George Soros becomes greatest investor with pet theory of reflexivity

George Soros was born in Hungary in the year 1930. Growing up in an increasingly violent and anti-semitic environment, the young Soros was witness to the horrors of nationalism run amok. During the late 1930s and into the war, Soros lost members of his extended family to the Nazi death camps.

His father was astute enough to leave the country before the Nazi invaders had a chance to do to his children what they had done to his brothers and sisters. This instilled in Soros a sense of urgency and a deep need to understand the methods by which nations may be driven to such political extremism and ways to stop it.

The young Soros took a keen interest in philosophy, enrolling in Oxford University in the mid -‘40s. There, he studied under famed philosophy professor Karl Popper. Popper’s book, The Open Society and Its Enemies, became a major influence on Soros’ early intellectual development. It would inform his worldview for years to come and heavily influence his own thinking regarding the financial markets.

Soros continued studying under Popper, eventually receiving a master’s degree in philosophy. After a period of working a number of odd jobs around England, Soros decided that such menial tasks were not his calling. He applied, at the behest of a college friend, to a small Wall Street firm and was surprised to be hired so quickly. Read more on NYTimes.com.

Many unfamiliar with Soros’ history are surprised to learn that he was not a distinguished employee at the string of investment houses where he worked between the ages of roughly 25 and 40 years old. Coworkers from this time in his life recall a man who was less interested in the mendacity of work life and more interested in expounding his own philosophical treatises. It was during this period that he developed the theory of reflexivity, a unique theory of the operations of markets which relied on the fact that the participants themselves could affect the valuations of securities.

At first, experts scoffed at the notion, citing the reigning orthodoxy of the time, such as the efficient market hypothesis and other schools of thought, which held that markets perfectly accounted for all available information and that market participants always acted rationally.

By stark contrast, Soros’ philosophy held that the markets were often times completely irrational and valuations depended heavily on the perceptions of those doing the valuing. Soros would ultimately have the last laugh.

At the age of 40, Soros was given the helm of his first hedge fund, Soros Fund Management. Over the next 40 years, this fund and its successors would return over 25 percent per annum, one of the most impressive track records of any investment manager in the history of markets. Today, George Soros is widely regarded as the greatest investor in history.

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