The operation of financial markets in disequilibrium causes inevitable deviations between market participants' market expectations and objective things. Looking for possible excessive disequilibrium tendencies in the market is a shortcut to discover investment opportunities.
1. Break through distorted concepts
Through early philosophical research, Soros discovered that human beings have flaws in their understanding and have a distorted view of reality, and the core of financial investment is to make a fuss about human beings' flawed and distorted understanding.
2. Pay attention to market expectations
Soros is dissatisfied with the completely free competition model established by traditional economic theory. He believes that the development of supply and demand relationships will be subject to market manipulation, leading to price fluctuations rather than tending to equilibrium. In addition, future price trends are determined by current buying or selling behavior. Therefore, you must rely on your own understanding to predict the market.
3. Market inefficiency
The efficient market theory of classical economics assumes that financial markets will eventually move toward equilibrium. According to Soros, the way financial markets operate is destined to be inefficient markets, that is, irrational. Relying on efficient market theory to judge the market is unreliable. Taking advantage of and grasping the investment opportunities provided by inefficient markets has enabled Soros's fund to grow and develop.
4. Look for deviations
The operation of financial markets in disequilibrium causes inevitable deviations between market participants' market expectations and objective things. Looking for possible excessive disequilibrium tendencies in the market is a shortcut to discover investment opportunities.
5. Discover connections
Market participants operate with biases, and biases themselves can affect the unfolding of events. Soros believes that there is a counterproductive relationship between the biases of market participants and the course of actual events, and that future events are shaped by expectations.
6. Reveal market bias
According to the reflection theory, the market is inherently unstable. Biases and cognitive flaws will further lead to market fluctuations, which will again affect investors’ expectations. There will be a two-way feedback between cognition and reality. This instability will be extremely harmful to speculators. favorable.
7. Take advantage of market instability.
When market expectations deviate from objective things, the financial market will experience an unstable state of continuous "up and down", thus providing investors with opportunities to understand market ideas.
8. Master the chaos
The basis for the operation of the stock market is not the logical level, but the psychological level based on group instinct. Understanding the root causes of chaos in the financial market is the best way to make money.
9. Take advantage of overreactive markets
The cognitive shortcomings and blind obedience of retail investors will cause the market to over-expand, and when the deviation is too large to exceed a certain critical point, the opposite trend will occur. Most of the time, Soros will follow the trend while looking for the turning point of the trend and prepare to invest in the opposite direction.
10. Fundamentals
Soros believed that the biases of market participants not only determine market prices, but also affect "fundamentals", so that reflection theory will come into play. Once you realize that the fundamentals are affected, you can take a step ahead.