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New chapter by Soros on the secrets to his success along with a new Preface and Introduction. New Foreword by renowned economist Paul Volcker "An extraordinary . . . inside look into the decision-making process of the most successful money manager of our time. Fantastic." --The Wall Street Journal George Soros is unquestionably one of the most powerful and profitable investors New chapter by Soros on the secrets to his success along with a new Preface and Introduction. New Foreword by renowned economist Paul Volcker "An extraordinary . . . inside look into the decision-making process of the most successful money manager of our time. Fantastic." --The Wall Street Journal George Soros is unquestionably one of the most powerful and profitable investors in the world today. Dubbed by BusinessWeek as "the Man who Moves Markets," Soros made a fortune competing with the British pound and remains active today in the global financial community. Now, in this special edition of the classic investment book, The Alchemy of Finance, Soros presents a theoretical and practical account of current financial trends and a new paradigm by which to understand the financial market today. This edition's expanded and revised Introduction details Soros's innovative investment practices along with his views of the world and world order. He also describes a new paradigm for the "theory of reflexivity" which underlies his unique investment strategies. Filled with expert advice and valuable business lessons, The Alchemy of Finance reveals the timeless principles of an investing legend. This special edition will feature a new chapter by Soros on the secrets of his success and a new Foreword by the Honorable Paul Volcker, former Chairman of the Federal Reserve. George Soros (New York, NY) is President of Soros Fund Management and Chief Investment Advisor to Quantum Fund N.V., a $12 billion international investment fund. Besides his numerous ventures in finance, Soros is also extremely active in the worlds of education, culture, and economic aid and development through his Open Society Fund and the Soros Foundation.


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New chapter by Soros on the secrets to his success along with a new Preface and Introduction. New Foreword by renowned economist Paul Volcker "An extraordinary . . . inside look into the decision-making process of the most successful money manager of our time. Fantastic." --The Wall Street Journal George Soros is unquestionably one of the most powerful and profitable investors New chapter by Soros on the secrets to his success along with a new Preface and Introduction. New Foreword by renowned economist Paul Volcker "An extraordinary . . . inside look into the decision-making process of the most successful money manager of our time. Fantastic." --The Wall Street Journal George Soros is unquestionably one of the most powerful and profitable investors in the world today. Dubbed by BusinessWeek as "the Man who Moves Markets," Soros made a fortune competing with the British pound and remains active today in the global financial community. Now, in this special edition of the classic investment book, The Alchemy of Finance, Soros presents a theoretical and practical account of current financial trends and a new paradigm by which to understand the financial market today. This edition's expanded and revised Introduction details Soros's innovative investment practices along with his views of the world and world order. He also describes a new paradigm for the "theory of reflexivity" which underlies his unique investment strategies. Filled with expert advice and valuable business lessons, The Alchemy of Finance reveals the timeless principles of an investing legend. This special edition will feature a new chapter by Soros on the secrets of his success and a new Foreword by the Honorable Paul Volcker, former Chairman of the Federal Reserve. George Soros (New York, NY) is President of Soros Fund Management and Chief Investment Advisor to Quantum Fund N.V., a $12 billion international investment fund. Besides his numerous ventures in finance, Soros is also extremely active in the worlds of education, culture, and economic aid and development through his Open Society Fund and the Soros Foundation.

