed unit quantity, when you're talking about oil, that's also heavily impacted by the supply and demand piece. And so now it's like hitting two different balls whenever you're playing pool. You're looking at the monetary supply with the currency and how that relates back to the commodity. And then also you're looking at for the commodity, you're looking at the supply and demand piece, which makes it very, very tricky. So we're seeing oil really kind of run into trouble going much lower around the $30 price. And it's gotten as low as $26. It's been flapping around there at that price point from $26 to low 30s for months now. Does that mean that you hit a bottom? Maybe. I don't know. I know that you've seen the rig count really drop off significantly, which means the supply side might be contracting, which could potentially...”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  11. “Looking at it. I'm kind of looking at it in a more general term, and it's not nearly as mathematical, if you will, than you would do for anything else. And so the other discussion here is that commodities and currencies typically go hand in hand. So when you have commodities, let's just speak from the dollars vantage point. When the dollar gets really strong, commodities are probably way down. And that's exactly what we're seeing right now. If the dollars were extremely weak, let's go back to like 2010, 2011 time frame. Commodities are probably doing really well. So when you look at that, you got to look at that relationship between commodities and the dollar. So that's whenever I send out the email notice with the executive summaries and I was telling people, you know, I'm really looking for the turn and oil to occur whenever the Fed announces that they're going to start easing or they start signaling that they're going to start easing because when there's more dollars in the system, the price of a commodity has to go up.”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  12. “Now that you're kind of testing the limits of how strong can the dollar get, I think it becomes a little bit of an easier conversation and you can make up a little bit more of a general understanding of what's going to happen next. That's my personal opinion. A lot of people, especially hardcore value investors, would probably strongly disagree with that opinion. So if we're going back to the graphic representation of what I'm talking about, which is the pendulum, and we're saying, is that pendulum completely pegged out at its left or right limit? And I would say, yeah, I think it's getting there. Do I think that dollar could get stronger? Yeah, I could probably get a little bit stronger, but not much, not anything that I'd be too concerned about losing much money on. So when you see it from that vantage point, that means you got to either short it or you got to do something to invest that has a total correlation to the dollar that moves in the opposite direction, i.e. probably gold. So that's how I'm.”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  13. “The question that a person would have right now, and the dollar is extremely strong relative to other currencies or relative to commodities. So if we were going to take this point in time, this snapshot in time, how much more do we think that the Fed has the ability to raise interest rates moving forward? I'm of the opinion that I don't think that they can raise rates at all. That might be a more extreme position. Other people might say they can raise it two more times and then they're going to have to start easing because the market's going to get so, you know, disgusting at that point. And so it really becomes a very qualitative discussion because now you're coming up with a theory of when you think Janet Yellen's going to make a decision or not. But I think that you can say at this point in time, now if we go back three or four years from now, I think that it was a much more mushy kind of conversation where you wouldn't be able to necessarily say one way or the other.”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  14. “Hey, Justin, what a great question. I think this is a question that is on a lot of people's minds how in the world do I value a currency or a commodity? So this is a hard question to answer, and I don't think that you can look at it necessarily the same way that you would if you're valuing individual stock pick where you're basically coming up with a discount cash flow. Where I see these is kind of going back to the Howard Marks kind of point of view of where is the pendulum swinging? The pendulum has a left and right limit. And so you've got to say, is the pendulum out at the extreme or is the pendulum rights mac in the middle? And the hard thing with this is you don't necessarily know how far out the pendulum is going to swing, especially as you get into kind of extreme scenarios, kind of like what we're in right now. So whenever I look at the dollar, let's just say the dollar, for example. The dollar gets stronger as the Fed tightens interest rates.”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  15. “Read this book. So, okay, let's move into the second part of the show where we answer some questions from our audience, and we love doing this. So if you've got a question you want to record for our show, go to asktheinvestors.com and you can record your question. Okay, so the first question we have comes from Justin Coletti. And here's his question.”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  16. “I like that point. I also like the idea that Soros just takes this efficient market hypothesis piece and just really kind of slams it and shatters it in this book because I would argue that he has the exact, it'd be his antithesis is the efficient market hypothesis where he is the of the opinion that it's always mispriced and that it's just a function of how badly mispriced it is. Fantastic book. I know we covered this one pretty quickly, but it is kind of a short read and the main thesis is really this reflexivity part that we've already really talked about. So instead of beating that down, we're just going to stop that here. If you do want to listen to this book, go to our link on our website for Audible and you can listen to this book completely for free. If you're first download, if you use our link is completely free. I know this book is actually available on Audibles. It's the Alchemy of Finance by George Soros, so consider that a free gift from Stig and I guys want to.”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  17. “He talks about how he's evaluating those theories and how he's basically coming up with the metrics in order to determine whether he thinks that it's moving in the right direction or not.”