One of Soros's investment secrets: unique philosophy
In his early years, he wanted to be a philosopher, trying to solve the most basic proposition of human existence. However, he quickly came to a dramatic conclusion that it is almost impossible to understand the mysterious field of life, because first of all, people must be able to look at themselves objectively, but the problem is that people can't do this.
So he came to the conclusion that people can't get rid of the fetters of their own views on the objects under consideration, so it is impossible for people's thinking process to obtain independent views to provide judgment basis or understand existence. This conclusion had a far-reaching impact on his philosophy and his observation of financial markets.
As a result, people can't penetrate the fur of things and reach the truth impartially. In other words, the knowability of absolute perfection is quite doubtful. As Soros said, when a person tries to explore his environment, what he knows cannot be regarded as knowledge.
The logic deduced by Soros is that the most practical thing he can do is to pay attention to the missing and distorted understanding of everything caused by the defects of human understanding, which later formed the core of his financial strategy.
It is normal that people are not gods and cannot understand the market trend. However, when most investors in the market reach a * * * understanding of the influence of fundamental factors and have the intention to continue speculation, this understanding is on the verge of danger. Why does The 5th Wave fail in the market and V-shaped reversal often appear after The 5th Wave continues? With Soros's philosophy, we can easily find the answer.
Here, we don't comment on Soros's philosophy for the time being, aiming at discussing the first problem that a successful investor should solve, that is, his world outlook and methodology, which will enable him to stand in a higher angle, look at the market with a broader vision and dialectical thinking, always keep a clear head, be calm and calm, and finally succeed.
The second secret of Soros's investment: market expectation
Soros believes that the completely free competition model established by classical economic theorists, that is, under certain conditions, the unrestrained pursuit of self-interest, will make the best allocation of resources and achieve balance. This kind of balance has never appeared in real life, and it is even more impossible in the financial market where prices fluctuate sharply. He believes that the relationship between supply and demand is not only influenced by objective factors, but more importantly, it reflects the expectations of market participants on market behavior, and market behavior is determined by these expectations. Therefore, anticipation plays an important role in the development of supply and demand.
According to Soros's investment philosophy, people can't fully understand their own environment, so people make buying and selling decisions according to expectations, thus affecting market prices, which in turn affects the expectations of other participants. Not only has the soaring price attracted many buyers, but the purchase itself has also promoted the continuous rise of prices. Form a self-pushing trend. Therefore, Soros believes that it is precisely because of the interaction between supply and demand and market expectations that market behavior becomes the uncertain motivation of future trends. In other words, the market trend manipulates the development of supply and demand.
In fact, Soros's behavior in the financial market is more speculative, seeking investment opportunities in exaggerated market expectations. On the surface, it ignores the inherent law of price changes and pays attention to the influence of participants' expectations on price changes. And it is by correcting the deviation between market expectation and internal operation law that he achieves the purpose of making profits from investment.
Different from the financial market, in the agricultural product market, the seasonal change law of supply and demand is more obvious and dominant. The expected buying and selling behavior in the market can manipulate the relationship between supply and demand in the short term, but it cannot have a lasting impact. Due to the poor value preservation of agricultural products, exaggerated expectations can not truly reflect the relationship between supply and demand, which leads to sharp price fluctuations. Therefore, the exaggerated performance of expectations in the agricultural futures market is particularly prominent, and its callback is particularly frequent, which deserves the attention of participants.
The third secret of Soros's investment: invalid market
Invalid market theory is based on Soros's philosophical research. He believes that human cognition cannot be perfect, and all cognition is flawed or distorted. People rely on their own cognition to predict the market operation, and interact with the inherent law of value that affects prices, and even the market trend manipulates the development of demand and supply, so he draws the conclusion that the market we have to deal with is not rational, but ineffective.
This theory is incompatible with the traditional economic theory. Efficient market theory holds that the operation of the market has its own logic and rationality, and the development of the market will eventually reach a balance point. The prerequisite for reaching this equilibrium point is that people can perfectly grasp the market information at any given moment, and the market price can reflect all the effective information.
Usually, most analysts adhere to the efficient market theory and have their own information and analysis of the current price, which strengthens the development of the current trend and makes the market more irrational and ineffective with the help of the public. It can't be said that it is close to the equilibrium point of the market, and there is no need to criticize this market, because according to Soros, the market at this time is the most prominent stage of irrational performance of the invalid market, so the basis for analysts to judge the market at this time is also unreliable.
