What Is George Soros Thinking?

When looking at the super investors of the world, one can usually identify their investing methodology to some degree. Whether the investor be value-, macro-, growth-, or event-driven, usually one can look at a stock pick and say, "Oh, I could see them doing that." With George Soros, that's rarely the case. He has been tremendously successful, and almost singlehandedly bankrupted the Bank of England, but his latest stock picks have me scratching my head big-time.

A history of wild bets
George Soros is one of those investors that you just don't try to emulate. It's too hard to look into his mind and figure out what the guy is up to. Compared to Buffett, he is a total enigma.

Soros, who fled his native Hungary in the late '40s, started a hedge fund that consistently returned 30%, and on occasion, in excess of 100% per year. He may have the Buffett-esque image of a wise old sage investor, but Soros is fundamentally a speculator.

The reason Soros is so unpredictable is that he finds the markets predictable. While in my own investing universe I try to separate myself from the insanity that is the market, Soros bathes in it. He shorted the British pound by $10 billion -- and made $2 billion overnight. He is often blamed for initiating the Asian financial crisis of 1997, again by shorting currency. Soros has a way of seeing things happen about three minutes before they do -- and making lots of money doing it.

George doesn't just trade currencies, though; he plays stocks like we do. What does he look for in a company? I have no idea. Just look at his two recent investments and you will be thoroughly bewildered.

Soros United
Of the recent "eh" IPOs that have graced us with their presence, one of my least favorite is Manchester United (NYSE: MANU  ) . Sure, it's one of the most well-known sports franchises in the world, but the company is in debt up to its eyeballs and revenues are expected to decrease in the coming year by 5%. I suppose that information is exciting to Soros, who just bought over 3 million of the team's Class A shares. This represents nearly 8% of the company.

What do you see here, George? Can you tell us all something we don't know?

Since Man U's IPO last week, the Fool has been busy making its opinion on the company known. Most Fools have focused on a drastically high valuation for single-digit growth metrics (and negative short-term growth), high debt load, and zero shareholder voting power. I am always open to being proved wrong, but I just haven't seen a single convincing argument about Man U as an investment.

The fact that almost no one likes the idea is the single appealing factor of the stock, and perhaps what Soros likes as well.

Investing at the bottom
The other company Soros took a position in is Facebook (Nasdaq: FB  ) . This may be a slightly more reasonable investment decision, given the 50% discount the stock is trading at relative to its IPO price, but still... ugh.

It's a similar issue to Manchester United: high valuation with limited growth prospects and not shareholder-friendly. In addition to that, it's in an incredibly unpredictable industry subject to quick and intense disruption that can drive the company to insignificance in a matter of months.

Well, again, Soros seems to see something we all don't -- he bought 340,000 shares of the company during the last quarter. He is most likely down on his position so far, but perhaps he saw a bottom to the price and decided to jump in for the ride back up. Personally, I don't see the stock clawing its way up until the company can prove to investors it means business.

Keeping an eye out
It may seem too easy to simply follow the actions of the world's greatest investors. In this particular case, I would be very hesitant to follow George into his latest moves -- regardless of how successful he has been in the past. Whatever the methodology is that he's using, we're unlikely able to follow it from this distance.

Luckily, other superstars have more transparent and understandable investments. Take a look at this special free report in which our analysts lay out the stocks the smartest investors in the world are buying. It includes picks from the likes of all-time Fool favorite Warren Buffett. Take a look at the free report now.

Fool contributor Michael Lewis owns none of the stocks mentioned above. You can follow him on Twitter @MikeyLewy. The Motley Fool owns shares of Facebook. Motley Fool newsletter services have recommended buying shares of Facebook. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On August 25, 2012, at 5:45 PM, baselineace wrote:

    Nothing to scratch at here, Rick. There are two possible explanations for these actions.

    1) George Soros/Scott Bessent sees a bubble and is buying it.

    "When I see a bubble, the first thing I do is I buy because if I am right and the bubble is going to develop, I am going to make money."

    2) They want to short these stocks, and are testing the waters.

    "I want to buy $300 million of bonds, so start by selling $50 million. I want to see what the market feels like first."

    In fact, both explanations are likely applicable!

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