Chit Chat Stocks - George Soros: The Investing Legend Who Broke The Bank of England

Episode Date: October 8, 2025

On this episode of Chit Chat Stocks, we cover Super Investor George Soros. We discuss: (00:00) Introduction (03:28) Early Life and Influences (09:14) Quantum Fund (12:39) Investment Philosophy and Position Sizing (19:27) Understanding Reflexivity in Markets (28:02) Case Study: Breaking the Bank of England (34:42) The Mechanics of Currency Devaluation (39:23) Soros' Bet Against the Thai Baht (44:47) Current Currency Crises: Lessons from Argentina (50:30) Soros' Investment Philosophy and Strategies (55:50) Lessons Learned from Soros' Approach ***************************************************** JOIN OUR EMAIL NEWSLETTER AND CHAT COMMUNITY: https://chitchatstocks.substack.com/  ********************************************************************* Chit Chat Stocks is presented by Interactive Brokers. Get professional pricing, global access, and premier technology with the best brokerage for investors today:  https://www.interactivebrokers.com/  Interactive Brokers is a member of SIPC.  ********************************************************************* Fiscal.ai is building the future of financial data. With custom charts, AI-generated research reports, and endless analytical tools, you can get up to speed on any stock around the globe. All for a reasonable price.  Use our LINK and get 15% off any premium plan: ⁠https://fiscal.ai/chitchat  ********************************************************************* Portseido is your best portfolio tracking & reporting solution that helps you track all investments in one place. We personally use the software to track our portfolio returns across brokerage accounts. Try it for free today: https://portseido.com/?fpr=ryan63  ********************************************************************* Disclosure: Chit Chat Stocks hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chit Chat Stocks is a CCM Media Group podcast. Anything discussed on Chit Chat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. Welcome to Chit Chat Stocks, the podcast that helps you discover your next great investment. Today, we have a super investor research report where we are looking at George Soros, one of the most controversial figures in the investing and political world, but has one of the most impressive hedge fund track records, at least in its prime, of any investor out there.

So we're going to be going through his investing life, the bets that he made, the rationale and the thinking behind those bets, and whether or not it's applicable to us as individual investors and if there's anything we can steal or any lessons we can take away from his investment career. But before we get into his life, his investments, lessons, I want to give a quick thank you for everyone that's tuning in. If you are listening to this for the first time, please go ahead and follow our show on Spotify, Apple, or wherever you get your podcasts so you never miss an episode. And if you really enjoy us, please, please, please give us a review. It helps our podcast grow so much. So thank you if you have. And if not, feel free to do so. Brett, what inspired you? You picked George Soros here.

What inspired you to look at him as a super investor? Well, really, it's the returns. We're going to get into 25 years. I tried to estimate 28% annualized returns for his investors in Quantum Fund while he was generally running it. And even though he's outside of our value investor mindset, it's a little bit of different stuff, which I thought was kind of educational for us researching this episode, and I hope will be educational for the listeners as well. It's just learning from someone who has done so well. And before you get into his early life and upbringing, I'll say,

regardless of what you think of him, if you're one of those people that is an extreme anti-saurus person, I don't care either way. If you love him, I don't care either. We're strictly looking at him as an investor, what we can learn from him. Because clearly, unless you're one of the few people out there that has produced 28% returns for 25 years, and if you have, you're probably not listening to this podcast. So I'd say almost every single listener has not put up his performance. So there's something we can learn from him to try to do well as investors ourselves. Let's start with his early life and upbringing. Sometimes it can be too much to look at all this stuff, but I do think it's kind of fascinating when we've done all our Super Investors series

episodes. You do start to recognize some patterns of great investors, something that they had in their early lives. Typically, that's some sort of hardship that led to frugality in the early days and understanding value and being value conscious early on. But also, typically, they are very bright as well from an early age. And that seemed to be the case with George Soros. So Soros, for those that don't know, he is super old. I think he's almost 100 years old at this point. He was born into a Jewish family in Budapest, Hungary in 1930. For those that know their history being jewish in hungary in the 30s and 40s was a really difficult time his family was fortunately able to obtain false identity papers and they survived the nazi occupation

of 1944 1945 and his father apparently from everything that i read was actually sort of a bit of like an unsung hero in in hungary at the time where he helped a lot of other jewish families conceal their backgrounds and obtain false identity papers so they didn't ultimately get uh deported and and brought to internment camps and stuff like that so uh he really was sort of a hero and and uh george soros saw that early on and was one of the fortunate ones to to survive following the second world war though so keep in mind 1944-45 he's about 15 years old. Afterwards, Soviet occupation started to turn Hungary into a communist state, which Soros says has encouraged him or encouraged him at the time to emigrate as soon as he could.

So in 1947, at the age of 17, Soros left on his own to go to London, where he studied at the London School of Economics and worked part-time as a railway porter and as a nightclub waiter. kind of funny they're a nightclub waiter it's not really the job you picture i imagine out of george soros but that's true yeah anyway uh in his book which is it's called the alchemy of finance and it basically is sort of our primary reading for all the content we got in this episode as well as some other stuff also but he describes this portion of his life as having many false starts. So early on in his studies, he wanted to be a philosopher. And if you read his book or listen to interviews of him, you can tell pretty quickly that he was very much like an

academic. Even his theory of reflexivity, which we'll talk about in a bit here, started initially by his understanding of the laws of nature and how he found that the same laws actually don't apply in economics and like many great investors he took issue with academia's understanding of economics and he sort of paved his own way but when you read his book you'll get it right away because he uses frankly a lot of really big words constantly throughout the book and it was a bit of a hard read at times but he could have used an editor i think this could have been a 100 page pamphlet with a few case studies at the back but it's okay we grinded through it so the listeners didn't have to yeah anyway he was you can tell he kind of had that philosophy edge and economics