30 review for The Alchemy of Finance

  1. 4 out of 5

    Mara

    Let's not skirt around the issue here- this book loses about a bajillion points* for having a man in a suit with his arms folded on its cover. What does having your arms folded on the cover of your book say? Typically one of two things: 1. "I'm taking back my America one book at a time!"; or (and this one is more common) 2. ADVICE!! "I am about to give you lots and lots of advice that will solve all of your problems and/or make you rich and/or force you to acknowledge that you'll never Let's not skirt around the issue here- this book loses about a bajillion points* for having a man in a suit with his arms folded on its cover. What does having your arms folded on the cover of your book say? Typically one of two things: 1. "I'm taking back my America one book at a time!"; or (and this one is more common) 2. ADVICE!! "I am about to give you lots and lots of advice that will solve all of your problems and/or make you rich and/or force you to acknowledge that you'll never be able to follow my advice and, thus, are a failure." Don't believe me? I'll let this little array speak for itself.** Spoiler alert! (but not really), looks like George Soros fell victim to some terrible advice in book coveriness, because The Alchemy of Finance doesn't tell you how to do squat (or take back America, or the night for that matter, but I digress). So, if you're hoping for a step-by-step breakdown of how to land yourself in the top 20 of the Forbes 400, walk away now. Why read this book if it won't make me rich?? If you're really asking yourself that question, then the answer is probably don't bother. However, if you're like me, (in addition to being awesome) you'll swoon as soon as he drops Karl Popper's name in the first ten pages (you know, the whole understanding of the self presupposes objectivity thing). If that doesn't do it for you, don't walk away just yet. What this book is really about is Soros' theory of reflexivity , in "the markets" and how the assumptions of traditional Economics have gotten things oh so wrong. It's much more philosophical than it is financial, and George Soros is a pretty smart dude. Why alchemy? Alchemy and science are not the same thing (duh). Science is about finding an underlying truth — scientific theories are supposed to be "universally valid". Soros' theories of the market, however, are not. Why not? Because (according to Soros) he has been more prone to "predictive failures" than not, which (and here's the alchemy part) doesn't mean he hasn't had financial gains. Alchemy, unlike science, is about operational success . This is why Soros has been able to fail to predict things about the world, but still rake in big bucks. The Market operates as a product of social phenomena- it's not like nature, where "laws operate independently of what anybody thinks." "This creates an opening for alchemy that was absent in the sphere of natural science. Operational success can be achieved without attaining scientific knowledge. By the same token, scientific method is rendered just as ineffectual in dealing with social events as alchemy was in altering the character of natural substances." Anything else? I'm no economist, but I do like to dabble in the study of decision making, cognition and human behavior and, turns out, those things are pretty darn interrelated. My point? I'm probably going to bungle any attempt at real explanation, so I'll just point out a few bits and pieces. - Homo economicus He doesn't exist, get over it! Humans are not rational actors and, even if we were, no one actually has all the options laid before them. - Stock prices are the reflection of some underlying reality there is no "essential price" toward which a stock will inherently trend and certainly no reality that exists independent of our perceptions. - Stock prices are shaped by underlying trends and prevailing biases which are then either self-reinforcing or self-correcting. Sometimes events fail to occur because they were anticipated. - I'll give you one more for fun (and also because it confuses me): the act of lending changes the value of collateral. Why the low rating? This book is old (I think it's my junior by only a few years). Soros brings up interesting ideas, but IMHO there are far more interesting books to be read on most of them (e.g. if you want to talk recursion, then Douglas Hofstadter's your man). Maybe someone more familiar with The Market than I would disagree, but it's my review, and he did fold his arms while wearing a suit on the cover. ___________________________________________ * I'm sorry, but I can't be more precise due to adjustments for inflation and ever fluctuating currency markets, so you'll just have to live with my rough estimate. ** No, I haven't read any of these books, but can you blame me?

  2. 4 out of 5

    Stirling Mortlock

    This is a book I read and re-read on a regular basis. Soros has the greatest track record of any money manager, ever. This should give anyone who is interested in managing money, or managing their own money, a reason to read the book in which he describes exactly how he has made his billions. It surprises me how many people have read the book, and yet, so few put the actual theoretical framework to use. Despite Soros's introduction of the ideas of reflexivity in financial markets nearly 30 years This is a book I read and re-read on a regular basis. Soros has the greatest track record of any money manager, ever. This should give anyone who is interested in managing money, or managing their own money, a reason to read the book in which he describes exactly how he has made his billions. It surprises me how many people have read the book, and yet, so few put the actual theoretical framework to use. Despite Soros's introduction of the ideas of reflexivity in financial markets nearly 30 years ago, this type of thinking is almost absent from the investing community. And yet, these types of special reflexive situations abound in today's market. I have personally taken advantage of several. On the downside, I do not believe that Soros a great writer. He can make simple concepts almost incoherent by using complex vocabulary and odd phrasing. This may be why he failed to make much progress as a philosopher. In addition, this book is not for beginners in finance and money managing. The book assumes basic knowledge of the stock market and currency market. It also assumes knowledge of affairs that were current in the 1980's, but are probably a little arcane to today's investors. I had to look up various references like the Plaza Accord, which Soros profited handsomely from in the later half of the book. So, if you have a working knowledge of stocks, bonds, and currencies, and you are interested in managing money at some point in your life, then you must read this book. Without it, you might as well be trading blind.

  3. 4 out of 5

    Riku Sayuj

    Finally an expert who admits that he is shooting in the dark, mostly.

  4. 4 out of 5

    Ben Sutter

    I slogged my way through the first 200 pages of this...but enough is enough. What I learnt is: 1) George Soros took high risk, leveraged positions. He became very rich. He may well have been skillful. He might have just been lucky. The Alchemy of Finance has not assisted me in determining which is more probable. 2) If he was skillful at making money, he certainly isn't skillful at communicating his methods and strategy. This writing style is muddy, convoluted and the majority of the content is sp I slogged my way through the first 200 pages of this...but enough is enough. What I learnt is: 1) George Soros took high risk, leveraged positions. He became very rich. He may well have been skillful. He might have just been lucky. The Alchemy of Finance has not assisted me in determining which is more probable. 2) If he was skillful at making money, he certainly isn't skillful at communicating his methods and strategy. This writing style is muddy, convoluted and the majority of the content is spent on describing market noise from specific time points in the 1980s. How any of this is to be applied to present/future scenarios is not covered at all in the first 200 pages of the book at any rate. The author himself seems to indicate at times that he is not really sure how to explain how he did it. It is like reading a poor quality financial newspaper from the 1980s - I'm just not interested! 3) The author emphasizes how his intense emotional involvement with his portfolio was a key to his success. For example, how when he got a sore back this "told" him it was time to transact, or how he got so wound up about certain positions he felt like he was going to have a heart attack. Not only does this appear on the surface to be an extremely reckless way to manage money, but the attempt this book makes in trying to explain an emotional approach just doesn't work for me. 4) Despite Soros being opposite in style to Buffett & co, one commonality of all seriously successful investors is again reinforced by this book - they all sacrificed everything else in their life to become financial "rock-stars". You gotta give 60, 70, 80 hours a week consistently year after year - this takes a toll on other aspects of your life. Overall, the one quote that stuck with me is that given by his son on p. 37: "My father will sit down and give you theories to explain why he does this or that. But I remember seeing it as a kid and thinking, Jesus Christ, at least half of this is bullshit." I wanted to shake off that quote as I progressed through the book....but I couldn't...I ended up siding with Soros jnr.

