In his book – Soros on Soros, George Soros says he is a contrarian investor who is cautious about going against the herd. He follows trends most of the time but looks for inflection points where trends may reverse.
His approach assumes markets are wrong, allowing him to identify flaws in investment theses. By understanding these flaws, he can confidently ride trends until exhaustion, then disengage or go against the trend at inflection points when rewarded for contrarian positions.
Overall, he aims to avoid being trampled by the herd while capitalizing on market inefficiencies.
Here’s an excerpt from the book:
Being so critical, I am often considered a contrarian. But I am very cautious about going against the herd; I am liable to be trampled on. According to my theory of initially self-reinforcing, but eventually self-defeating trends, the trend is your friend most of the way; trend followers only get hurt at inflection points, where the trend changes.
Most of the time I am a trend follower, but all the time I am aware that I am a member of a herd and I am on the lookout for inflection points. The prevailing wisdom is that markets are always right. I take the opposite position. I assume that markets are always wrong.
Even if my assumption is occasionally wrong, I use it as a working hypothesis. It does not follow that one should always go against the prevailing trend. On the contrary, most of the time the trend prevails; only occasionally are the errors corrected.
It is only on those occasions that one should go against the trend. This line of reasoning leads me to look for the flaw in every investment thesis. My sense of insecurity is satisfied when I know what the flaw is.
It doesn’t make me discard the thesis. Rather, I can play it with greater confidence because I know what is wrong with it while the market does not. I am ahead of the curve. I watch out for telltale signs that a trend may be exhausted.
Then I disengage from the herd and look for a different investment thesis. Or, if I think the trend has been carried to excess, I may probe going against it. Most of the time we are punished if we go against the trend. Only at an inflection point are we rewarded.
You can find a copy of the book here:
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