really wasn't it's not like he knew from 12 years old that he wanted to be an investor like buffett it's very different so however eventually he decided while he was studying at london school of economics i don't want to be a philosopher i want to study uh economics i want to understand markets and investments. And in 1954, so he is 24 years old at this point, he got a job at the London Merchant Bank, Singer and Friedlander. He initially started as a clerk, but eventually moved into the arbitrage department where he was apparently very successful advising clients on currency arbitrage. And when you go back through his history and early life, this is probably the moment that shaped his future success the most. Obviously, having a generally strong intellect

and worldview shaped by his philosophy studies is nice. But he even talks about the fact that the lessons and knowledge that he gained from his university studies actually did not apply much at all to his understanding of economics and success in investing. Like he basically had to sort of relearn because if you apply the laws of nature to markets, it teaches you a lot of the wrong lessons.

And that's basically his entire theory. He disagreed with everyone. Yeah. Yeah. Exactly. And that can make you a lot of money if you're right, if you disagree with everyone and you're correct. Yeah, and he really didn't start taking these – from what I could tell, he didn't start like making – placing huge bets on variant views until kind of later in his career when he was managing his own money. For the most part, he was just a successful currency trader at these firms, which didn't really take that much talent.

I'll explain why in a second. But anyways, a couple of years into the job, a colleague of his had a father that ran a brokerage house in New York and recommended to George Soros that he should apply. So in 1956, Soros left for New York and he continued working as an arbitrage trader. Only this time he was specializing in European stocks. once again very successful in this role but i would personally argue that it didn't really take a ton of like unique insight to capitalize on these mispricings because it was basically just if unless i'm misunderstanding it was mispricings based on the countries that you're in so if you have the resource and if you're talking about european stocks if you have the right resources and the right connections across the atlantic you can probably make money in that field and he continued in that field until 1963 there was the canada administration imposed a tax on

the purchase of foreign stocks and bonds by u.s investors this was known as the interest equalization tax and this basically wound down source's uh european arbitrage business so he was still working at the firm it was just he basically just describes it as it sort of curtailed demand for a decade. And while he was at the firm, the firm gave him $100,000 to start a fund of his own, just implement his own trading strategy. So I'm sure he was doing more on the side and on his own prior to this, but that was 1966. And that would eventually pave the way for what we now know him for the most, which is the Quantum Fund. Let me take it over with the Quantum Fund.

They started it in 1968, I should say. Just really, Soros started it in 1968 with $4 million of investor money. And that grew to $2 billion by the time the second edition of the Alchemy of Finance was written, which is the main source for our podcast episode, through 1993. We didn't get exact figures throughout this. So this is kind of ballpark stuff. I'm trying to connect with some of the data points that get thrown out throughout the book. But again, 1968, $4 million, $2 billion by 1993. And in the book, Soros mentions, and this is a key point, that there were few new capital raises and that the fund grew 300-fold for initial investors.

So if we ballpark these as pre of the fees paid to the quantum fund, or even if it's post fees, it could be a little bit different. We can look at an estimate over from 1968 to 1993 for 25 years. If you were in an LP of the quantum fund, you generated a 28.25% annual return. In 1998, Stan Druckenmiller, who we have covered on the show before, if you want to look details into his strategy, which is very similar to Soros, but slightly different. He took over the quantum fund in 1988, and Soros slowly moved away from active investment management and focused more on philanthropy in the early 90s. We're going to cover basically what he did and the ideas from the alchemy of finance, which is really this 1968 to the late 80s, early 90s. And you got to ask,

how did Soros do so well? I mean, over this time period, I think this is better than what Buffett did. The greatest investor ever. Now Buffett's done it for a longer time period. And if you look at Soros, it matches what his partner, Stan Druckenmiller, produced at Duquesne Asset Management, about 30% for 30 years, generally about the same. There are very few professional investors that come close to these return levels. I think if Ryan and I looked at each other, we said we could do 15% for 25 years. We would go, all right, I sign up for that tomorrow. so these are very good returns to put to you in the 99.999 percentile and similar to Druckenmiller style which you can hear again on the podcast we talked about on him last year it really comes down

to we're going to some of the details here but having a flexible what they call matrix of investing tools he'll go source will go long or short stocks bonds currencies commodities options you name it there's going to be some case studies we look at but they'll look at anything it's not like he goes, okay, I'm only going to be small cap value, or I'm only going to be a commodities guy, or I'm only going to be a bond guy. He's looking at anything, anywhere he can find value. And I think before we get into reflexivity, one philosophy that Soares is known for in regard, and above all others, is portfolio management and position sizing. I'll kick it off with a quote from Druckenmiller talking about position sizing that encapsulates his overall trading mentality.

