The hedge fund industry is fairly young, with its origins going back to the 1950s. However, it did not become a major influence on Wall Street until the early 1970s. And one of the key players was, of course, George Soros. During his 42-year investment management career, he created a stunning $35 billion in profits for his clients.
But now Soros finally will leave the money management business. Apparently, the reason is that Dodd-Frank legislation has made things too burdensome. Instead, the Soros fortune will become a family office, which will have roughly $25 billion under management.
In a way, it seems like an end of an era. After all, Soros was considered one of the “gunslingers” of the hedge fund world. They include others like Julian Robertson and Michael Steinhardt.
So what can investors learn from Soros? Let’s take a look:
Long and short: Many investors focus solely on buying stocks. But there often are many great opportunities to make money when investments fall in value (especially as seen with the recent market plunge). This is done through a process known as short selling.
True, it can be risky. But when done within a diversified portfolio, it actually can help to reduce the volatility.
Convictions: When Soros saw a great trade, he went all-in. Keep in mind that only a few investments are likely to make a major difference in beating the markets.
Thus, in the case of shorting the British pound in 1992, Soros went for the jugular. As a result, he made $1 billion.
Risk Management: Soros is known for his extensive due diligence. Basically, Soros hates to lose money on any trade. Keep in mind that the Quantum fund only had one year where there was a loss.
Macro: Until Soros, the typical money manager would focus on a particular market or category. But he realized this was a mistake. Rather, he believed a top investor must take a global view on things.
In other words, he was a pioneer with investments in emerging markets. He also had a strong understanding of currencies and international finance. No doubt, these skills proved to be critical in finding moneymaking opportunities.
Tom Taulli’s latest book is “All About Short Selling,” and he has an upcoming book called “All About Commodities.” You can find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.
