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The Man Who Broke the Bank of England

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The Man Who Broke The Bank of England
World’s most controversial billionaire once said “I'm only rich because I know when I'm wrong... I basically have survived by recognizing my mistakes." George Soros, also known as “The Man Who Broke The Bank of England”, was born in 1930 in Budapest, Hungary. On September 21st 2011, Forbes declared that Soros, now at 81, is one of ten wealthiest Americans, with a net worth estimated at $22.0 billion. Besides being a business mogul, he is also an investor, philanthropist, chairman of Soros Fund Management and Open Society Institute. What inspire me most about him are his remarkable history when he did an excellent job on currency speculation in 1992, and also his own way of thinking.
According to one of The Telegraph articles, Britain had its fell on European Exchange Rate Mechanism in 1992, and George Soros thought the pound sterling should have been devalued since it had been struggling with the ERM too high at a rate. At that time, he also knew that the Bundesbank would agree to devaluate both pound sterling and the Italian lira since the terrible impact that British high interest rates had on asset prices. George Soros then thought of the way that he could get a profit from the devaluation situation. He borrowed pound sterling in a massive amount, approximately £6.5 billion according to the report. Next, he converted them into a combination of Deutschmarks and French francs. Then on 16 September 1992 or also known as Black Wednesday, his bet paid off. The British Conservative government was forced to withdraw the pound sterling from the European Exchange Rate Mechanism because it surpassed its lower limit. George Soros made over US $1 billion profit by paying back his original borrowings. This is a compelling case for me because even though shorting stocks is common out there, he did his betting incredibly well. I personally do not think it is all luck. George Soros must have certain knowledge about it first, and then taking chances with it is the second step. This event certainly caused some controversy when people think that there was something wrong with the way it has been played. For instance, in 1997, as Asia had some economic difficulties, Malaysian Prime Minister Mahathir Mohammad pointed out George Soros case and the Black Wednesday crisis to currency traders; he also called tried to ban such trades.
Another fascinating trivia about George Soros that caught my attention is that he also wants to be remembered most as a philosopher besides being an entrepreneur. He has his own economic theory called “reflexivity” and he has been promoting the theory since 1952 where he was still a student. The theory is revolving around the fact that fundamental determinants do not simply reflected by the markets. However, there is a certain way that causes asset prices to go over the edge and change those determinants. In his new book, "The New Paradigm for Financial Markets," he argues that in the past 25 years, a "superbubble" has grown, and it is now crumpling. A lot of George Soros’s predictions in his previous books that seems not making any sense but still gave a lot of people a curiosity. In 1987, he gave an idea that the dollar must be ditched so we can have a new international currency or else we could have a financial mayhem, beggar-thy-neighbor policies, worldwide depression, and maybe even war. His 1998 book said, "The global capitalist system ... is coming apart at the seams."
Then again, those statements do not make him more psychic and less human. When he was interviewed back then, and one of the questions was how does he stay levelheaded in the middle of a bubble, he answered that he panics like everybody else. He has survived by recognizing his mistakes. When he was wrong, he often got backaches. He argued that whenever we are wrong, we have to fight or [take] flight. The backache goes away when he makes a decision, and he does not always make the right decision. He sometimes cut his losses when he should not. He also stated that his performance was not that superb. There are two possible explanations of his success. One is the theory of reflexivity he has, and the other is the backache, and he thinks it is the combination of both. The most popular reaction from people to his philosophy is that success has been eating him and makes him greedier. That is obviously a highly plausible theory. Certainly being a successful fund manager gave him a platform. However, he would like the ideas to be judged on his own merit.
To conclude, George Soros may not be as famous as Bill Gates or Warren Buffett; he may not as rich as them too. Nevertheless, I see him as a powerful and smart business mogul because he did such a marvelous job on betting and making his fortune in 1992, and he has certain view and philosophy about business that I admire. Those are the things that interest me besides the fact that he is successful.

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