  5. 5 out of 5

    Amir Dov

    The Alchemy of Finance provides a peek to the mind and thinking process of who is probably the most successful market speculator in history. The book can be generally divided to two themes (although with no particular order, as the chapters are kind of mixed): The first theme is Soros' concept of reflexivity - which includes the explanation of what's wrong with the current academic conception of economics / finance as a social science, and some theoretical background to his own perspective which The Alchemy of Finance provides a peek to the mind and thinking process of who is probably the most successful market speculator in history. The book can be generally divided to two themes (although with no particular order, as the chapters are kind of mixed): The first theme is Soros' concept of reflexivity - which includes the explanation of what's wrong with the current academic conception of economics / finance as a social science, and some theoretical background to his own perspective which regards finance as an 'Alchemy', not science. His theory and approach (and thinking process) are smart and persuasive and there are definitely some jewels embedded in the text. However the writing is a bit cumbersome, the text is very lengthy and sometimes boring, and the book in general is by no means an easy-read. The 2nd theme is the actual "real-time experiment" as Soros calls it, in which Soros goes week-by-week detailing his trading activity, demonstrating how he's returning ~130% through his fund in a little more than a year (this happens between the summers of 1985 and 1986). As impressive as this is, it was very hard for me to learn anything from this real time experiment. What I did learn is the very simple notion that there are speculator who actually make money in the market in the longer-term (well, there's at least one). I would suggest to anyone who wants to get familiar with Soros' work and wisdom to read 'Soros on Soros' - which is a more refined and easy way to get to know the man and his work. You know how for some bands you would recommend listening to every album (or specific ones), which with others the recommendation will be to just go for 'the best of'? I'll make this analogy here and say that 'Soros on Soros' is a very good 'best of', while the 'Alchemy of Finance' is an ok album. I guess the exception is that if you're really into macro economics or involved in someway in Macro / Macro-Quant hedge fund - this is probably one of the best books on this topic.

  6. 4 out of 5

    Agenor

    It is a rare thing indeed that someone who has had extraordinary success in a field takes the time to set out how he views his field and the main drivers behind his success, even rarer in financial markets. And yet here is this rare gem of a book, available to all who can be bothered to read it. This is not a get-rich-quick book, nor a step-by-step guide to Soros's decision making process. This is a book for those involved in financial markets, particularly those with a philosophical leaning. A It is a rare thing indeed that someone who has had extraordinary success in a field takes the time to set out how he views his field and the main drivers behind his success, even rarer in financial markets. And yet here is this rare gem of a book, available to all who can be bothered to read it. This is not a get-rich-quick book, nor a step-by-step guide to Soros's decision making process. This is a book for those involved in financial markets, particularly those with a philosophical leaning. A reasonable level of comfort with financial instruments and international economics is assumed and it reads as if it is written by a speculator for a speculator. The book outlines Soros's theory of reflexivity, his view of markets through this lens and includes a trading diary in which he records his thought process and investment decisions in real time - an amazing resource. My only regret is I didn't read this book 10 years ago.

  7. 5 out of 5

    Jim

    One of the greatest traders and greatest minds of our lifetime. It doesn't get a higher rating because the communication of his ideas of social science/philosophy/principal of reflexivity etc are a little hard to follow at times. I would say that was just me but almost everyone I know who has bought this book hasn't finished it. One of the greatest traders and greatest minds of our lifetime. It doesn't get a higher rating because the communication of his ideas of social science/philosophy/principal of reflexivity etc are a little hard to follow at times. I would say that was just me but almost everyone I know who has bought this book hasn't finished it.

  8. 5 out of 5

    George Jankovic

    A book by one of the 2-3 greatest investors of all time. It's about his reflexivity theory: stock prices are influenced by the economy then they, in turn, influence the real economy. And how all that applies to investing. A book by one of the 2-3 greatest investors of all time. It's about his reflexivity theory: stock prices are influenced by the economy then they, in turn, influence the real economy. And how all that applies to investing.

  9. 4 out of 5

    Trung Nguyen Dang

    An one idea book: Reflexivity, the circular relationships between cause and effect that feed momentum. Simplistically speaking, it just means momentum will feed itself until it becomes very extreme then it will reverse to the other extreme.

  10. 5 out of 5

    Chris

    Short review: Hard work, but deep. A better title would be "The Alchemy of How Everything Works". Long review: Nominally, “The Alchemy of Finance” is about understanding markets and making better investing decisions. If that is all one learned it would be a crying shame, because the book is actually about understanding reality and making better decisions. To restrict it to the markets is a serious mistake and not one Soros makes. One of the most important steps to understanding reality is understan Short review: Hard work, but deep. A better title would be "The Alchemy of How Everything Works". Long review: Nominally, “The Alchemy of Finance” is about understanding markets and making better investing decisions. If that is all one learned it would be a crying shame, because the book is actually about understanding reality and making better decisions. To restrict it to the markets is a serious mistake and not one Soros makes. One of the most important steps to understanding reality is understanding the feedback loops that operate. These can be self-sustaining for some time and often lead to exponential change, but are ultimately, necessarily, self-defeating. A fission bomb is one example. A Uranium atom splits and releases two neutrons. Each of those can cause another atom to split. An enormous amount of energy is released, but quickly there will be no more Uranium left to split and the chain reaction will end. The same mechanism underpins financial markets, leading to booms and busts. Considering the dynamic created by feedback loops is important when making almost any kind of decision, as is its implication: Complex systems (markets, diplomacy, reality) are historic processes which can be uniquely explained post facto but which have many possible outcomes ex ante. Building on this, “reflexivity” is the term Soros uses to describe the feedback loop which runs between reality and the participants’ understanding of reality, and vice versa. Traditionally, we think only of the causal arrow from reality to our thinking. FooCorp has grown its market share by 25%, therefore we think it is better than its competitors. Reflexively, the arrow also runs the other way. For whatever reason, the bank thinkg FooCorp is better than its competitors so they loan them money. As a result, FooCorp becomes more competitive. Reflexivity occurs in economics, politics, dyadic interpersonal relationships and drives the Jobsian “reality dysfunction field”. Economic supply and demand curves are an interesting example of reflexivity. Typically, they are independently given and assumed not to interact. Instead, their intersection should simply determine the price at which the market clears. However, trivial examples of reflexive interaction between the two abound. High supply versus demand in a commodity (and therefore low prices) stimulate new and innnovative uses for it, in turn creating new demand. Higher demand increases prices, which in turn increases supply. Prices do not stay at equilibrium but instead move dynamically, in a historic process. Reflexivity also introduces unpredictability into the historic process that is reality. In part this is beacause participants are seeking to understand reality but also affect reality. These goals can conflict with each other. Additionally, what needs to be a fact to make prediction possible is itself contingent on participants’ view of the situation, an unknowable which changes if it is learned. Whether or not Bob Smith stands for leadership of the Bar Party depends on what he thinks everyone else thinks about his standing for leadership. What does this mean for the existential goal that is predicting the future? On the one hand, acknowledging reflexivity and its implications forces us to acknowledge that perfect prediction is impossible. On the other hand, perfect prediction is not necessary and incorporating it in our analysis allows us to do better. Classically, participants’ opinions are not causally potent, first class citizens in any model. They are statements about the model, not facts in the model. By explicitly including them we gain greater predictive power. That is what we can do. How? That depends.

  11. 5 out of 5

    Andreas Lorenz

    The most important concept in this book is "reflexesivity" - a novel concept in economics according to GS. It is basically a merger of the in "second order chaos theory" and that the "arrows of causation" runs both ways in any system. This means that the idea of equilibrium is an abstract/deduction with very little real word consequences in most financial markets. This is highly recomendable as it basically says that all our standard models of economics are - if not wrong - then without much rea The most important concept in this book is "reflexesivity" - a novel concept in economics according to GS. It is basically a merger of the in "second order chaos theory" and that the "arrows of causation" runs both ways in any system. This means that the idea of equilibrium is an abstract/deduction with very little real word consequences in most financial markets. This is highly recomendable as it basically says that all our standard models of economics are - if not wrong - then without much real life consequence. Note: This is NOT a guidebook on how to become rich. Rather: GS uses his insights from finance to form a theory of the world.

  12. 4 out of 5

    Gabriel Pinkus

    This book, much like John Burr Williams' Theory of Investment Value could be shortened immensely for the big idea one ought to take away - The Theory of Reflexivity Soros' Theory of Reflexivity is a rational explanation of why economics is so terrible (read: absolutely awful) predictor of the future, and why social sciences as a whole tend to fall so short of natural sciences. Economists tend to get "physics envy". When you have thinking participants, results change. In physics, gravity pulls you This book, much like John Burr Williams' Theory of Investment Value could be shortened immensely for the big idea one ought to take away - The Theory of Reflexivity Soros' Theory of Reflexivity is a rational explanation of why economics is so terrible (read: absolutely awful) predictor of the future, and why social sciences as a whole tend to fall so short of natural sciences. Economists tend to get "physics envy". When you have thinking participants, results change. In physics, gravity pulls you to the ground regardless of whether or not Newton writes about it. However, what if Newton's writings changed gravity? Huh? RG Collingwood wrote a long time ago about how Europeans made fun of native warrior dances and being nonsensical to them and therefore illogical. Collingwood wrote that when a warrior believes those dances help make him a better warrior, he becomes more confident and therefore a better warrior. When an enemy sees him do the dance and yell loudly, the enemy becomes more frightened and at a disadvantage - the belief made it real. George applies this idea to social science and finance. Alchemy doesn't work, but by believing it works, people can achieve "operational success" as alchemists. I am very surprised Soros' idea has not been taken more seriously or taught in schools. If people's opinions are a function of results, and results are a function of people's opinions, you get this chaotic, nonsensical, random, all-over-the-place reality. There are instances where the two are functions of one another. It's like Y = f(x) and X = f(y). Just because you can't graph it doesn't mean it doesn't happen in real life.

  13. 4 out of 5

    Vaishali

    Dry, and far more nonlinear than expected. Prepare yourself to repeat sentences; Soros writes like an academic, and even alludes to this once. The one concept he hammers in more than any other : markets do & will fluctuate. Some rare brass tacks : ----------------------------- "I react to events in the marketplace as an animal reacts to events in the jungle... for instance I used to be able to anticipate an impending disaster because it manifested itself in the form of a backache." "If we want to Dry, and far more nonlinear than expected. Prepare yourself to repeat sentences; Soros writes like an academic, and even alludes to this once. The one concept he hammers in more than any other : markets do & will fluctuate. Some rare brass tacks : ----------------------------- "I react to events in the marketplace as an animal reacts to events in the jungle... for instance I used to be able to anticipate an impending disaster because it manifested itself in the form of a backache." "If we want to understand the real world, we must divert our gaze from a hypothetical final outcome, and concentrate our attention on the process of change that we can observe all around us. This will require a radical shift in our thinking." "Since the bias is inherent, the unbiased is unattainable." "Existing theories about the behavior of stock prices are remarkably inadequate. They are of so little value to the practitioner that I am not even fully familiar with them. The fact that I could get by without them speaks for itself." "Full employment is a special case." "The stock market comes as close to meeting the criteria of perfect competition as any market: a central marketplace, homogenous products, low transactions & transportation costs, instant communication, a large enough crowd of participants to ensure that no individual can influence market prices in the ordinary course of events, and special rules for insider transactions as well as special safeguards to provide all participants with access to relevant information. What more can one ask for?"

  14. 4 out of 5

    Matt Kelty

    A very smart, successful man is now a billionaire, but in his heart would rather be a philosophy professor. He realizes, along with many other people, that feedback loops exist in financial markets. He calls said feedback loops "reflexivity" and writes 200 pages. It's actually kind of fun to read, but there isn't much meat beyond this one concept. If he was able to make his fortune solely through an edge based on identifying feedback loops, there is a better book to be written eventually. A very smart, successful man is now a billionaire, but in his heart would rather be a philosophy professor. He realizes, along with many other people, that feedback loops exist in financial markets. He calls said feedback loops "reflexivity" and writes 200 pages. It's actually kind of fun to read, but there isn't much meat beyond this one concept. If he was able to make his fortune solely through an edge based on identifying feedback loops, there is a better book to be written eventually.

  15. 5 out of 5

    Luka

    Heisenberg's principle is that mass and velocity of quant particle can not be measured at the same time because the act of measuring affects the object being measred. Are those methods appliable for natural and social criteria, too? Heisenberg's principle is that mass and velocity of quant particle can not be measured at the same time because the act of measuring affects the object being measred. Are those methods appliable for natural and social criteria, too?

  16. 5 out of 5

    Asif

    Interested read. Found myself agreeing to the concept of changing equilibrium and two way causality (reflexiveness) but also disagreeing with some of his views.

  17. 5 out of 5

    Mike

    Concise thesis that the basic concepts on market supply and demand I was taught in MBA and CFA programs is so significantly flawed by assumptions of independence and inertness as to heavily question the model's value. Since that is the basis for most economic theory its a pretty big challenge. Since over a long career, Soros was able to trade on his theory and consistently out perform the market, it obviously should be considered. Take always: 1. Market trends are long and wave form. 2. Collapses Concise thesis that the basic concepts on market supply and demand I was taught in MBA and CFA programs is so significantly flawed by assumptions of independence and inertness as to heavily question the model's value. Since that is the basis for most economic theory its a pretty big challenge. Since over a long career, Soros was able to trade on his theory and consistently out perform the market, it obviously should be considered. Take always: 1. Market trends are long and wave form. 2. Collapses are often avoided by the nature of predicting their appearance and the market adjusting. 3. Collapses usually happen due to unexpected events. 4. Trends either direction are self reinforcing, and thus will continue past the point of rationality. 5. Because of 4, being contrarian is inherently a losing bet unless you can time inflection points, which is very very difficult. 6. The key point is a concept of reflexivity where the market trend affects the underlying value, which affects the trend, usually in a positive way, which affects the value, and so on. This continues until the trend is far out of whack with fundamentals which will cause a sharp correction and start of a new trend line, often in the opposite direction.

  18. 5 out of 5

    Geoff

    discusses how market participants end up affecting the prices, economies, trends, boom & busts, or in other words the market itself. Much like perception is reality...but in this case, perception really does affect asset prices, loan valuations, collateral, currency exchange rates. etc. and thus the market is reflexive to these activities. Interesting stuff, kinda like quantum physics in that the act of observing affects the object observed.

  19. 5 out of 5

    Stefan Bruun

    A dynamic alternative to the classical models of macro economics. It is clear that the dynamic/reflexive model is of more relevance to investors than the classical static ones. A lot of overlaps with Soros on Soros, though both more practical and more philosophical.

  20. 5 out of 5

    Terry

    The idea of reflexivity is interesting, can be widely applied to many social/economic activities. The normality of the market is not stability, but from one extreme to another. I agree with it - reflexivity drives sentiment, stock prices drive fundamentals too. Especially in fixed income, rising asset prices drive up value of collaterals, and therefore risk tolerance of banks, and more lending means better economic activities and more borrowing. The reverse is also true. This is why momentum wor The idea of reflexivity is interesting, can be widely applied to many social/economic activities. The normality of the market is not stability, but from one extreme to another. I agree with it - reflexivity drives sentiment, stock prices drive fundamentals too. Especially in fixed income, rising asset prices drive up value of collaterals, and therefore risk tolerance of banks, and more lending means better economic activities and more borrowing. The reverse is also true. This is why momentum works. The middle part of the book is Soros’ real time experiment of his theory. When I read it, I just feel how hard it is to trade macro. To be honest, I don’t fully understand how he makes every macro trading decisions based on reflexivity. I don’t see the connections. He sometimes has a view on JPY, treasuries, equities, but the reasoning of the view depends on his interpretation of an event. And I notice these views are quite random, even for Soros. I don’t know how to systematically implement such investment strategy. On contrary, Ray Dalio’s book is more executable.

  21. 5 out of 5

    U-ming Lee

    I read and listened to this book multiple times. This is, at various times, a personal reflection of the author's life, philosophical ruminations and accounts of some of the investment activities that Soros had been engaged in throughout his life. The central idea of the book is Soros' theory of reflexivity. Soros spends some time excoriating the "efficient markets" advocates that have proliferated in academic finance. The premise that markets know best and that securities prices reflect all curr I read and listened to this book multiple times. This is, at various times, a personal reflection of the author's life, philosophical ruminations and accounts of some of the investment activities that Soros had been engaged in throughout his life. The central idea of the book is Soros' theory of reflexivity. Soros spends some time excoriating the "efficient markets" advocates that have proliferated in academic finance. The premise that markets know best and that securities prices reflect all currently known information about a company and it's prospects is inherently flawed, argues Soros. Soros proposed instead that there are two functions that underlie a security's price. The first is what Soros terms the cognitive function in which market participants assess and value companies and make purchasing (or selling) decisions based on their investment theses. This has, of course, been widely addressed in the efficient markets literature. However, Soros argues potently for the presence of what he terms the participating function; that is to say, the very fact that market participants are interacting in the market causes the market itself to change. One of Soros' own examples of how the participating function may operate is in the observation that stock market crashes tend to precede a recession. Conventional analysis may simply view it as the market anticipating a recession and market participants adjusting their portfolios accordingly. Soros' introduction of the participating function suggests that a belief may have taken hold in the market participants, which leads to a stock market crash, and it is this chain of events that causes the recession. Soros' theory of reflexivity is not entirely novel. Soros himself credited Karl Popper for the basic intellectual framework that led to his development of the theory. There are shades of Keynes' The General Theory of Employment, Interest and Money in Soros' argument as well. Examples from Chapter 12 of Keynes: A conventional valuation which is established as the outcome of the mass psychology of a large number of ignorant individuals is liable to change violently as the result of a sudden fluctuation of opinion due to factors which do not really make much difference to the prospective yield; since there will be no strong roots of conviction to hold it steady. Thus, Soros' theory of reflexivity can be seen as substantially extending what Keynes had to say on the matter. Keynes intuitively understood that there were "animal spirits" guiding security market pricing and that the idea that markets are always rationally priced is dreadfully utopian. Soros extends this by suggesting that these animal spirits themselves may lead to further changes in the fundamentals of the market. Identifying and teasing out these reflexive processes is remarkably difficult - Soros cites his better (but imperfect) understanding of reflexive processes as the source of his investing success. However, Soros was keenly aware that the pseudo-scientific approach taken by the efficient markets advocates is impossibly utopian - how would it be possible to come up with distinct "laws of motion" for the stock market when thinking participants are involved? Instead, Soros makes no pretensions that the theory of reflexivity has scientific rigour. He is only interested in what works, like how the early alchemists were interested in finding out what worked rather than the scientific method. Hence the title of the book. I gave this book 4 stars because the concepts in the book are clearly very interesting from the perspective of someone who is trying to understand the markets better. There were times, however, when the book felt like it was meandering. I felt this detracted from the overall purpose of the book - I was not looking for something semi-autobiographical - but readers who are looking for that sort of thing would enjoy this book. This is not a beginner's book in finance, it requires someone with at least some theoretical understanding of finance to fully appreciate. Alternatively, one may approach this book from the view of someone who has actively participated in trading or evaluating securities, in which case the situations described in this book would be familiar.

