I was disappointed with this book. Its not that there’s nothing interesting in there, because there is much. But the interesting bits are almost swamped by his philosophical ramblings.
The reason for the book is his idea of reflexivity – the idea that people’s expectations affect markets as much as markets affect people’s expectations. In itself it is a good idea and certainly gives some explanatory power, as he demonstrates through a boom/bust model. Its clear Soros knows that he hasn’t described it properly, as in my newer edition he has added a new introduction which does explain it in a concise way. He even acknowledges its limitations. But unfortunately he has left much of the previous philosophical texts in, even though they have now been rendered somewhat superfluous.
The last part of the book feels almost as bad. His musings on the events of the mid/late 80s have not dated well and now give more amusement than insight. It is tempting to try make some analogies with the current economy, but the differences matter more. I am cautioned though that while his ideas seem outlandish now (fixing the oil price via a super-OPEC anyone?) sometimes these things do come round full cycle.
The heart of the book though is different. It is a trading diary. Written approximately once a fortnight for over a year it gives insights into Soros’s thinking, and his trading. The first impression his how normal his thoughts seem – he focuses a lot on his mistakes and problems with his trades and he gives the impression of making many. The reader soon realises that first impressions can be mistaken as over this period he manages to double the value of his Quantum fund.
So what is he good at? I picked up three things. Firstly he is very good at admitting his mistakes. His trading style helps, in that he’s not a long term investor and so the judgement of the markets gives prompt feedback. The second is that he moves on from past positions quickly (though he makes claims to the contrary!) He moves in & out, long & short having little real regard to what his previous view was, good or bad. On occasion he is panicked out of positions, but happily restores them the next week. He swings from long to short and back again. His mental discipline is impressive, albeit you have to suspect that he was lucky in some sense in that he evolved a style that both suited him temperamentally and worked well.
The final bit of alchemy is less clear – when he’s right he makes a killing; when he’s wrong he doesn’t take a bath. We are taught there is no reward without risk, yet in this period he managed that miracle. While its fair to say that we are dealing with a limited sample (and one wonders whether he’d have published the diary if the fund had halved – we do know the Quantum Fund had some rocky times too) there is still something missing. Maybe its just a willingness to cut his losses and gear up when things are going well. But Soros clearly has something that most of us lack. If only he could actually tell us what it was!