Soros' overall trading mentality, quote, Soros has taught me that when you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig. It takes courage to write a profit with huge leverage. As far as Soros is concerned, when you're right on something, you can't own enough. Although I was not at Soros management at the time, I've heard that prior to the Plaza Accord meeting in the fall of 1985, other traders in the office had been piggybacking George and hence were long the yen going into the meeting. When the yen opened 800 points higher on Monday morning, these traders couldn't believe the size of their gains and anxiously started taking profits. Supposedly, George came bolting out the door,

directing the other traders to stop selling the yen, telling them that he would assume their position. While these other traders were congratulating themselves for having taken the biggest profit in their lives, Soros was looking at the big picture. The government had just told him that the dollar was going to go down for the next year, so why shouldn't he be a pig and buy more yen. All right. There's other parts to that quote, but I think that encapsulates a lot of his thinking. A lot of people look at, oh, well, you can't go broke taking a profit. This actually, I think, relates, we'll talk about this throughout the episode, a little bit to what we just talked to in an interview with David Gardner, where you have

to look at your opportunity cost across all these situations. You have to look at, okay, well, even if we're talking stock investing, even if Netflix has been a huge winner for me, It's now 20, 30% of my portfolio. Do I think it's going to be fine over the long term? Am I going to be giving up too much by trimming this down, even if it's slightly overvalued today? And with Soros here, he said, look, this was in the plaza. We're not going to go into the exact details there, but essentially the government had a mandate that they're going to devalue the dollar. It was probably 100% going to happen. So we thought this is a high conviction trade. why wouldn't i size this up even further once we got that information confirmed now toss it

back over to you ryan with a discussion question do what do you think as a whole were the characteristics of soros that allowed him to excel was it natural intellect flexible thinking contrarianism or is it kind of you add in this i can't i have nothing to lose mentality as a basically a refugee of the Nazis and the Soviet Union. Before we move on, we want to talk about our friends at Interactive Brokers. Interactive Brokers is our favorite brokerage platform. They make it easy to buy stocks, ETFs, options, futures, currencies, bonds, and more all from a single unified platform. And Interactive Brokers allows you to maximize your returns by minimizing your costs. They offer zero commissions on U.S. stocks and low commissions on international

securities they aren't cutting corners either interactive brokers one-of-a-kind smart routing technology gets you the lowest price possible in 36 countries and 28 different currencies interactive brokers is our home for stock trading and we wouldn't go anywhere else if you're getting serious about investing it's time to upgrade to a broker that you can trust head on over to ibkr.com restrictions apply interactive brokers is a member of sipc i do think there's a definitely an element of the i've got nothing to lose i've had it worse type of like mentality the the last part of your quote here i think is important he's this is drunken miller talking he says soros is also the best loss taker i've ever seen he doesn't care whether he wins or loses on

a trade if a trade doesn't work he's confident enough about his ability to win on other trades that he can easily walk away from the position that i think is very rare the the willingness to just step away and say i'll make money somewhere else because so often you see it where people get locked in or fixated on certain positions they've done the the mental work the the the research to have some sort of a take on that position and then they have a hard time letting it go so yeah i think maybe his ability to move on and and uh have sort of an air of arrogance or or confidence i should say uh has definitely helped him arrogance and conviction but the ability to go i was wrong let's do another one yeah the other thing that i wanted to mention

here because i don't think we're going to mention anywhere else in the episode but one sign of a great investor because there isn't that much openness about the bets that soros has made over his life like you see the big ones you see the ones where it was huge currency bets that get talked about but he's made a he's i'm sure he's had tons of other successful investments that aren't as well broadcasted but when an investor has multiple proteges that go on to be successful investors themselves and they talk positively and kind of give praise to the people that they learned from that's a big sign so stan druckenmiller we've talked about him on this show before phenomenal investor learned a ton from soros the second one do you know who i'm going

to mention here brett i think so but i don't want to spoil it for the listeners take a guess the current treasury secretary correct scott besant who i believe was actually responsible for his bet against the yen it was either the yen or yeah it might have been the tie bought i could be wrong he was in charge he's later after uh drunken miller left this is he joined in 91 i saw okay but he he was there like drunken miller left in the 2000s but he besant was there later yeah and besant became i think the manager of one of the funds um but yeah now we're going to talk about later he's trying to be on the other side of potentially some reflexive currency trades against argentina uh but we'll save that for later yeah let's talk about

the theory of reflexivity so this is probably one of the reasons that soros is so well known in the investment industry that and generating 28 returns for a sustained period of time but he introduced this concept in his book the alchemy of finance i'm going to give a technical explanation of his theory and then i'll describe it as i understand it so here's the technical definition. In social systems, such as financial markets, participants' understanding and beliefs influence their actions, which in turn change the reality they are trying to understand, creating a dynamic self-reinforcing feedback loop between cognition and reality that differs from the laws of nature. My definition, perception can impact real results.

and here's a i'll give a real life example right now open ai the perception of open ai right now is incredible it's like peak reputation everything they touch turns to gold everyone wants to be associated with them people want to invest in the company which raises their valuation and gives them more access to capital which in turn gives them more firepower to invest which actually probably improves their chances of being a more valuable business in the future. Like if they're able to raise more money and employ better people and do more business deals with other businesses, the reputation and perception of OpenAI is benefiting the actual business. Another way in which this shows up, okay, every single week we talk about this,

OpenAI has announced some partnership with another company. And yesterday, as of this recording, I think maybe two days ago, they announced a deal with AMD. AMD stock jumps 28% on the day. Businesses want to be associated with OpenAI now. So they can probably get better terms just by having the partnership or association of OpenAI, which actually helps OpenAI's business. So that's kind of – I'm applying the theory of reflexivity there to kind of the micro level, the company level. And in some ways, this kind of goes against the typical mantra of value investors, which is in the short term, the market is a voting machine. But in the long term, it's a weighing machine because it's basically saying that – The voting machine impacts the weighing machine.

Yes, exactly. My take – I'm kind of on the fence here because on the one hand, the value investor in me is saying companies with absurd valuations will eventually have their day of reckoning. Like eventually gravity is going to bring them back down to earth and it can't last. But the version of me that works for a private VC-backed company, I see this on a regular basis. When a company has a great reputation, other companies are more receptive to partnerships and B2B deals. They respond to your LinkedIn posts more or your LinkedIn messages, for example, when you have a certain company in your bio. You get more talented employees that want to work for you. You get better valuations from VCs, which attracts more attention, attracts more talent.

