When you talk about legendary trades in the financial market, it is difficult not to talk about George Soros.
He is often known as the man who broke the British pound and he literally brought the Bank of England to its feet.
He turned his basic fund worth $12 million into $20 billion in just a decade.
Why Should We Care How George Soros Made His Money?
Well, that has been the source of curiosity for many who want to make money in the market.
But I am not writing this article just to satisfy your curiosity.
First, I am doing this to tell you how George Soros really made his money.
However, I have a bigger goal from writing this article.
I want to tell you how you can do the same.
Don’t say that George Soros is an exception and you can’t duplicate his success.
Maybe you won’t become a multi-billionaire like him.
But you can become a multi-millionaire the way he became a multi-billionaire.
I also want to show you that you don’t have to work to the bone to make money.
You can make much more money if you work smart.
Sometimes you have to work hard at the beginning to collect the initial capital you need to invest.
But then you can work smart, increase your capital and become rich.
This is how the rich, including George Soros, become rich.
They don’t work hard.
They work smart.
So How Did George Soros Make His Money?
Almost for anyone who is serious about making money, how George Soros made his money is a popular case study.
In many ways, George Soros is also known as the greatest speculator of the century.
So would it mean that speculation is an accepted way to make money in the market?
Well, experts might differ on that front.
However, it was one of the most crucial elements for Soros.
Any study of how George Soros made his money without delving into details of his famous 1992 speculative bet, cannot be complete.
Before we get into details of how and when Soros made his money, a brief idea about the economic condition of the time is also important.
Remember, Soros’ trade was never about just being lucky.
There was an element of mathematical precision in the way his trade was designed.
In many ways, it was the timing of the deal that made a world of difference to the whole deal.
Given the complex nature of currency trades, it is very important to understand the dynamics of the money market.
This is what will help them make money on a sustained basis.
After all, we are talking about the most elegantly constructed currency bet in many years.
It was a trade that impacted almost every global market.
1. George Soros: The Early Years
George Soros struggled through his early years.
Born in 1930, he played an active role in helping his father forge documents for many Jews trying to escape the Nazi persecution.
Needless to mention it sharpened his survival skills to the hilt.
By 1947, he enrolled as a student at the London School of Economics.
Soon after passing out, he got a position in a London Bank, and by late 1950s he moved to New York.
Here he worked in a wide range of firms as traders and analysts.
Soon he went to manage several funds.
Soon his ambition started to grow.
He was keen about making money and making it fast.
In about 1973, he went on to conceptualize and create his own offering.
The Soros Fund Management came into being.
George Soros with his deputy Jim Rogers eventually renamed this fund as the Quantum Fund.
The fund was unique in many ways.
It has earned a whopping 3000%+ since its formation while the S&P 500 recorded a modest 47% returns.
Needless to mention, the Quantum Fund was growing by leaps and bound.
The fund value rose to $381 million by 1981 and Soros’ individual worth was considered to be over $100 million.
By 1986, the net worth of the Quantum Fund went well past $1.5 billion.
By 1993, the fund was generating an average return of 40% a year.
But we cannot skip to 1993 without mentioning 1992.
That was a marquee year in the currency trading.
No account of how George Soros made his money without the details of the big speculation bet.
He literally brought the Bank Of England to its knees under the spell of his speculative bet.
2. The 1992 Short Trade
This short trade against the Pound yielded close to $1 billion profit.
Apart, individual trades in separate world markets like Tokyo, Sweden & Italy generated another $1 billion in profit.
George Soros alone made over $600 million in profit.
As we get into the details of how did George Soros make his money, it is important to understand the dynamics of the money market was quite different at that juncture.
It was just the beginning of the era of 24-hour news.
Caps on capital flows were just being lifted, and hedge funds were still the reserve of the HNIs.
It hadn’t invaded the average bedroom or the public investment perception.
How George Soros made this money is also a reflection of the in-depth understanding of the British macroeconomic elements.
He combined his understanding of how hedge funds worked alongside the manner Governments functioned to get the perfect recipe for profits.
