They’re All Agents of Chaos
In 1956, George Soros, then 26, comes to America and begins to look for patterns of chaos. It’s all he had known up to that point while living in 1930s Europe and surviving the Nazis, the Soviets, and switching sides to a rehabilitating England.
He falls in love with arbitrage trading, which is chaos in the order of financial markets. Arbitrage theoretically should not exist, but it does for short periods before correcting itself.
Instead of focusing on predictable results and human potential like Buffett and Munger, Soros goes to the complete opposite end of the spectrum and seeks to profit from mistakes and error.
He had experienced violence and doom for two decades and now wanted to search for those themes even where they should not exist.
Even worse is he succeeded. The meteoric rise of arbitrage trading enforced and empowered Soros to double down on his philosophy of there being no organizing force in nature, no objective reality, and no unified beating pulse to all the innumerable moving parts of life.
He gets so convinced and persuaded that he has uncovered a new way of looking at the world and facing challenges that he publishes his 1987 book The Alchemy of Finance.
To dive deep into the psyche, the book is the best place to start.
It gives an accurate account of his analytical skills, which are remarkable in the same way that Hannibal Lecter’s are.
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They do not account for their purity or goodness – only their effectiveness.
In his subconscious “dog eat dog” thoughts, you are either predator or prey.
His addiction to staying true to his notion that there are no sins, no repercussions for actions, and no price to pay for anything because we are all ashes in the end, like his Jewish community in Hungary that was exterminated only because they identified as such, has stoked the fire of injustice in his heart.
If those crimes weren’t punished in full, he must have argued, what possible harm could he do in comparison?
If the human race is nothing but a giant lab experiment, mice in the grand game of musical chairs where the music stops and someone must lose, why not apply this to capital markets and manipulate them for his own benefit?
This is where Buffett says that one must lay aside all emotions and focus on scientific data and research. Soros takes the opposing view once more and publishes his investing thesis called reflexivity based on capitalizing on and exploiting the uncontrolled emotional instincts of the crowds.
Soros defies technical, fundamental, and any other methodic manner of approaching the analysis of securities.
While chasing his progressive tail attempting to rewrite history and shape the future, Soros can’t succumb to the basic fact that he is a creature. By definition, this means that there is a creator.
His argument, which he calls reflexivity, claims that objective reality is not real because the subjective reactions of buyers and sellers decide the prices of businesses. He says it’s not the meat and bones of the enterprise that matters but the endless flow of optimism and pessimism around it.
The observer decides the value of the business, not the earning power. Like a classic progressive post-modernist, he claims the truth resides in the mind of the person who is impactful enough to push their opinion on the less educated.
Benjamin Graham said that markets are a voting machine in the short-term and a weighing machine in the long-term, which is to say that objective reality wins in the end.
What Soros says is that voting is all that matters as if logic and reasoning don’t play a role and only raw emotion does… the jungle laws again.
In my next publication, I’ll give examples of this and delve deeper into the mind of a psychopath.
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