The Alchemy of Finance (George Soros)

Trader's Library #4 · Speculation classics and biographies. Inside the head of one of the greatest speculators in history, with a live decision diary.

Author: George Soros · Original: The Alchemy of Finance · Year: 1987 · Usefulness for traders: ★★★★☆

What it's about

The book in which Soros sets out his theory of reflexivity: market participants' expectations affect the fundamentals, and the changed fundamentals in turn affect expectations. The second part is a “real-time experiment”: a diary of the Quantum Fund's decisions from 1985–1986.

What it gives a trader

Two things are most valuable for a trader. First, the boom-bust model: a trend can feed on itself for a long time before it breaks. Second, the diary: a rare chance to see how a great speculator forms hypotheses, changes his mind and manages exposure.

Lessons for traders

• prices don't just reflect reality, they also change it
• a trend reinforces itself until belief collides with reality
• keep a journal of your hypotheses and check where you were wrong (hindsight bias, Atlas of biases #27)

What to watch out for

Very difficult reading, chaotic at times. Reflexivity is more a framework for thinking than a trading method.

Discussion

The discussion takes place in Hetman Capital Club (in Polish). Join the discussion in the Club →

Navigation

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Educational content, not investment advice. The book description is my own summary and assessment, not quotations. Edition details were checked in catalogues and bookshops, and where there was doubt I said so plainly.