  22. 4 out of 5

    D.H. Bernhardt

    Politically minded people have strong opinions about Soros. I dont know much about what his political motivations or convictions are, but I figured the guy has to know a thing or two about finance (being a multi-billionaire and all). Soros, an extremely successful hedge fund manager, is also referenced frequently in Nassim Taleb's eloquently expressed notions of optionality in Taleb's Incerto trilogy. I love Taleb and his interest in Soros's operational methods put me on the watch for more infor Politically minded people have strong opinions about Soros. I dont know much about what his political motivations or convictions are, but I figured the guy has to know a thing or two about finance (being a multi-billionaire and all). Soros, an extremely successful hedge fund manager, is also referenced frequently in Nassim Taleb's eloquently expressed notions of optionality in Taleb's Incerto trilogy. I love Taleb and his interest in Soros's operational methods put me on the watch for more information. A friend lent me this book upon request and, say what you want about Soros, but I learned a lot. His theory of reflexivity makes total sense to me. I might re-term it as recursive rather than reflexive but the main idea holds that every action that takes place in a financial market informs the next and entire system eventually feeds back on itself. He continually points out that "social science" is a false metaphor and that there's nothing scientific about the way human beings interact. Rather than approaching society with the strictures of scientific method, he recommends the outcome focused operational methods of alchemy. He tracks his interaction with stock, bond and currency markets throughout the book in a real time experiment he ran back in the 80's. he journals the events and his thought processes and I was alarmed to discover how many mistakes he made. The optionality Taleb discusses was an evident bastion of Soros's hedge fund performance, however. Even Soros's mistakes were hedged in ways that grew his accounts substantially during the experiment (with the exception of the Japanese yen crisis). The book ends with some very interesting ideas for commodity based currency that I found very interesting. And he bags on Marxism like nobody's business. And the relational equations he sketches out between markets, currencies, etc were illuminating. His book showed me how much I dont know, but was refreshed to discover Soros admits he knows little about finances and terms himself a philosopher instead.

  23. 4 out of 5

    Travis Steward

    This is a deeply philosophical book that has not only dramatically affected the methods I use to invest, but how I look at science and any results based discipline. I think Soros is a total iconoclastic genius, but feel he does suffer some convolution of ideas. He's exactly right in naming this book the way he did. Frankly, I didn't find the "theory of reflexivity" that compelling. It was so many other areas of the book I found intriguing: 1. that the stock market is a feedback mechanism that te This is a deeply philosophical book that has not only dramatically affected the methods I use to invest, but how I look at science and any results based discipline. I think Soros is a total iconoclastic genius, but feel he does suffer some convolution of ideas. He's exactly right in naming this book the way he did. Frankly, I didn't find the "theory of reflexivity" that compelling. It was so many other areas of the book I found intriguing: 1. that the stock market is a feedback mechanism that tests ideas in real time -- if you make money you're right, if you lose you're wrong, no matter what theory you approach your position with, what matters is what works. 2. That science itself is flawed, and human beings should approach knowledge from uncertainty and instead use feedback to guide truths. There are many more gems, but overall it paints a way of thinking more than anything, that when followed plucks you right out of the world as we know it and places you in a strange mental land where you're half scientific and half faith-based, merging paradoxical concepts that no where else have been elucidated and defined so distinctly. We constantly hear of Soros and his maneuvering in currencies, but you can clearly see his results come from far simpler origin: he was long S&P 500 futures with heavy leverage during the extremely bullish phase of the 80s. The majority of his returns were from this simple positioning. Soros has a weird mix of knowledge I've never seen/read before, and in the end results in this complex, albeit poorly understood, masterpiece.

  24. 4 out of 5

    Antonio Kowatsch

    A very interesting book about George Soros' theory of reflexivity. Disclaimer: the book is aimed towards people who have an intermediate/advanced understanding of the financial market and how market conditions are evaluated. What I really liked about the book was that George Soros has written it in a very self-conscious way. It added a great deal of honesty and made it a very good read in my opinion. I definitely learned something from the book. His theory of reflexivity is amazing and quite cou A very interesting book about George Soros' theory of reflexivity. Disclaimer: the book is aimed towards people who have an intermediate/advanced understanding of the financial market and how market conditions are evaluated. What I really liked about the book was that George Soros has written it in a very self-conscious way. It added a great deal of honesty and made it a very good read in my opinion. I definitely learned something from the book. His theory of reflexivity is amazing and quite counter-intuitive to what most investors are taught in regards of how macroeconomics work. In a nutshell it's about dynamic changes in the market and how biases of investors can influence other investors to the point where cataclysmic chain reactions can unfold. And how even the regulatory bodies are "all too human"[sic]. In other words: investors who are worrying about a future recession sell stocks that ultimately lead to the future recession. It's kind of like a self-fulfilling prophecy in a way. That's what the theory of reflexivity is all about; the psychological aspect of the stock market that most people seem to forget about or recognize too late. To conclude: this book is about George Soros' life's work. It also explores various philosophical topics that mostly pertain to Karl Popper's philosophical ideas. I would definitely recommend it to anyone who's interested in investing.

