In the book – The New Market Wizards there’s an interview with Stanley Druckenmiller in which he discusses George Soros’s investment philosophy, which emphasizes preserving capital and taking big swings for exceptional long-term returns.
Unlike many managers who play it safe after achieving moderate gains, Soros believes in pushing for substantial returns, aiming for 100 percent in good years. He is also adept at cutting losses, unafraid to abandon losing trades and confident in his ability to find winning opportunities elsewhere.
This approach, according to Druckenmiller, allows for the possibility of outstanding long-term performance by combining aggressive profit-seeking with disciplined loss management.
Here’s an excerpt from the book:
George Soros has a philosophy that I have also adopted: the way to build long-term returns is through the preservation of capital and home runs.
You can be far more aggressive when you’re making good profits. Many managers, once they’re up 30 or 40 percent, will “book their year” (i.e., trade very cautiously for the remainder of the year to avoid jeopardizing the already achieved good return).
However, the way to attain truly superior long-term returns is to grind it out until you’re up 30 or 40 percent, and then, if you have the convictions, go for a 100 percent year. If you can put together a few near-100 percent years and avoid down years, you can achieve outstanding long-term returns.
Soros is also the best loss-taker I’ve ever seen. He doesn’t care whether he wins or loses on a trade. If a trade doesn’t work, he’s confident enough in his ability to succeed on other trades that he can easily walk away from the position.
There are a lot of shoes on the shelf; wear only the ones that fit. If you’re extremely confident, taking a loss doesn’t bother you.
You can find a copy of the book here:
The New Market Wizards – Jack Schwager
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