In the 1980s, Soros set up a series of charitable funds in Eastern Europe and the former Soviet Union, ostensibly for charity, but in fact one of its important purposes was to change the planned economic system in the closed society of these countries and realize a free and fully market-oriented free economic system, because only in this way will it provide a broader world for the development of his funds. Understanding and making full use of market inefficiency provides an important premise for Soros's investment.
The fourth secret of Soros's investment: finding the gap
After investigating the development of various types of financial markets and macroeconomics, Soros found that they never showed a balanced trend. In fact, it may be more meaningful to assert that the market tends to enter excessive disequilibrium, because this disequilibrium will develop to an intolerable level sooner or later and eventually have to be corrected.
People's decision to buy or sell a commodity is not so much based on the consideration that the market is in equilibrium, but rather based on the viewpoint of market imbalance, specifically the viewpoint of market psychological expectation imbalance. It is precisely because of the expected deviation that the market moves towards excessive imbalance. Therefore, it can be said that finding the gap between market expectations and objective facts is a shortcut for Soros to find investment opportunities in the financial market.
He believes that the premise of scientific method is that a successful experiment should prove the validity of the hypothesis to be tested, but when the object involves the subject of thinking, the success of the experiment cannot guarantee the validity or authenticity of the statement to be tested. Participants' thinking has nothing to do with facts, but it affects the development process of things and makes the development process of things more complicated. But scientific and objective facts will eventually correct those wrong understandings and cognitive gaps.
Taking the agricultural futures soybean market as an example, the market expectation gap often appears in the early stage of crop growth, the expectation of final output due to the wet and dry changes of weather conditions, the expectation of excessive expansion or contraction of demand scale, the expectation of financial attributes of agricultural products, the expectation of duration and intensity of emergencies, and the expectation of capital scale in capital potential energy.
The operation of financial market is unbalanced, and the gap between the views of market participants and the actual situation is inevitable. Because of our limited energy and imperfect cognition, it is not only one of the secrets of Soros's investment, but also worthy of public investors' attention to find the deviation between market expectations and objective things and the tendency of excessive market imbalance.
The fifth secret of Soros's investment: finding connections
Financial market belongs to the category of social science, which is not only natural and scientific, but also incorporates the subjective knowledge of participants, which interacts with objective facts, that is, there is a reaction between imperfect ideas and actual development. This reactive connection increases the complexity of the price movement, which is not only closely watched by Soros, but also becomes a classic theory for market participants to explain the behavior of financial markets.
Alchemy, one of Soros's theories in the financial market, is not to fully understand or reveal the true colors of things, but to expect to obtain the expected standard state. He believes that the operation of natural laws has nothing to do with people's understanding of natural laws, and the only way for human beings to influence nature is to know and use these laws, while financial markets do not follow natural laws independent of anyone's thoughts.
People who hold the rational logic of economic life believe that the market is always correct, because the market has considered the future development trend and the price tends to be discounted. Soros believes that any idea of predicting the future is biased and incomplete. Participants operate on the basis of skewness, which itself has an impact on the progress of the situation, so it may give people the impression that the market may accurately predict the future. But in fact, the present expectation reflects not pure future events, but future events that have been affected by the present expectation.
The market's expected response to the actual development of the situation is either self-promotion or the expected warning function to avoid the deterioration of the situation. For example, the exaggerated expectation of the weather's influence on the agricultural product market and the increase of price deviation caused by the market's expectation of inflation often lead to the government departments' policies to turn the tide and curb the further deterioration of the situation.
For us, especially the market participants who use the market-making system, it is of great help for them to realize the goal of maximizing profits by discovering this reaction and understanding its impact on the market.
The sixth secret of Soros's investment: exposing prejudice
Because market expectation and the development process of the situation itself are interrelated and interactive, market expectation plays an important role in the development of the situation and becomes an important part of the thing itself. Therefore, the greater the expected deviation caused by people's imperfect understanding, the greater the possibility of becoming a relatively rational investor looking for profit opportunities.
Soros believes that market volatility stems from people's feelings about market prejudice and defects. This feeling comes from the fact that it has little influence on the accurate feedback behavior of known information, but is the product of rational analysis of hard data and its own emotional tendency. Investors rely on this feeling to form a tendentious view, buy and sell investment, which reacts on the market and affects investors' expectations. Therefore, the development of the situation is not from fact to fact, but from fact to feeling, and then from feeling to fact.
