Uniqueness of Warren Buffett and George Soros

By Tinaye Muzanya

There is no better way to improve one’s trading or investment success but by learning from the best. Warren Buffett and George Soros are both the world’s greatest investors current. Their investment strategies are different but their habits are the same. Buffett’s trademark is buying great businesses for considerably less than what he thinks they’re worth-and owning them “forever.” Soros is famous for making huge, leveraged trades in the currency and futures markets.

Investment strategies

Buffett’s investment criterion is based on the following:

1. His understanding of the business
2. the industry the company is operating in favourable for example Buffett avoids industries that are heavily regulated because in this type of industry the government will set the price and retuen on equity
3. Are the favourable economics sustainable
4. The way management allocates capital-Buffett wants managers who think and act like owners, and who avoid the “institutional imperative” (Tier, 2006:75).
5. Management-Buffett only invests in a company operated by honest and competent people, who managers for whom he can feel admiration and trust (Tier, 2006:75).
6. Average return on equity-if the return on equity is above average then there is a higher probability that the company is able to increase its value and reinvest its earnings.
7. Price-He will only invest when he sees a “margin of safety”;when he can invest at a discount to his estimate of the company’s value.

George Soros is nicknamed “The Man Who Broke the Bank of England”, after his famous trade in which he opened a ten billion position against the sterling in 1992. The pound had been tied to the mark at a central rate of 2.95. Sterling collapsed on “black Wednesday,” September 16th,1992. By the end of that month, one pound was worth only 2.5 Deutshemarks (Tier,2006:71). Soros’ had also seen a link between the sterling and other currencies, and between German and French bonds, and German and French equities. Altogether he made a profit of $2 billion.

Soros’ investment strategy is rooted in his belief of the market. Soros was quoted saying ,“ I came to the conclusion that basically all our views of the world are somehow flawed or distorted, and then l concentrated on the importance of this distortion in shaping events.” To him flawed views are what shape events. This is the backbone of his “theory of reflexivity” which to Soros’ is the basis for understanding the cycle of a boom followed by bust. In the book “Soros on Soros” he wrote “A boom/bust process occurs when market prices… influence the so called fundamentals that are supposed to be reflected in market prices.” With this philosophy his trading strategy is to identify a reflexive situation then position himself early before the crowd catch’s on.

Just looking at the trading strategies of Buffett and Soros we notice that their investment strategies are unique to them. The key to being a great investor is to formulate your own strategy and test it until it’s perfect.

References:

Tier, M. 2006. The Winning investment habits of Warren Buffett and George Soros. Kogan Page: London