Crossroads

At the intersection of technology, finance and the Pacific Rim.

Tuesday, February 03, 2009

George Soros

George Soros is a legendary investor--one whose reputation rivals Warren Buffet. There is an interesting profile of him in this weekend's Financial Times. FTwrites this scenario:

On Friday, August 17 2007, 21 of Wall Street's most influential investors met for lunch at George Soros's Southampton estate on the eastern end of Long Island. The first tremors of what would become the global credit crunch had rippled out a week or so earlier, when the French bank BNP Paribas froze withdrawals from three of its funds, and in response, central bankers made a huge injection of cash into the money markets in an effort to keep the world's banks lending to one another....

The discussion focused on a single question: was a recession looming? We all know the answer today, but the consensus that overcast afternoon was different. In a memo written after the lunch, Wien, a longtime friend of Soros's, wrote: "The conclusion was that we were probably in an economic slowdown and a correction in the market, but we were not about to begin a recession or a bear market." Only two men dissented. One of those was Soros, who finished the meal convinced that the global financial crisis he had been predicting - prematurely - for years had finally begun.

And there was a quite provocative detail about his investment in Russia in the late 1990s. It goes like this:

Some Soros-watchers intimate that his vast network of international contacts might be an important source of his market prescience. But it was in the one part of the world where Soros really did have an inside track - the former Soviet bloc - that he made his most disastrous deal. In Russia, as in much of the former Soviet Union, he was intensely engaged with the country's political and economic transformation. In June 1997, as the Kremlin struggled to pay overdue wages, Soros extended a bridge loan to the Russian government, acting as a one-man International Monetary Fund.

He came to believe in Russia's commitment to reforms, and to see himself as an insider - two convictions that were his financial undoing. He invested $980m with a consortium of oligarchs who acquired a 25 per cent stake in Svyazinvest, the national telecoms company, deciding to participate because "I thought that this is the transition from robber capitalism to legitimate capitalism". But instead, the Svyazinvest privatisation turned out to be the moment when the oligarchs redirected their energies from fleecing the state to fleecing one another. Soros, as an outsider, was an obvious casualty. "Never have I been screwed so much since Russia. For them, they get a satisfaction out of doing it.

"It was the biggest mistake of my investment career. I was deceived by my own hope." In his most recent book he dismisses Russia with a single sentence, further diminished by parenthesis: "(I don't discuss Russia, because I don't want to invest there.)"

So if George Soros gets fooled like this, how can the rest of us find a way in FDI?

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