We mentioned in the last article that it is very important for investors to understand the relationship between market expectations and the development trend of the situation itself, and to understand the impact of this expected deviation on the development of things. One of the focuses of Soros's theory is to explore the role of misunderstanding or prejudice in the development of events.
Revealing the expected deviation and tracking the development of its deviation from objective things is very helpful for us to capture market opportunities. On the other hand, with the adjustment of the market itself to deviation from expectations or self-improvement caused by * * * vibration, we can adjust our investment strategy and make adjustments to continue holding or lightening existing positions. For example, the rising price of CBOT soybeans in May and June last year was mainly caused by the drought in the midwest of the United States, and the market thought it might lead to a reduction in soybean production. In fact, the rainfall distribution in the soybean planting belt in the United States is uneven, and the drought-stricken area is mainly Illinois, which has little impact on soybean crops. In particular, the late rainfall improved the growth conditions, and the market exaggerated the speculation of local drought, which made the expected output deviate greatly from the actual situation and eventually led to a retaliatory decline in the market.
From the above analysis, we can see that when the deviation between the participants' expectations and the actual situation is small, the market can correct itself, and its influence can be ignored. Soros said that the market is in a quasi-equilibrium state at this time. The investment value is not great; When the deviation is too large, there are two aspects. One is that the idea is quite different from the reality, but the situation is still stable. For example, when the market is not so open, it can effectively control the situation, which is meaningless to Soros. The other is that the market is highly market-oriented, with large expected deviation, rapid development and unstable situation. This state is extremely beneficial to Soros and becomes its favorable fighter.
The seventh secret of Soros's investment: investing in an unstable state
Market instability means that when the deviation between market participants' expectations and objective facts reaches an extreme state, the reaction makes the market self-propelled to a certain extent, which makes it difficult to maintain and correct itself, and makes the market imbalance develop to a considerable extent. At this time, the market is unstable.
The unbalanced market state stems from the strong contrast between the mainstream bias formed by market expectations and objective reality. Sober investors in the market began to reflect on this bias and challenge the mainstream bias, which made the original dominant factors in the market fragile, but the inertia of the market made the original trend crazy. One of the secrets of Soros's investment success is that he is good at discovering the unstable state of the market and seizing the opportunity of ups and downs.
For example, in a case that happened in the mid-1980s, the assets of the bidding company were re-evaluated, so the bank gave more loans to other bidders, which made their bids higher and higher. Finally, the bidding soared and the market became shaky because of overvaluation. According to Soros's theory, collapse will be inevitable. The possibility of ups and downs has greatly increased, and unstable market conditions have provided opportunities for investors.
There are also many ups and downs around us. When the US soybean market rises to 1 0,000, the market forecast will reach 1 0,400 and 1 0,600. When the price development of the later bull market exceeds people's expectations, there will be a market psychology that the bull market is not overwhelming. At this time, soybean stocks are extremely underestimated and the imaginary part of soybean prices is greatly exaggerated. In the end, there was a phenomenon of ups and downs, soybean prices plummeted and domestic importers defaulted in succession. Oil companies reshuffled their cards because of high-priced imports of soybeans.
It is also very important to grasp the timing of ups and downs, because it is often when the mainstream of the market is strongly biased, and the lethality is relatively strong. Only by adopting appropriate investment strategies and opening positions in a planned way can we make full use of the investment opportunities brought by this unstable market state.
The eighth secret of Soros's investment: confirming chaos
The unstable market state has always been Soros's position to test his reflexivity theory. Soros believes that the financial market is turbulent and chaotic. The rule of the game is to grasp this disorder, which is the way to make money. By investing in the unstable market, although his theory is not perfect, he finally won the title of investment master and the best investment manager in the world.
According to Soros's theory, the internal law of financial market operation is not independent, and the opinions, prejudices and psychological factors of market participants all play a role in promoting or restricting the development of things, so that the final development may exceed the expectations of most people. It can be said that the operation of the market is not logical, but more psychological and based on group instinct. Different understanding and prediction of something is often the main reason for confusion. Soros believes that the secret of the success of financial markets lies in the extraordinary ability to predict the general expectation psychology, but it is not necessary to accurately predict the real world.
A chaotic market depends on the obvious differences in participants' understanding of things. The bigger the difference, the more chaotic the market is, and the mainstream bias is often unclear. Due to the insistence of all parties, the price trend is also fluctuating.