So on the micro level, there's definitely some legitimacy to this theory. there's also i wanted to touch on this here because it's kind of related to theory of reflexivity but it's kind of its own theory as well he talks often about the anti-equilibrium theory and what what he's basically saying is he believes in the complete opposite of the efficient market hypothesis instead of believing that there is so much information out there that the markets are so competitive there's so many different investors that all prices are basically efficient that's kind of the efficient market hypothesis he says all the investors are humans all the humans are biased which means security prices are actually almost

always mispriced not perfectly priced they're almost always away from their true value in some way so uh and i think i would if you're putting me in one camp like on one side of the the uh scale there's the anti-equilibrium and then on the other side there's efficient markets i would definitely skew towards the anti-equilibrium i'm in the same boat i think if you're a true like not even a true historian even the amateur one like ourselves of say the last hundred years of financial market history the anti-equilibrium theory makes so much more sense if prices were efficient they would all trade like constellation software and would just go up and to the right. Google is up 70% in the last five months. Markets aren't efficient.

Because everyone's biased. Yeah, I agree. That's a great example where we can even go back further. Early 2023, there was an insane bias against Google. The information out there was not accurate or perceived accurately because the first model they tossed out there, google barred didn't work very well even though their internal models were as good or just as or better than chat gpt and they put those out there and those are the fundamentals right but the perception was the complete wrong thing and now we look back today alphabet was completely mispriced and this isn't a show on the efficient market hypothesis but i i still can't believe that's a real thing. Because you can look at a Soros, a Buffett, a Druckenmiller, a Greenblatt,

a Li Lu. They shouldn't be possible. Those are the quote unquote six sigma events that shouldn't happen. And they happen over and over and over again. And there's probably 10 times as many individual investors who aren't famous that we don't know the returns because they're rich and they don't need to go on TV. Yeah. What are your thoughts on the theory of reflexivity? Do you have anything else to add to what i had so let me add on that i agree with source that this is a common phenomenon in financial markets and beyond to try to connect with the listeners because it's something that is hard to think through it's very qualitative he's kind of going through as like a professor with all this stuff look people are biased and can influence the acumen of the events

even if the quote-unquote fundamentals say otherwise at the current moment you know this is backward looking stuff you can look at history politics sports business you name it i think sports can be a great analogy to help connect the listeners here. Everyone says Pele is the goat in soccer. Maybe they do, maybe they don't. I'm just saying it as an example. They do. Therefore, everyone else believes that, and it is true, even if a decent percentage of the population may come to a different conclusion if they did not know what the prevailing bias was, they were coming fresh to the situation, they didn't know everyone else's opinions. I think another adjacent phenomenon related to reflexivity that can be helpful in financial

markets is what it's this kind of a growing topic of some pop psychology that people might be interested in. It's mimetic desire. I believe that can be helpful when doing also your fundamental analysis and looking at prevailing biases in financial markets from other investors. The definition is, quote, all human desire imitates the desire of others, almost always without awareness. The term mimetic indicates that this imitation is not conscious. Mimetic desire freezes from acting merely out of the appetite or instinct and makes friendships and other kinds of human flourishing possible, but also related to violence, blah, blah, blah, blah, blah. Long story short, we humans unconsciously desire to be like other

people we see. I think this is similar to what happens within a reflexive situation where everyone says the future is AI, so therefore the future is AI. It's self-fulfilling. And that's why I think a lot of the science fiction stuff turns into science fact, because that's what we see and consume in it people then end up creating it are inspired by what science fiction writers do it's also why i think people investing in a stock because sydney sweeney's an advertiser is not that it's not dumb like i wouldn't say that's irrational i think it can be boiled down to perception can impact reality it can impact the future palantir is probably a good example if going back to the company level like they have in every aspect an absurd valuation but they've

probably done more deals and they've probably closed more customers because people have heard about them and they think there's like it lends credibility to them as a business because they have such an absurd valuation and people think so highly of them Yes, and I think this is a good time to add on that Soros was not necessarily looking for riding reflexivity. He's looking for timing the shifts in reflexivity or equilibrium. When a trend either starts or reverses, which I guess is technically the same thing,

this can be an opportunity to make huge profits in a short time period. So he wouldn't necessarily, and we'll talk about some of his case studies on stocks, he wouldn't actually necessarily have to go long Palantir. he might actually look for a catalyst to go short and then it can go reflexive in the other direction because reflexivity can go negative and when this shifts there's a again the opportunity to make two three four five times your money within a very short time period and this is why he says if you are early to see a bubble forming invest in it don't shy away from

it that's a paraphrase but that's essentially what the quote means you can take that for investing in bubbles or if a bubble pops now let's talk about how he made money because true some examples he like you said when the bubbles pop not only can you make money but you can make money much faster and he did that on a number of occasions why don't you go through kind of the most famous example unless you've got any other topics uh which is him what everyone refers to as breaking the bank of england yeah i was gonna my discussion question was around examples around reflexivity in the 21st century but i think we've already covered that um let's go into the british pound any student of market history like ourselves has heard of this famous famous bet from george

soros and stan drunken miller drunken miller did find the idea uh but they did it in together i think as drunken miller says i found it so i sized it correctly because it was 100 guaranteed to work And it was to short the British pound in 1992. But if you're also like us, you can get crisscrossed on over how these currency trades actually work. Because if you come from the stock investing crowd, you may feel dumb asking the question, how exactly do you go long or short currency? And let me try to explain it as simply as possible. Foreign currency trades are done in pairs, meaning you simultaneously buy one currency and sell another. If you buy U.S. dollars and sell Mexican pesos and the dollar appreciates versus the peso, you earn a profit when, not just converting back to pesos, I actually wrote that down wrong, when you end the trade.

