George Soros has been in the news quite a bit lately. He has opined that the European Union may collapse under the weight of the refugee crisis, the terrorist attacks and the tenuous relationship with Russia. He has similar dire predictions for China’s economy, providing a wide foundation for the belief that the world is heading toward a tumultuous time.
As one of the wealthiest men in the world, Soros has a lot of sway. His track record on Marketwatch as an investor is the stuff of legend, averaging annual returns of 30% for a span of over three decades. The only person who really matches up with his achievements over the long haul is Warren Buffett.
Buffett had a similar run, but once the dotcom bubble burst in 2000, Buffett’s numbers fell. Over 50 years, Buffet’s average annual returns are at 21%. That’s still an incredible achievement, but the declines in the new millennium have caused many to wonder what changed.
There is a theory put forth by the late Stephen Jay Gould that applies not only to finance, but to all aspects of life. It’s pretty simple. There are now more people in the world, there is more accumulated information, and there is more technology available. This means that the average hedge fund manager knows much more than a manager from the 60’s knew. It is much more difficult to stand out from your peers.
50% of trading now involves the use of carefully developed algorithms designed by a horde of quantitative analysts. There are TV channels entirely devoted to analysis, tips, and instant information on all aspects of the business.
What makes things even more difficult is the strike teams of analysts at places like Goldman Sachs who are hammering down any slight bit of pricing inefficiency. These groups are efficiently making what George Soros did utterly impossible for the modern trader.
When George Soros got started in the 60’s, he considered himself a “one-eyed king among the blind”. He alone was focusing on European securities. He had no competition whatsoever, and he could reap all of the rewards as long as he didn’t get overly ambitious.
These days, not only do traders know about Soros’ methods, they’ve studied his book, the seminal “The Alchemy of Finance”. Any trader can use the knowledge gleaned from decades of hard work and create for themselves a fantastic foundation to grow from.
These days, there are traders like John Paulson who will have a great year and make a fortune on a legendary trade, but they are shooting stars. Nobody has been able to have successful run over the course of the last 15 years.
A trader can still make great returns on a relatively small scale. But making great returns on billion dollar deals is becoming almost impossible at this point. There’s simply too much analysis.
This is why George Soros is a product of his time. His feats will likely never be repeated. He is sort of like the Babe Ruth of the finance world. The standard of comparisons may shift over time, but the name will always be there as the one to emulate to truly become a financial success.