Soros is addicted to chaos, because this is the secret of making money: understanding the revolutionary process in the market. For example, after the reunification of Germany, Britain joined the European exchange rate system, a new monetary system created by western European countries, and Soros seemed to see the impending chaos in the unstable European financial market. Through years of observation, Soros accurately grasped its instability, and when most people did not admit the existence of this instability, chaos occurred. In this pound war, a transaction earned nearly $654.38 billion.
From Soros's investment process, we can see that objective macroeconomic analysis and good mental state are the indispensable main factors for us to recognize chaos, seize opportunities and win in chaos.
The ninth secret of Soros's investment: investigate before investing.
Soros's interaction theory only provides him with the direction of investment goals and the way to seize potential opportunities, but it cannot provide accurate guidance and an important turning point. One of the secrets of transforming theory into practice to obtain profits is the operation method of investing first and then investigating.
Investment first, investigation later, that is, put forward assumptions, open positions, test assumptions with a knife, and wait for the market to prove correct or not. If the hypothesis is proved to be correct, increase the position, otherwise withdraw the position in time.
Sometimes it takes a long time to identify a trend. It is very likely that the market trend has begun to reverse when he hesitates. Therefore, opening a position immediately after making a hypothesis will help him seize the best investment opportunity.
The key to Soros's investment success lies in his philosophical thinking. He knows that people's cognition of things is always flawed. No matter what hypothesis is established, investors' imagination will be wrong in a certain period of time, that is to say, this hypothesis is based on some defects that must exist in the hypothesis. The key to success lies in constantly searching for defects that are vital to oneself in market deduction. Pay attention to its influence on investment behavior. When Soros and Rogers founded the Quantum Fund, there was a division of labor. Rogers is an analyst and Soros is a decision maker. They follow the routine of investing first and then investigating. Soros invests first, Rogers inspects later.
Sometimes, the investment made to find feelings will be consistent with the current market trend, reflecting the convergence of this assumption and the public investment psychology, which is often what Soros is most worried about, because defective cognition has become the mainstream bias of the market, which is the prosperous side of the market. Once Soros's investigation finds defects and pays close attention to them, he will be sensitive to the signals sent by the market ups and downs, which is the critical point of the trend he is looking for. At this time, he will leave the public to act alone, flatten all the previously established positions, establish a new investment concept, establish new positions, and get the maximum profit in the new trend. When his hypothesis is correct, he will increase his position. When his hypothesis fails, he will study the reasons for the failure and withdraw his position without hesitation.
Based on assumptions, investing first and then investigating, feeling the market more accurately and comprehensively, catching fighters and getting the maximum profit are one of Soros's investment secrets.
The tenth secret of Soros's investment: exploring the overreaction market
The important practical value of Soros's investment theory lies in its application of reflexivity theory to explore the overreacted market, tracking the process of the market from self-promotion to strength and finally to decline after the formation of the trend, and finding that its turning point is precisely the investment opportunity that can get the most benefit.
The formation of overreaction market is mainly driven by the mainstream prejudice formed by followers. Followers' actions are blind to some extent, but they can also strengthen the trend of the market itself. Due to the complexity of market factors, the more uncertain factors, the more people will follow the market trend, and the greater the impact of this homeopathic speculation, which itself has become one of the fundamental factors affecting the market trend. The wind helps the fire, and the market is dominated by investors' exaggerated prejudice. The interaction between them makes investors fall into blind fanaticism. The stronger the trend, the farther away the prejudice is from the truth, which actually makes the market more and more fragile. The final result of market overreaction is the occurrence of ups and downs.
According to Soros's theory, the main sequence characteristics of ups and downs are:
1, the market development trend has not yet been determined.
Once the trend is determined, this determination will strengthen the development of the trend and lead to the beginning of the self-promotion process.
With the mutual promotion of current trends and current prejudices, prejudices are increasingly exaggerated. When this process develops to a certain stage, the conditions of "extremely unbalanced state" are ripe.
3. Market trends can be successfully tested: market trends and market participants' prejudices can be tested again and again through various external shocks.
4. Increased certainty: If prejudices and trends can remain unchanged after various shocks, it is "unshakable" in Soros's words. This stage is an accelerated process.
5. The gap between reality and concept: The appearance of this stage indicates that the gap between belief and reality is so great, the prejudice of market participants is already obvious, and the climax is coming.