It's different, again, if you have your base currency versus two currencies that is not your local currency. If you're in the euro and you have something U.S. dollar, Japanese yen, that's completely different than if you just have euros already and then just put money into yen. Now, currency exchange rates are determined by the supply and demand of currencies. I will say he went through the details of this in his book. We can't go through all the formulations that impact that. You know, it can come from economic trade, capital inflows, or speculative investments. Essentially, it's just what can impact the flow of currency from one country to another or the exchange of one currency for another.

For example, if there's a bunch of imports, you're importing products, but you are selling or sorry, you are sending your currency, say the United States currency from the U.S., you get the imports of cars and you put the money, the dollars go to Korea, Japan, China, what have you, and they get converted there to the local currency. There are a lot of intricacies, as I mentioned, but the general rule of thumb is that speculative capital is attracted by a rising exchange rate and rising interest rates. The higher the rate on a country's treasury bonds, the more attractive it is to investors. I mean, you can just ask someone, what would you rather buy? I guess this hasn't, this has changed recently, but would you

rather buy the Japanese bonds at 0% or the US treasury bonds at 4%? I think the answer is obvious. Unsurprisingly, though, Soros sees reflexivity as a key driver of the currency market. It's not just that high interest rates and a positive exchange rate drive demand for currency, but the expectations of high interest rates and a rising exchange rate that can reinforce on itself. I think this seems rather straightforward for currency markets. Essentially, your branding matters. If all players are biased extremely negatively, for example, Turkey, Argentina, the fundamentals can be self-reinforcing if just a small slip-up occurs, if they don't trust you. Now, the opposite happened in the United States where people go,

the deficit, the trade imbalance, the currency should start depreciating, blah, blah, blah, blah. But it hasn't because that reputation has been stellar for so long. And that brings us to the British pound. Just for historical context, to go quickly through this, in 1973, currencies began freely floating with the ending of the Bretton Woods Agreement. This happened after the start of the quant fund. I think it should not be discounted because investors were just building out this whole market. I think there's probably a lot of inefficiencies. People didn't know what they were doing. And if you were smart and can kind of develop strategies here, there were opportunities, especially during the 70s, 80s and early 90s. And this allowed the

quantum fund to take a big advantage of it. Now, in 1979, Europe adopted a European exchange rate mechanism to stabilize currency exchange rates. For example, we're talking about here, the British pound and the german mark um if an exchange rate got to an upper or lower part of a stated band the central bank was required to intervene and stabilize the set exchange rate and this was kind of a bridge period before the full euro adoption in 1990 britain joined the erm the european exchange rate mechanism however they did this at a looking back with hindsight a dumb high exchange rate of 2.95 british pounds to german marks it should have been lower it made exporting out of britain expensive um and yeah like britain's economy they had higher inflation

than germany um reunification in germany caused higher inflation in germany then and then higher interest rates which caused again britain to react and maintain a strong exchange rate by increasing their own interest rates. And that... You're confusing me a bit here, Brett. So... Okay. Okay. Let me go. Let me try to pull that back. Essentially, Germany's economy is doing better than Britain's. Britain had high inflation, but then Germany had reunification from East and West Germany. And that brought some high inflation in Germany for a small time period, which caused Britain to react because again, they needed to maintain the peg. So they had to raise their interest rates and they brought their interest rates into the teens. Now, this brings in Soros

and the other speculators. They believe this is propping up the British pound versus what would be the quote unquote natural rate with free markets, which was going to be as every month went on every day, lower than what they were propping it up as. And they began to short the pound. He borrowed billions of pounds from banks and then sold them to buy German marks. he then went public and began to tell people about it this brought in other traders started to create a flood of currency out of the pound which the government had to defend by buying pounds in the open market to maintain the exchange rate peg now this public decree seems to have made the trade self-reinforcing and maybe is why Soros called it the perfect trade or a hundred percent

guaranteed to happen because he created his own reflexivity in this situation. Then on Black Wednesday, September 16th, 1992, the pound finally broke, collapsed 15% versus the German mark and 25% versus the US dollar. And since the quantum fund had extreme leverage in this trade, the returns for them were much higher. I heard it was a billion dollars in a single day. Remember the fund in 1993 is worth $2 billion. So I think they doubled their value in a single day. This episode is presented by our brand new partner, Port Sido. Do you know what your actual investment returns are? Well, if you're like me, then the answer is probably no. And that means you need to try Port Sido. Port Sido is the ultimate portfolio performance tracker. With

Port Sido, you can easily aggregate your various brokerage accounts and instantly see your actual investment returns. That includes all your investments too. Stocks, ETFs, even crypto, if that's your thing. You no longer have to guess what your returns are. With Port Sido, you can find out in minutes whether or not you are actually beating the market. And that includes a dividend tracking dashboard and even tracking of short positions. I have been looking for a tool like this for a long time because I was sick and tired of tracking it manually and Port Sido has finally built it. If you want to find out what your real returns are, check out Port Sido. the link will be in our show notes any confusion thoughts anything here ryan uh i it's hard to go

through audibly uh but yeah the the mechanics of a big currency devaluing is always tough a little tough to talk through because there's typically a ton of moving parts so and the the lead up to it is what creates it and usually there's so much that goes into the lead up that it's sometimes hard to explain but yeah he they made they were extremely confident in this bet and they sized it up accordingly and i'm trying to find the quote here because i remember soros at one point i think i'm just gonna have to paraphrase so uh drunken miller came across this if i'm not mistaken he was the one that first came across this and presented it to Soros. Yes. And Dr. Miller was like, okay, I'm going to bet on it. And he put this kind of tiny