  25. 4 out of 5

    Lee Spano

    Book Review: Soros George ‘The Alchemy of Finance’ (2003) This is quite a ground-breaking book. In this work, George Soros explains in detail his theory of Reflexivity and its application to the financial markets. He also gives important insights into his decision-making. Reflexivity theory is to be contrasted with traditional Equilibrium theory in Economics. I have given an overview of this theoretical debate recently, and so will not repeat it here. Soros applies Reflexivity theory to several h Book Review: Soros George ‘The Alchemy of Finance’ (2003) This is quite a ground-breaking book. In this work, George Soros explains in detail his theory of Reflexivity and its application to the financial markets. He also gives important insights into his decision-making. Reflexivity theory is to be contrasted with traditional Equilibrium theory in Economics. I have given an overview of this theoretical debate recently, and so will not repeat it here. Soros applies Reflexivity theory to several historical topics, including Raegan’s Imperial Circle and the evolution of the US banking system. Most interestingly, he discusses his highly successful Quantum Fund. This fund started in 1969 with $6.1m and grew to an impressive $647.0m by 1985. This book is more aimed at the experienced trader or investor, particularly fund managers. Regards, Lee M. Spano, Investor & Creatness International CEO www.creatness.com

  26. 4 out of 5

    Waseem

    WOAH! am sorry but this book is WAY over my head No doubt it must click for others with its glowing references and reviews ...but for me, unfortunately..i had to give it 1 star, i find books by harvey dent, robert kiyosaki and so on a much easier and more human like conversation to explain this area of finance ...but for hardcore fans and in depth researchers and fllowers of the topic, this seemingly does seem the next level, but i cant keep up nor grasp the style its written or honestly how one WOAH! am sorry but this book is WAY over my head No doubt it must click for others with its glowing references and reviews ...but for me, unfortunately..i had to give it 1 star, i find books by harvey dent, robert kiyosaki and so on a much easier and more human like conversation to explain this area of finance ...but for hardcore fans and in depth researchers and fllowers of the topic, this seemingly does seem the next level, but i cant keep up nor grasp the style its written or honestly how one is really to remember and relate this to an actual goal in there lives....its so confusing that even my review sounds cofusing now (lol) Waseem Mirza http://www.WaseemMirza.net

  27. 4 out of 5

    Rick Wilson

    Fascinating view into the mind of George Soros. I’m probably overly deferential because of his track record. Focus on psychology, information, and how irrational behavior impacts macroeconomic trends. Definitely a contrarian to his core. Reflexivity is an interesting concept. Homeostasis is never reached in a market. Biases and narratives around an asset will weight how that asset moves. Positive and negative biases will lead to over reactions when in alignment with an asset price movement. And Fascinating view into the mind of George Soros. I’m probably overly deferential because of his track record. Focus on psychology, information, and how irrational behavior impacts macroeconomic trends. Definitely a contrarian to his core. Reflexivity is an interesting concept. Homeostasis is never reached in a market. Biases and narratives around an asset will weight how that asset moves. Positive and negative biases will lead to over reactions when in alignment with an asset price movement. And when going against the current tend, price movements will be muted. Amazing foresight on the housing market crash of 2008 and the dot-com bubble.

  28. 4 out of 5

    Samiur

    The original masterpiece - original (and first) in Soros' discussing his theory on Reflexivity. Over the years, he's repeated his theory over and over and over...and over, and over again as primers, intros etc. -- which is beyond absurdity and pointless. But, yes this'd be the original masterpiece for what it's worth. Herd behavior, Irrational Exuberance (by Shiller) among other topics and authors have presented similar views -- but no one to my knowledge has attempted to milk the same cow as ma The original masterpiece - original (and first) in Soros' discussing his theory on Reflexivity. Over the years, he's repeated his theory over and over and over...and over, and over again as primers, intros etc. -- which is beyond absurdity and pointless. But, yes this'd be the original masterpiece for what it's worth. Herd behavior, Irrational Exuberance (by Shiller) among other topics and authors have presented similar views -- but no one to my knowledge has attempted to milk the same cow as many times as Soros.

  29. 4 out of 5

    Ryan Nunley

    George Soros uses his technical knowledge to portray his abilities to use the boom-bust cycle of succeeding in the markets. He argues in opposition of the 'Random Walk Theory' but acknowledges at times where he felt such a walk in the markets. Soros doesn't lay out his trading strategies but reveals the general principles that led him in his strategies and history of how he achieved business success. George Soros uses his technical knowledge to portray his abilities to use the boom-bust cycle of succeeding in the markets. He argues in opposition of the 'Random Walk Theory' but acknowledges at times where he felt such a walk in the markets. Soros doesn't lay out his trading strategies but reveals the general principles that led him in his strategies and history of how he achieved business success.

  30. 4 out of 5

    Lori Tian Sailiata

    George Soros is interested in laying out the fundamentals rather than giving trendy advice. That makes this a must-read and re-read book. His advice is not wholly in sync with Jack Bogle's, but neither is it wholly at odds. Index funds are safest for most, but wading into stocks with the right mindset has its rewards. George Soros is interested in laying out the fundamentals rather than giving trendy advice. That makes this a must-read and re-read book. His advice is not wholly in sync with Jack Bogle's, but neither is it wholly at odds. Index funds are safest for most, but wading into stocks with the right mindset has its rewards.

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