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  18. “Yeah. Yeah, that's a really interesting point. And it's interesting to hear that idea of it compounding and compounding until it gets to maybe a breaking point. But it's amazing to hear the thoughts of some of the smartest people in the world on this stuff and how they'll take something that they start with the textbook with this equilibrium idea and just kind of embellish on it just a bit. All right, so going back to the book, there's a section called, and this is in part three, the real-time experiment. So at this point, Soros talks about how he comes up with some of these different ideas. He talks about individual theories that he's tested in the past and kind of what he used as benchmarks for that, but he doesn't talk about the overall analysis of how he comes up with those theories. So here he's in the third part, he's talking about the real-time experiments, and he uses a couple of examples to demonstrate that. Then as you move into the fourth part of the book,”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  19. “Company also starts turning. And so it's this love-hate relationship where they're intertwined, they're completely intertwined between the psychological and the fundamental piece of how the company operates and how the company performs. And that's what reflexivity is all about. So Soros in his book, he describes this in a whole lot better detail and maybe more thoughtful analysis than the way that I described it right there. But that's the underlying theme and the idea of reflexivity. So just the real quick highlight for everybody we have are executive summary of this book typed up. If you go onto our website and you sign up for our email list, we'll get this executive summary. And as usual, it's about five pages long. And we just kind of summarize everything from the book chapter by chapter for you. So no advertisements, no spam, no nothing. Just if you sign up, you get our free executive summary. So we highly recommend you do that so you can kind of read through this and maybe even get a better idea of what reflex.”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  20. “compounding impact to it now that they are holding a bunch of cash, they can now make the investments to get the right people on their team, they can spend money on marketing, they can do all these, they can spend more money on the technology, which then further compounds the performance and actually builds it up. So even though you might not have this fundamental good standing at the start because you had these people that might have been backing it and thinking of it in a favorable and positive manner, it actually creates that momentum itself. And so as this compounds upon itself, it reaches a point of, what would I say, maybe a tipping point where maybe that analysis starts trending in a different direction, or it might be tipped off between. And this is the rivalry. This is the reflexivity part of it. Maybe the fundamentals of the company start performing poorly. Maybe it's not growing as fast as it was before. And so then it starts turning. The psychology behind the company.”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  21. “GoPro before it got punished in the market. What Soros is talking about with this idea of reflexivity is that if enough people think something's going to go in the right direction or they have a positive or favorable opinion of where something's going to go, that has an ability to actually affect the company, let's call it GoPro, in a positive direction. So let's say that we have a ton of people that think that this company is going to be $50 billion company. You know, they just think it's going to do fantastic. So what happens? You start getting all this seed money. You have venture capital thrown all sorts of money at it. And the company might not even be profitable. It might be struggling as far as its actual fundamental being, if you will, how the company functions fundamentally might be horrible. But if enough people and enough backers think that it's going to do fantastic and they continue to fuel it with more and more money, that actually has a”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  22. “Why he has that theory. And then as time progresses, he either sees the idea mature and started actually moving in the direction that he sees it or not. Now, the thing that I think is kind of an interesting discussion, but it's not a long discussion, is reflexivity. So what is that? So Soros describes it as this. It's kind of this rivalry that goes back and forth between fundamental analysis and technical analysis. So let me give an example. So let's say that we've got a small cap company and I'm going to use the example GoPro, the guys who make those little camera devices. So on the face value, GoPro, in my opinion, is just a bunch of silliness for this company to be valued in the billions. And I mean billions upon billions out of the gate for me is just crazy because it's just a video camera on a stick. And recently we've seen GoPro get punished in the market. But let's talk about”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  23. “And he makes these theories and he comes up with these ideas of what he thinks the market might do in a macro sense, in the direction that it might move. He comes up with that theory, then he tests that theory, and then he kind of piles into a position as that theory continues to prove itself correct. And so it's a unique approach. It's very, very different. And it's something that I think might be a little bit harder for people to implement just because he doesn't really put a lot out there on how he's coming up with these theories. That's the thing that he doesn't do. He just talks about this idea and this method called reflexivity. But whenever it really comes down to it, he doesn't say, well, I'm looking at this factor or this factor and this factor in order to determine that I think the Chinese you want is going to continue to devalue. He doesn't really throw out how he's making those assumptions or what he's basing his theory on. But what he's doing is he's coming up with a theory. He's then substantial.”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  24. “Yeah, I thought it was a pretty basic book, even though it was short, it did go on kind of long. You could have summarized it in like a two or three-page white paper in my personal opinion. And I think the fancy name reflexivity is, you know, that's the main theme of the book. It's pretty basic stuff. And we're going to send a quickly cover this book. We're probably not going to spend more than, you know, five or ten minutes on this. And then we're going to move on into the second part of the show. We're going to be taking questions from the audience. We'll probably play three or four questions from the audience. That'll be the episode. So that's what we got for you. So this book, The Alchemy of Finance, people that are familiar with George Sora say, no, his net worth is $23 billion. He's one of the wealthiest people in the entire world. And he has an approach that he implements for investing. And it's very different than call it Warren Buffett or a lot of other Graham-based value investors. And Soros is obviously a macro investor.”

    2016-02-21 · We Study Billionaires · TIP 074 : Billionaire George Soros - The Alchemy of Finance (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT