Friday, 14 January, 2011

Unreliable anecdote about George Soros

Unreliable anecdote about George Soros
And lessons for you and me!

Happened to come across (either on TV or on the net) an anecdote about George Soros. Am not sure about the veracity. However, it is interesting enough to produce the gist over here.

Standard operating disclaimer - This anecdote may or may not have happened. Am merely reproducing something interesting that I heard ... ... ...

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Some time ago, George Soros was interacting with the Finance Minister of an Asian "Tiger" economy, about the true worth of their currency. The FM disagreed with George's perception of what the currency was worth. The FM further said, "We'll defend our currency till the last dollar of our Forex Reserves!"

George asked the FM: "OK, Sir, how comfortable is your Forex reserves position as on date?"

The FM replied that it was quite comfortable and was in the region of "xx billion dollars".

George Soros thanked the FM, came out of his meeting, rang up his assistants back at his office and barked: "Go short on so-and-so currency to the tune of XX BILLION DOLLARS, right away!"

The rest, as they say, was history.

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While the anecdote may or may not have taken place, there is a crucial lesson for investors like you and me - Take a look at this quote from physics:

  • "Give me a lever long enough, a fulcrum strong enough and I'll move the world" -Archimedes

People with deep pockets, like hedge funds, RBI, Federal Bank, large FIIs, Giants-sized Insurance companies, etc. can move the prices of an individual stock up or down almost to any extent through their own actions.

Small investors have a choice between:

  • Getting caught on the wrong side of the trade (this can be through panic selling, panic buying or falling to the temptation of playing in the Futures & Options market)
  • Making such volatility your friend. This can be by selling at unreasonably high prices (which are bound to be temporary) or buying at equally unreasonably low prices (which are also transient, though often last a bit longer)

Take care, and your wealth is bound to grow. 

Regards,

N


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