I just read The Alchemy of Finance from George Soros (it's never too late!).

As much as I was fascinated by Mr. Soros's description of market mechanisms and his reflexivity theory, I found his analysis flawed and mainstream when he begins to make long-term macro-economic predictions.

Now that's funny. One of history's most successful fund managers turned out to be wrong on most of his long-term predictions: the decline of the US economy, the rise of Japan as the next superpower, the Imperial cycle, etc.

So how can it be that someone who was wrong on so many predictions turned out to have generated such amazing returns for so long? Could it be that the achemy is nothing more than a great camouflage?

I see brilliant economists who are very accurate in their long-term predictions and present analysis, but somehow they can be lousy when it comes to managing money and "be right" within a tolerable time-horizon. On the other hand, I see brilliant fund managers who, I think, are lousy economists; maybe for the better, their success can't necessarily be attributed to what they believe is the true cause.

Mr. Soros's understanding of market characteristics (rational and irrational) and of markets participants is undeniable. And that, combined with a form of intuition, could be his main strength. Most important, he is very successful at "being right" within the next six months, which is all that matters for most investors! How it is packaged for the public and is a different matter.

Riz Din adds: 

I formed a very similar opinion after reading Alchemy. I find it astounding how someone's long term convictions can be so off base while his trading produces super profits. After reading the insightful trading-diary portion of the book, I concluded that his strengths lie in his not trading based on his long-term views, but rather listening and reacting to the market on a day to day basis. His somewhat stubborn bearishness seemed absent in the day-to-day trading mode.


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