position together. And Soros was like, I wish I had the exact quote, but it was like, are you kidding me? What you've just presented to me is a bulletproof investment and you want to bet 5% of the fund? No. He sized it up in a huge way. And Soros, this is going back to the position sizing where he's like if you are this confident in a bet you should size it accordingly and think about it they can't lose because it's not going to go higher there's an upper band right and so yeah he made 50 in a day or so for his fund because of the position sizing 100 well i think if the fund size was 2 billion in 1993 and they said the profits were a billion so that's a that's one billion to add a billion that's 100 pretty good let's so if this is too much currency talk

for you listeners you can feel free to skip ahead here but i'm going to mention one more uh one more currency bet that he made against the thai bot in 1997 and then we'll talk more about what's applying today and whether or not this is useful and lessons we can take away and all that so i'm going to go through and he didn't make as much money from this trade but it's nice to walk through some of the mechanics of it to see if you could ever kind of replicate this. I'd probably say most of the people investing or listening to this, this isn't the typical type of trade, but it's fun to study. So in the 1997 Asian financial crisis, Soros bet a billion dollars against the Thai bot of his $12 billion fund

by selling currency futures, so in effect shorting. I'll mention what happened technically, and then we can go back through what Soros saw leading up to this. But big shout out to Valdosta State University. I've never actually heard of this university, but they had a phenomenal report on everything they saw. So here's a snippet from the report. He says,

George Soros took out forward contracts to exchange bought into dollars at the rate of 26 bought per dollar in January of 1998. Soros advertised Thailand's problems and sold all of his bot. Thailand defended the bot by buying up the surplus. When Thailand started to run out of dollars, the bot was floated on July 2nd, 1997. I'll explain what that means, floated, here in a second. When they did that, the bot fell from $1 for – $1 US dollar for 25 bot in June of 1997 to $1 for 54 bot in January of 1998. So basically the value was cut in half of the Thai currency. He was short the bot. He was short. So essentially he doubled his money on that.

Essentially shorting his stock, yeah. What led up to this? So prior to the crisis from 1985 to 1996, Thailand was one of the fastest growing countries in the world. They had a fixed exchange rate below equilibrium that resulted in the accumulation of foreign reserves. So I know that's all a lot, but basically just remember that this was – what you typically see today where it's like how much is 20 pesos worth in US dollars? And when you look that up, that's a floating exchange rate. It's changing every day. They had a fixed rate.

They also had 5% higher interest rates than most of the world, which made a lot of foreign money want to flow into Thailand. Just like how people have Japanese yen and then they go into Mexico and get 11% today. Right. But they also had capital controls that prevented money from flowing in for a long time. So their solution was to set up the Bangkok International Banking Facility, BIBF, with the goal of attracting a large amount of money from the US, Europe, and Japan that would then be loaned to Thailand's neighbors. The money did flow in, but it didn't want to flow out of Thailand because Thai interest rates were so high. So they got the money from foreign investors, but they weren't able to deploy it to Thailand's neighbors. So they had all this money, but not enough productive assets in reality to put the money into, which led to this major oversupply of goods. So if you have tons of money, you start building.

And this led to a whole bunch of excess supply. So according to this report, and the excess supply typically leads to a speculative bubble as well. So according to the report, they had 150% excess supply relative to the market demand of iron. They had 192% excess supply relative to market demand of automobiles. 200% in Bangkok housing. 195 in petrochemicals 300 in private hospitals all of this is to say that basically they were oversupplied in the words of this report and i thought the sentence was perfect and it probably explains why this why these why nations have currency issues to begin with it says when more

is built than can be sold borrowers default on their bank loans that's what happened in this case and the flood of defaults meant that thailand needed money so here's what happened and i this is all precursor to basically the catalyst as i mentioned earlier the bot was floated on july 2nd 1997 so it went from a fixed currency exchange rate like i talked about to a floating one and essentially the market repriced it and over the whatever it was four months the thai bot got cut in half which meant soros doubled his money seems like he just profits on economists being um not smart yeah probably and there's probably some level of maybe greed uh not from soros but well yeah probably from soros but from the countries uh they you know yeah things are they don't want

to go through a year of tough times right and they don't they don't want to be the one that causes the crisis and so now now they can point fingers and say it was the it was the guy who was vocal about shorting our currency but in reality they would have had to come to terms with this eventually so it yeah let's let's talk about real world scenarios today he made a ton of money from this but i think it's kind of interesting with what's going on in argentina now so maybe you can go through that case study yeah we got kind of lucky researching this there's a bit of a currency crisis ongoing there. We don't know what's going to happen. This is on October 7th, 2025 that we're recording this. So if anything happens after this, which I guess we're releasing this the day after,

but just know that if the country collapsed or something like that, we didn't know at this time. They are having currency issues. Here's a current byline in the Wall Street Journal. The country's central bank no longer prints money to finance deficits, but a run on the currency could still cause prices to surge. I think astute listeners will note the importance not only of the fundamentals here, but the financial paper of record that is getting a lot of influential people reading it, talking about Argentina's financial troubles and having, if you're one of the economy people or the politicians in Argentina and you see the quote, run on the currency in newspapers, you just don't want that whatsoever because that is when the reflexivity can kick in.