6. Finally, the process of specular reflection and self-propulsion occurred in opposite directions. At this time, people's views on the market no longer play a driving role, the original trend stagnated, another voice began to affect the market, and the original market confidence began to lose. At this time, the market began to change in the opposite direction. This transition point is called "intersection". In the acceleration phase of the collision.
Financial markets fluctuate from time to time, especially agricultural products markets. Due to seasonal characteristics, the fluctuation period is short, and seasonal factors have a great influence on the market. However, the speculation on one of the fundamental factors is extremely easy to be excessive, and the market is characterized by frequent fanaticism, such as continuous rise or fall, and the time and space for callback are quite limited, which often leads to ups and downs (market. For the metal market, because its cycle is closely related to the macro-economic environment, its cycle is longer than that of the agricultural product market, so the confirmation of its inflection point should be extra cautious. Improper operation will be overwhelmed by a self-pushing trend.
In other words, the key to the success of investment is to recognize the moment when the market begins to give itself development momentum. Once this critical moment is confirmed, investors can gain insight into whether the boom-bust phenomenon is beginning or has already begun. After the inflection point is found, the operation may go against the trend in the short term, so it is very necessary to set a stop loss and adjust the strategy in time.
The eleventh secret of Soros's investment: open up information channels and look at macroeconomics.
Soros's investment comes first. The investment method after investigation is not a blind gambling operation, but an investment decision made after careful assumptions and extensive information. In his view, this is an economic decision.
There are long-term, medium-term and short-term price trends of trading varieties. Short-term fluctuations in the market are very important at the turning point of the situation, but when a trend has been established, its role is minimal. As Soros's huge investment fund, it is very necessary to grasp the macro-environment of economic operation in order to obtain good returns. Only by standing high can we see far and gain insight into local changes in the market. In order to grasp the fulcrum in the development of the trend. This is also one of the secrets of Soros's success.
For example, Soros looks for sudden changes in the stock market, focusing not on a company's income in the next quarter, but on broader social, economic and political factors. When tracking a certain industry or variety, he always takes into account the whole macroeconomic theme involving the complex international trade situation. The transformation of the banking industry in the 1970s marked the beginning of a large-scale loan boom. This prosperity promoted the expansion and merger of American companies in the 1980s. According to his interaction theory, Soros distinguished the beginning of prosperity in the process of ups and downs.
Soros has extensive information channels and extraordinary communication skills. He can find the right person among many friends who are full of stars, and learn about the macroeconomic development trends around the world from them. He talked and laughed with great scholars, but he had no contact with Ding Bai. He attaches great importance to the views and decisions of other international financial institutions.
If event A happens, then event B, then event C ... Similarly, analyzing these complicated information, his philosophical world outlook and methodology make him have a unique understanding of the causal relationship of the world economy, which is actually one of the most important investment secrets behind Soros's success.
The twelfth secret of Soros's investment: staying green is not afraid of burning firewood.
Soros once said that risk is very important to him, which can promote his adrenaline secretion and danger can stimulate him. It's not that he loves danger, but that he needs a feeling of being fully involved in the market. The high-risk financial market has great attraction to him, and it also makes him a generation of investment masters.
Soros is known as the classic adventurer and the king of leverage. In the high-risk market operation, he has achieved great success and suffered heavy failure. But in the end, he did not become a passer-by and achieved success. In addition to his keen vision, rational analysis and superb fighter grasping ability, what is more important is his self-protection consciousness and self-protection ability as an investor. It is one of the sacred laws that he adheres to and a vital guarantee for his success to stay in the green hills and not be afraid of burning firewood.
The desire to live tells him that it is understandable to take risks, but at the same time, remember not to put all your eggs in one basket. Soros never plays a tightrope game, so his most important judgment when making investment decisions is how much risk he should take while still ensuring his own safety. When the forecast fails, he would rather close the position too early than stop the loss too late. This is a typical practice of Soros. Only by giving up fighting in time can we fight a battle alive.
Explorers who can cross Lop Nur, which is called the forbidden zone of life, must be carefully prepared. Even so, they may eventually have to rely on instinct to survive. The greatest adventurers often look wild, but in fact they are the most cautious people. Because they must remain qualified to participate in the competition. The courage to take risks is commendable, and it is important to leave room for a comeback. The God of Destiny turns in the field of securities, so that those who rise will fall, those who fall will rise, and everything will eventually pass and return to the mean.