One of our favorite investing books here at The Acquirer’s Multiple is Soros on Soros by George Soros, It’s written in an interview-style narrative with Byron Wien, Managing Director at Morgan Stanley, and with German journalist Krisztina Koenen. There’s a great passage in the book in which Soros discusses his approach to risk-taking and how he stays ahead of the game.
Here’s an excerpt from that book:
Investing obviously requires a great deal of risk taking. Let’s talk about the difference between this amoral approach and a responsible, aggressive, high risk approach.
Soros: What is there to say? Risk taking is painful. Either you are willing to bear the pain yourself or you try to pass it on to others. Anyone who is in a risk taking business but cannot face the consequences is no good.
What do you think makes for a good investor? What about intelligence? What role does it play in the making of a good investor?
Soros: People with the same intelligence may differ in character. Some go to the brink but never go over, and others go to the brink and occasionally go over. That is something that is very difficult to identify. But I don’t want somebody who works for me going over the brink.
Do you want people going to the brink?
Soros: I am a person who went to the brink on occasion. But I had all my accumulated wealth riding on the line. I don’t want other people going to the brink with my money. Once I had a very talented currency trader who, unbeknownst to me, put on a big currency risk. It was a profitable trade, but I immediately parted company with him because I felt I had been warned: I would have no one to blame but myself if we were hit by an unexpected loss.
There are some people who believe it’s possible to be too smart in this business and that the smartest people are rarely the most successful investors.
Soros: I hope you are wrong.
That brings me to something that came up in your earlier books and has been referred to obliquely here: your own opinion of yourself. You have said in the past that you have a sort of messianic complex, a feeling that you were really put on the earth to have the kind of success that you have achieved. Is that the reason for your success? Is it the result of a combination of character, intelligence, and something we haven’t talked about, a certain fearlessness that relates to the brink concept that you mentioned earlier?
Soros: I certainly don’t feel messianic about investing. I indulge my messianic fantasies in giving away money that I’ve already earned. I don’t indulge these fantasies in making money. I try to curb my fantasies. And I don’t think that there is anything messianic about making money. But going to the brink is something else-it serves a purpose.
There is nothing like danger to focus the mind, and I do need the excitement connected with taking risks in order to think clearly. It is an essential part of my thinking ability. Risk taking is, to me, an essential ingredient in thinking clearly.
Do you derive this excitement from your love of the game or from its danger?
Soros: The danger. It stimulates me. But don’t misunderstand what I am saying: I don’t like danger; I like to avoid it. That is what makes my juices flow.
How is it that you stay ahead of the game?
Soros: As I have said already, I look for the flaw in every investment thesis. When I find it, I am reassured. As long as I can see only the positive side I worry. Again, don’t misunderstand me. I don’t reject an investment thesis just because I can’t see the negative side; I just remain leery. On the other hand, I am particularly keen on investment theses that the market is reluctant to accept. These are usually the strongest. Remember the saying, “The market climbs on a wall of worry.”
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