The result was one of the biggest speculative games of the 20th century.
As Britain grappled with the global economic challenges of the 1990s, far away in a New York office George Soros was giving finishing touches to his master plan.
Unemployment levels had spiked close to 13% in the UK; inflation had come down, global markets were in the grips of the famous recession of the 90s.
Normally any country would cut down rates at this juncture to deal with the crisis.
But England Had Its Hand Tied…
It was obligated to keep the pound at a certain rate as per the European Exchange Rate Mechanism or the ERM.
The Fixed Exchange Rate had begun to spell an increasing number of problems, and the Brits were grappling with options to rise over this.
The fact that the Pound Sterling was overvalued was almost like an open secret.
The Government kept the value propped up significantly above the fair value levels.
On September 16, 1992, The Wall Street Journal and a German Newspaper paraphrased one of the German President’s quotes.
In this, he is quoted as saying that he did not rule out the possibility of Germany cutting rates and a few currencies coming under pressure ahead of the referendum in France.
In many ways, this was the beginning of the infamous short deal that George Soros became iconic for.
Soros had been already building up a short position worth over $1.5 billion. They were betting that Pound value would fall.
When this particular statement flashed across newswires the following morning, Quantum Fund grabbed the opportunity.
A decision was made to begin short selling pound.
The result, over $1 billion in profit for George Soros, the end of the Bank Of England’s currency policy.
Not just that it also hit the British Taxpayer rather severely.
By the end of that fateful Wednesday, Britain exited the ERM, floated its currency, and the pound fell a massive 15%.
Somewhere in the ruins of this British bloodbath lay the foundation of Soros’ spree of making money in an absolutely stunning speculative strategy.
Of course, the Quantum Fund continued to diversify its interests, and the Octogenarian investor is worth many times over now.
3. Soros After 1992
When you set about studying how George Soros made his money, you must remember that he was not any bit less rich before the infamous 92 Short trade.
But what surely changed forever was that this short trade made him an iconic figure in the financial markets world over.
People could agree or disagree with his policies, but no one could dare deny his supremacy in speculative trade.
In 1993, the Fund generated a massive 65% return.
He brought about a union of his thoughts on free market theories and scientific precision in undertaking financial deals.
By the end of 2016, the total assets under management are well over $28 billion for the Quantum Fund.
Soros expanded the scope of these funds and today there are 6 funds that are run under the umbrella of the Quantum Fund.
Today he is known as much for this philanthropic initiative as he is for his investment strategies.
Ranking around 23 in the Forbes list of the world’s 400 richest individuals, his journey is iconic in many ways.
The Secret of George Soros’ Strategy
If you are keen on making money, this could be one of the biggest lessons to learn from Soros’ journey.
Understanding and identifying the opportunity becomes crucial.
For example, the German President’s paraphrased quote was another innocuous line in the entire interview.
Imagine where global markets would have been today had Druckenmiller, a key member of Soros’ Quantum Fund had not noticed the statement?
Could Soros sell at the phenomenal rate he did, had they not started accumulating position already for a month?
Well, the unprecedented scale of this operation, its conceptualization and its execution all highlight the brilliance of Soros’ planning.
In this context, you must understand that if you want to make money on a sustained basis, the opportunity is often the biggest catalyst.
Therefore, identifying the opportunity in its true form poses a major challenge.
But more importantly, a conviction in your analysis is also crucial.
Imagine if, on that Wednesday, Soros had continued to build a position and not executed the sale, how would markets have moved forward?
Well, that is delving even deeper into the realms of speculation.
But the fact remains that to get to the bottom of how George Soros made his money, it is very important to understand all these elements in details.
The George Soros Mantra
So that brings us to the final point, what is that crucial fact that we must understand to make money like George Soros?
Well, it is actually an amalgamation of many factors.
Some would tell you that you can understand it better by reading his book.
While there are many who would confirm that it is nearly impossible to comprehend his book completely.