And here's another quote. Let's see. The odds didn't look good. Previous presidents had failed to address one of inflation's root causes, government deficits. Without access to capital markets, Argentina often turned to the central bank to finance its deficits by printing money. Efforts to rein in spending were stymied by resistance in Congress and by the public. Now, we all know Javier Millet has broke that cycle and is trying to continue to break that cycle, but it is difficult. And Argentina has historically run a peg, which I think should sound familiar. quote, long after other countries allowed their currencies to float relatively freely, Argentina persists with a peg for fear devaluation will rapidly feed through to import prices and

inflation. Now, they've kind of gone to a staggered peg where they're going to slowly devalue it with kind of decreasing that band to try and maybe move on to a free floating, because it is kind of the big last leap they need to make, I would think, to become a sustainable economy and get out of that kind of social peronious stuff. Without going into the nitty gritty details here, it looks like a situation where Argentina may be forced to devalue the currency, which could open up traders to pile in. I don't know. Maybe what's funny is that Scott Besant, the Treasury Secretary of the US, tried to work with Argentina to fix this issue. But there could be some of his old colleagues that are on the other side of this bet.

Yeah, that is interesting. And it's kind of, I guess, reassuring if you are maybe an Argentine citizen to know that Scott Besant, who probably has your best interest in sort of the forefront of his policies, he is as familiar with currency relations and currency overcharge as anyone. This is such a good example of reflexivity. So – or the theory that Soros has, which is you see all these concerning headlines about – what is it? The Argentine peso? Is that what they call it? It's the peso, yeah. It's so self-reinforcing because let's imagine – let's take an example.

Let's say I was an American soccer player and an Argentine soccer team wants to sign me to go play for them. This actually happened in Turkey recently, which is why I'm using the analogy. I would be worried getting paid in Argentine pesos. You're going to immediately convert that to dollars or Bitcoin or what have you. I'm going to convert it to dollars. I'm going to try to get it out. And in the case that I saw, they just demanded that they be paid in dollars. So someone did this.

An American player went to Turkey and were like, I just want to get paid in USD. That's all. Like I'm not taking the Turkish lira. And you can trade it on your own if you want. But that is self-reinforcing because then no one wants to hold whatever your nation's currency is. So it is – I totally see how this can lead to reflexive nature and people basically creating the issues themselves. Their perception is impacting the real results. All right, folks.

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The link will be in the show notes. Plus, you toss some politics in there. People want to get elected. They don't want to cause an economic crisis, even though it could happen for a year. And that's what's necessary to get the economy on the right footing, all that good stuff. Let's talk, though, about some under-followed stuff with Soros that I think can relate for a lot of our listeners is how he invested in stocks. He actually talks about this in detail without going through specific returns or case studies.

We can look at what he has used philosophy-wise in the alchemy of finance to invest in stocks. There's a couple of quotes here. I think I can just read one and then we can talk about, you know, quick discussion around them. And here's one from the Alchemy of Finance. It took an intensely personal emotional form. Testing was closely associated with pain and sex with relief. When I asserted that, quote, markets are always biased, I was giving expression to a deeply felt attitude. I had a very low regard for the sagacity of professional investors and the more influential their position, the less I considered them capable of making the right decisions. My partner and I had a malicious pleasure by selling

short stocks that were institutional favorites, but we differed in our attitudes to our own activities. He regarded only the other participants views as flawed. Well, I thought that we had as good of a chance as being wrong as anyone else. The assumptions of inherently flawed perception suited my self-critical attitude. Here's my discussion question. Does this actually make him a contrarian value investor because or or just an investor trader you know go short whatever that's not that different than other value investors i see out there yeah once again it's a bit of a it's long-winded but complicated quote but i think it goes back to him being sort of impartial to the results like you see this where he says we differed in our attitudes

towards our own activities he regarded only the other participants views as flawed while i thought basically i could be wrong and he's willing to make these bets even knowing that he could be wrong and i think it's such such an interesting trait to have as an investor of being totally agnostic to what you're trading almost like true you know he stripped emotion out of it like oh i lost money okay my analysis was wrong i don't care about the company it's a token for me or whatever like he it's not really how i invest but he's trying to test his academic theories it seems like yeah and what's interesting it again i don't think it's that different than value investors looking for low downside, high upside situations. Here's another quote on technology stocks

climbing the wall of worry. The stocks were selling at very low multiples of anticipated earnings. And the main argument against them was that they would not be able to grow fast enough to meet the demand. And eventually IBM would move in into the market and kill them. Their argument turned out to be valid, but not before these companies became large and prosperous and investors became eager to throw money at them at high multiples. Those who had been willing to fight the negative bias were amply rewarded is this not what we try to do sometimes ryan is this not what the molly fool does just without you know trading in and out as much yeah and i think if i'm understanding this quote correctly high valuations can help a business

they they actually can yeah it's kind of an interesting early you want to identify a friend early yeah it helps to get into a business where the multiple then expands and then helps them because then you're making money and there's less of a paradox of yes the high valuation helps but multiple compression can hurt your returns amazon's kind of a good example of that i mean i think bezos would have been successful no matter what but the access to capital during the dot If they didn't raise money in 99, they might have gone bankrupt. Yeah, the dot-com bubble was the perfect time for them to be successful. And that actually leads into, at some point, we should discuss Bezos' speech that he did

recently because he talks about that a little bit. But that's a topic for another time. What does Soros Asset Management invest in today? Yeah, we wanted to look at this. We do this every time. It's not that helpful on this one. I'll say there is just really easy to do this because on Fiscal.ai, which is our link in the show note, check them out. They have a super investors page with all big 13 Fs that are

