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21.07.2021Books

The Alchemy Of Finance

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It surprises me how many people have read the book, and yet, so few put the actual theoretical framework to use. Despite Soros’s introduction of the ideas of reflexivity in financial markets nearly 30 years ago, this type of thinking is almost absent from the investing community. In contrast to older histories of capitalism that focus on changes in property ownership, the class structure, or the expansion of the market, Levy deals with financial institutions and the rise of a network of financial relationships.

I’m a dyed-in-the-wool value investor, and this is one of my three favorite investing books. Earn money by sharing your favorite books through our Affiliate program. Forget all popular commentary you may have heard about Soros and listen to his actual words. Decent high level review of his Theory of Reflexivity, but not much beyond that. I expected to get more insight into the details of his approach to decision making.

Book Overview

It’s much more philosophical than it is financial, and George Soros is a pretty smart dude. The Alchemy of Finance analyzes current financial trends, and presents a new paradigm by which to understand the financial market today.

Science is supposed to be objective and it is difficult to be scientific when the subject matter, the participant in the economic process, lacks objectivity. ValueWalk.com is a highly regarded, non-partisan site – the website provides unique coverage on hedge funds, large asset managers, and value investing. ValueWalk also contains archives of famous investors, and features many investor resource pages. Join our Signed First Edition Club for a signed book of great literary merit, delivered to you monthly. George Soros (b. 1930) is President of Soros Fund Management and Co- Founder and Chief Investment Advisor to the Quantum Fund. A billionaire investor, philanthropist, and author, he is also active in education, culture, and economic aid and development through his Open Society Fund and the Soros Foundation. Well I agree in the sense that nothing I have read seriously read into that kind of depth and insight.

I felt this detracted from the overall purpose of the book – I was not looking for something semi-autobiographical – but readers who are looking for that sort of thing would enjoy this book. Identifying and teasing out these reflexive processes is remarkably difficult – Soros cites his better understanding of reflexive processes as the source of his investing success. Instead, Soros makes no pretensions that the theory of reflexivity has scientific rigour. He is only interested in what works, like how the early alchemists were interested in finding out what worked rather than the scientific method. Thus, Soros’ theory of reflexivity can be seen as substantially extending what Keynes had to say on the matter. Keynes intuitively understood that there were “animal spirits” guiding security market pricing and that the idea that markets are always rationally priced is dreadfully utopian.

So, if you’re hoping for a step-by-step breakdown of how to land yourself in the top 20 of the Forbes 400, walk away now. To ask other readers questions aboutThe Alchemy of Finance,please sign up. To see what your friends thought of this book,please sign up.

Book Review: The Alchemy Of Finance

Bolstered by Mallaby’s unprecedented access to the industry, More Money Than God tells the inside story of hedge funds, from their origins in the 1960s and 1970s to their role in the financial crisis of 2007–2009. In October 2009, George Soros delivered a series of lectures at the Central European University in Budapest that provided a broad overview of his thoughts on economics and politics. Soros has achieved great and consistent success in the world of finance but has also contributed to the broader world of philosophy and human rights through the work of his Open Society Institute, an international network of foundations. What separates the world’s top traders from the vast majority of unsuccessful investors?

What I really liked about the book was that George Soros has written it in a very self-conscious way. It added a great deal of honesty and made it a very good read in my opinion. His theory of reflexivity is amazing and quite counter-intuitive to what most investors are taught in regards of how macroeconomics work. In a nutshell it’s about dynamic changes in the market and how biases of investors can influence other investors to the point where cataclysmic chain reactions can unfold. I gave this book 4 stars because the concepts in the book are clearly very interesting from the perspective of someone who is trying to understand the markets better. There were times, however, when the book felt like it was meandering.

Key Lessons From the Alchemy Of Finance

It’s actually kind of fun to read, but there isn’t much meat beyond this one concept. If he was able to make his fortune solely through an edge based on identifying feedback loops, there is a better book to be written eventually. The most important concept in this book is “reflexesivity” – a novel concept in economics according to GS.

We must always be careful and aware of the limited predictive power in situations with thinking participants due to the persistent uncertainty this feedback loop creates. Interesting to know the mentality of someone of this caliber in Forex trading. It seems his confidence in his trade positions came from his depth in market analysis and study. In this way, among others, slavery came to be the institution against which freedom would be defined in the late nineteenth century. Yet, with a focus on risk, freedom would not be seen so much in terms of landed independence, self-sufficiency, or even control over one’s own labor; rather, freedom came to be a question of the ability to shape a future life for oneself. Being free was at heart a question of the individual’s relationship to time, and to the uncertainty of the unknown. Only when the fundamentals are affected does reexivity become signicant enough to inuence the course of events.