But almost everyone would agree that it is impossible to appreciate the way his mind works without getting to the core of his investment strategy.
The highlights of his fundamental investment policy are encapsulated in 5 main ideas.
These ideas are not unique in concept, but they help you make money.
Not just that, it also instills significant amount of confidence amongst investors.
Most average investors are scared about taking major steps.
The fear of failure is often their biggest hindrance.
It proves to be the greatest roadblock in their journey towards making money.
Therefore the question is how do you overcome it?
After all, we are not all like Soros.
Perhaps we can’t even take risks the way he did.
But we can all profit from his theories.
They are often the key to sustainable gains.
1. Soros’ Theory of Reflexivity
There are chances that you are already drawing a comparison with Einstein’s famous theory of Relativity.
Well, that is what Soros wanted.
His ideas need to appear grand and great.
Needless to mention, it impacts perception.
That in many ways remains the key to his success in many ways.
This theory of reflexivity in many ways is all about valuing assets on the basis of market feedback.
George Soros has used precisely this tool to predict potential bubbles in the market.
Needless to mention, that he has also used this to identify opportunities to make money.
2. Believe in Your Gut
Did you know the number of times that George Soros abandoned an investment because of a headache?
Well, are you wondering what the connection is?
Well, there are some decisions that we believe in and some we don’t.
All Soros seems to indicate if you can make money by trying to pay heed to them.
Well, if it can be secret to how George Soros made money, perhaps it could be your secret too.
3. Scientific Precision
A strategy that lacks precision can never help you make money.
This is one of the fundamental cues about how George Soros made his money.
As a rule, he always tests his strategies on smaller investments and then takes it forward.
Well, that is often the basis of some of the most fruitful strategies for making money.
You need to be fully sure about the exact outcome of your investment strategy.
4. Making an Informed Choice
Often the perfect investment strategy also has to take into account the political and economic realities of time.
Think hard about how did George Soros make his money?
Well, had he not been following the Pound’s movement so closely, had he not been building a short position, we don’t know how world finances would have shaped.
He closely studies the UK Government’s stance on interest rates and the kind of effect a possible hike could trigger.
The possibility of a devaluation loomed just too large.
George Soros was quick to link the individual pieces of the puzzle.
The result was he became the man who broke the Bank Of England, who brought the fixed currency regime.
In many ways, he was single-handedly responsible for Britain exiting the ERM.
The idea is as an astute investor, you have to make an informed choice to make money sustainably.
Information is power in the money market, and no one can prove it better than George Soros.
Well, it all depends on how well you can use it though.
5. Review Your Decision
It is said that George Soros only refers to a select few advisors before deciding on his biggest bets.
He always makes sure that he takes into account the contrarian view too.
Are you wondering how it helps him to make money?
Well, it serves a very simple purpose.
It helps him to review his decision with precision.
He takes into account every type of situation and then takes a consolidated call.
When it comes to investment decisions, this is decidedly the best way to make money.
It makes you prepared for handling every type of situation and take into account the ground realities.
Additionally, it also helps to keep an alternate plan in place.
This is very important to preserve your money and help you book profit in the deal after deal.
Can You Make Money the Way George Soros Did?
The secret of the George Soros’ wealth is a lot in details.
You can’t easily easily explain it and answer this question that how did George Soros make his money.
Often the argument that is put forth is that regular investors cannot apply Soros’ technique.
Well, you might not want to bring the Bank of England down, but it can always help you to preserve your capital.
Soros has had his share of good and bad investments, but the bottom line is in planning.
That can decidedly help you make money with greater consistency.
Just like George Soros, it could help you expand your profits.
Therefore, planning or having a proper strategy is the key.
You have to have a proper strategy if you like to follow the George Soros footsteps.
This is what I call a Wealth Building Strategy.
Read my wealth building strategy article to know how to have a plan for becoming wealthy.
Also my short-term investment strategy which is part of my wealth building strategy, is so similar to George Soros planning in increasing his wealth, specially for those who want to start from the beginning.