The following is straight from Operator Kean, a member of the Macro Ops Collective.
One of the things that makes George Soros a market legend is his uncanny ability to identify lucrative trading opportunities.
Let’s take a look at how he does it.
(I) Look Forward!
Most traders realize they need to be forward looking. But few practice it.
The reality is… herd mentality and groupthink are hard forces to overcome.
Instead of looking at the recent past and extrapolating into the future, Soros focuses on variables that might be misunderstood or overlooked. If one of these variables upsets the present consensus, he knows a large move will likely occur and reward those who anticipated the potential disruption.
In John Train’s Money Masters Of Our Time, Jim Rogers, an ex-colleague of Soros, explained their process:
We aren’t as much interested in what a company is going to earn next quarter, or what 1975 aluminium shipments are going to be, as we are in how broad social, economic, and political factors will alter the destiny of an industry or stock group for some time to come. If there is a wide difference between what we see and the market price of a stock, all the better, because then we can make money.
Stanley Druckenmiller, Soros’ right hand man during Quantum’s epic performance, outlines this concept further:
[My] job for 30 years was to anticipate changes in the economic trends that were not expected by others, and, therefore not yet reflected in security prices.
Too many investors look at the present; the present is already in the price. You’ve got to think out of the box and visualise 18 to 24 months from now what the world is going to be and what (level) securities might trade at… what a company has been earning doesn’t mean anything, what you’ve got to look at is what people think a company’s going to earn and if you can see something in 2 years that’s going to be entirely different than the conventional wisdom, that’s how you make money.
Soros’ Japanese trade in 2012 and 2013 is the best modern example of the master riding a forward looking idea to enormous gains.
After the 2011 Fukushima disaster, foreign investors fled Japanese financial assets. Pessimism surrounding the struggling economy was extremely high.
There were talks of a “nuclear holocaust” as people became concerned about a radiation fallout. And the Eurozone’s sovereign debt crisis (happening at the same time) didn’t help either.