updated regularly. And you can look at that plus the history, which I think is quite useful. It's now the Soros family office, which is just called Soros asset management. And it's just internal family money, I think. And it's not run by Soros or Druckenmiller or even Besson. I'm not sure who runs it. And it just seems highly diversified. But I thought there were some interesting holdings even if they were small in the grand scheme of things of the 13f and that were spotify interactive brokers rivian dropbox and others that maybe listeners can kind of notice we've talked about from time to time you could see rivian being a maybe a reflexive one because if they got some momentum they could raise some money that's one that could end up being there

but i'm not sure if they're even investing in a reflexive nature or if they're just trying to be kind of a pension fund for the philanthropy stuff. Yeah, this is one of those 13Fs that's got very little signal, in my opinion, because if I'm not mistaken, it's basically a fund of funds now. So each fund kind of has a different- Yeah, it's the opposite of Candisaria, which that one, those are quite useful. Let's talk lessons from Soros. This is, you and I are not really big macro investors. I don't think that'll change over time. We focus primarily on owning individual businesses. Really, the only thing is investing in some international stocks.

And part of the thesis sometimes, I think, is we look at maybe the currency is undervalued or overvalued. But we like to have that just be a little extra juice on top if the fundamentals work out. Would you describe that fairly? Yeah. Honestly, studying Soros has given me less confidence in my ability to analyze countries. Yeah, it's true. It's complicated. It's so complicated. And you think like – okay, I'm optimistic about Mexico. I think they'll be more productive and they'll have higher income per consumer over time. but gauging where sentiment's at and under like thailand had a very prosperous period prior to

uh basically being cut in half on the currency which impacted put them into a bubble and then sort of a recession i worry so much that it's like am i just seeing the good times right now and that's why i think things will be better for mexico am i it's put my mind in a pretzel a bit because it's like am i is this the reflexive period where it's like a self-reinforcing feedback loop prior to nah i i don't i don't think you can look at it it's not black and white situations each country is case by case stuff politics matter the you know that that all stuff matter you have to i guess keep up with things which you have to do with a company either way and politics and whatever the economic model of the country matters for the underlying

businesses so again he was probably perfect for this because he came from philosophy came from studying economics so he put that all together to build these theories for macroeconomic trading is it a lot harder than what we do which is hopefully buy some quality stocks that are trading at reasonable prices and don't worry about them too much yes but i i don't know if it's impossible it can just be more stressful for individuals yeah the other thing i guess i did take away from this that's like very specific is if a company or sorry if a country has a floating exchange rate that's a positive because it's more likely that recent news is priced in whereas if you have a fixed exchange rate yeah that can become a huge catalyst for a decline and you're

you're just more at risk i imagine and i haven't looked at this but i imagine most countries have floating extra floating exchange rates at this point other than argentina as an example i i don't i'm not an expert on the china exchange rate but i believe they keep it within a band but they could be powerful enough that's all that's that could be a whole episode in and of itself is the the china foreign exchange um any other lesson before i hit mine i'm not a macro investor and this probably discouraged me from becoming one even more so but it it gave me a lot of respect for soros to study this because regardless of what you think of him and there are a lot of strong opinions on him out there if you read his work

you will find out very quickly that he is a bright individual and he is pretty sharp intellectually well maybe not anymore he's like 100 years old but he was sharp the uh yeah i guess another lesson is to reiterate currency risk matters and can impact you in a big way. So don't discount that when looking at individual stocks outside of your home market. I have one main lesson is to not be afraid of being late on a bet. I think an example for us, in 2023, we were in the middle of covering the rapidly booming AI theme. We had been pitched NVIDIA numerous times. We knew what the company was. I think both of us, speaking for both of us here, felt it was quote overvalued. I was afraid to invest in it because of the risk of developing

into a bubble. But today, NVIDIA is at 5x or 10x from different points in 2023, which we saw, we knew it had a great management team, and we knew it had a competitive advantage. And we just didn't act on it because of being afraid to something turning into a bubble. Now, we might look back 10 years from now and say that NVIDIA is in a bubble today. but it was much easier to see in early 2023 that it was potentially forming a bubble, not to mention that Druckenmiller himself invested in NVIDIA, made his largest position. We could see that in his 13F. I think the takeaway for investing in stocks is don't be afraid of investing in a thematic stock. If you believe there's a good management team, competitive

advantage and there might be a self-reinforcing economic trend that is taking hold such as the ai revolution thoughts on that ryan no i think you're right and yeah it is it's i wish i could go tap 2023 me on the shoulder and be like don't discard this don't yeah don't overthink it just it's yeah it's a wave starting we were there you know it's not like we've done bad but It's a good lesson, I think. Maybe some missed opportunities there. Well, I think that's going to do it. Thank you to everyone for tuning in.

We try to study one great investor pretty much once a month. So if there's anyone that you want us to look at, any particular individuals or investors that have a great track record, just let us know and we can study them. Next up, Chris Hone. Chris Hone. TCI, right? Is that the name of the fund? I actually don't know anything about them, so I'm fascinated to learn. Okay.

Well, that's going to do it for this one. Thank you, everyone, for tuning in. We want to remind listeners that Brett and I are not financial advisors. Anything we say or discuss here on Chit Chat Stocks is not formal advice or recommendation. We may buy, sell, or hold any of the securities discussed in this podcast, so please do your own work. Thank you again for tuning in, and we'll see you next time. don't you wish you could just hit skip on the worst parts of your life you know the same way you can skip an ad i get it i'm siaya and i live in ice cove i've made some questionable decisions

that didn't end up the way i planned and today i'm still figuring it out somehow things usually get worse before they get better apparently that's how i roll so bundle up and come along for the bumpy ride stream a new episode of north of north tuesdays on cbc gem