The New Paradigm For Financial Markets

He states, for instance, that market movements cannot be studied scientifically, because the market movements themselves affect future movements and the observers are also participants . Yet there are vast areas of studies (eg. Chaos theory, differential equations, dynamic systems analysis) that deal with just such topics and systems. One quickly realizes that Soros lacks the scientific background to develop or even reasonably explain the vague generalities that comprise his “theory”. Anyone with a passing interest in the functioning and movements of the stock market will not be enlightened by this tome. From best-selling author, investment expert, and Wall Street theoretician Jack Schwager comes a behind-the-scenes look at the world of hedge funds, from 15 traders who’ve consistently beaten the markets. Exploring what makes a great trader a great trader, Hedge Fund Market Wizards breaks new ground, giving readers rare insight into the trading philosophy and successful methods employed by some of the most profitable individuals in the hedge fund business. In this work, George Soros explains in detail his theory of Reflexivity and its application to the financial markets.

Because he has been more prone to “predictive failures” than not, which (and here’s the alchemy part) doesn’t mean he hasn’t had financial gains. Money values do not simply mirror the state of affairs in the real world; valuation is a positive act that makes an impact on the course of events.

However, Soros argues potently for the presence of what he terms the participating function; that is to say, the very fact that market participants are interacting in the market causes the market itself to change. The key point is a concept of reflexivity where the market trend affects the underlying value, which affects the trend, usually in a positive way, which affects the value, and so on. This continues until the trend is far out of whack with fundamentals which will cause a sharp correction and start of a new trend line, often in the opposite direction. Concise thesis that the basic concepts on market supply and demand I was taught in MBA and CFA programs is so significantly flawed by assumptions of independence and inertness as to heavily question the model’s value. Since that is the basis for most economic theory its a pretty big challenge.

Soros brings up interesting ideas, but IMHO there are far more interesting books to be read on most of them (e.g. if you want to talk recursion, then Douglas Hofstadter’s your man). Maybe someone more familiar with The Market than I would disagree, but it’s my review, and he did fold his arms while wearing a suit on the cover. Making an investment decision is like formulating a scientific hypothesis and submitting it to a practical test. The main difference is that the hypothesis that underlies an investment decision is intended to make money and not to establish a universally valid generalization. The generally accepted view is that markets are always right — that is, market prices tend to discount future developments accurately even when it is unclear what those developments are. I believe the market prices are always wrong in the sense that they present a biased view of the future. Please speak to a licensed financial professional before making any investment decisions.

The Alchemy Of Finance By George Soros

Confidence about where we are in a cycle comes when you learn the patterns of ups and downs that influence not just economics, markets and companies, but also human psychology and the investing behaviors that result. In The New Market Wizards, successful traders relate the financial strategies that have rocketed them to success. Asking questions that listeners with an interest or involvement in the financial markets would love to pose to the financial superstars, Jack D. Schwager encourages these financial wizards to share their insights. Entertaining, informative, and invaluable, The New Market Wizards is destined to become another Schwager classic.

Financial globalization is one of the goals of market fundamentalists. Governments can’t control capital movement, which goes to wherever it will make the most money. Market fundamentalists have been very successful in lowering taxes and deregulating markets; they’ve also created a long bull market that has benefited the United States and Britain greatly. The heavily indebted countries in Europe and Asia paid for these policies with their suffering economies. Some countries have more power than others, which can affect how they interact with other countries. For example, some countries are able to borrow money from other nations because they’re considered safe investments (i.e., their debt is denominated in another nation’s currency).

In other words, they profit when they accurately predict the expectations of other market participants. Hence, perceptions are the ones that drive the market and not fundamentals.

Nominally, “The Alchemy of Finance” is about understanding markets and making better investing decisions. If that is all one learned it would be a crying shame, because the book is actually about understanding reality and making better decisions. To restrict it to the markets is a serious mistake and not one Soros makes. One of the greatest traders and greatest minds of our lifetime.

Faith and certitude drained out of the world; several of the people whose stories Levy tells begin as evangelicals and wind up as atheists. We learn the story of Elizur Wright, an American abolitionist who helped bring life insurance to the United States. We see Reconstruction through the story of the Freedmen’s Bank, a savings bank where freed slaves were encouraged to deposit their new earnings . The ability to save would demonstrate that the former slaves had truly taken control of their lives and futures.