Buffett isn't really a sage, and Soros is no philosopher

Hotshot investors have their areas of expertise, but are as clueless as anyone else on most matters

PUBLISHED : Sunday, 07 October, 2012, 12:00am
UPDATED : Sunday, 07 October, 2012, 2:09am

These days Soros has become more of a philosopher and philanthropist, giving away US$8 billion to good causes. In his new role he brings decades of understanding about economies, currencies and markets and ways they dance with disaster.

SCMP, Back to Business, October 3

It's not often that a book review makes me laugh, but I laughed some years ago on reading a critique in The Economist of an attempt by George Soros to expound his philosophical point of view.

Soros had written that to get things right in philosophy, you had to take a little from all the previous great thinkers.

And that's what he did, wrote the reviewer. He took a little diced Schopenhauer, some shredded Nietzsche, and a pinch of Hegel, swallowed them and look what came out the other side.

Giggle, giggle. I renewed my subscription to The Economist on the basis of that review, despite the rag's warmongering ways.

Soros was at his best in the early 1990s, when he looked British prime minister John Major in the eye and placed a multibillion-dollar bet that Britain would bow out of European monetary union despite Major's pledges.

He didn't actually take that bet against the Bank of England. He took it against Bank Negara Malaysia, Malaysia's central bank, which was at the time one of the world's biggest foreign-currency speculators. (Yes, why indeed?) It was also one of Major's firm believers.

Soros netted a US$1 billion profit on that bet and Bank Negara went bust, wiping out years of savings that were meant to improve the living circumstances of native Malays. They may thank Soros, however, for stopping Bank Negara's madness before it became much worse.

He also helped stop the foolishness of other Asian central banks in 1997 by placing big bets that their currency manipulations would fail. The Asian financial crisis of that year came about when was he proved right, but it would have been much worse if currency speculators like him had not forced the inevitable showdown with reality at an early date.

However, there was also the time at the height of the internet bubble in 2000 when, after months of declaring internet stocks hugely overpriced, he let his subordinates bet on them just before they collapsed. The biter was bit. The market laughed.

There is a moral to this story. George Soros is best at doing what George Soros understands, and is no better than you or I at doing what he doesn't understand. What Soros understands is the foolish ways of governments in financial matters. He had object lessons on that score in his native Hungary and took them to heart.

What he doesn't really understand, in my opinion, are the normal doings of the born-in-the-USA American investor. He lost his way in the internet bubble because all he had was the usual tools of investment analysis, and not that finely-honed sixth sense that stood him so well against Major.

For an intuitive understanding of domestic investment in the US, you do better to go to the likes of the "sage of Omaha", Warren Buffett. How much more American can you get than Omaha? Mr Buffett, I understand, lives there at 123 Main Street, where, before dinner at 5.30pm, he reclines on a La-Z-Boy chair and drinks Coca-Cola.

Warren Buffett understands Coca-Cola because, in an investment sense, he is Coca-Cola. He has an intuition for stocks like that and has proved it with his win record.

But take Warren Buffett to investments that depend on worldwide trends, not American ones alone, to things like basic energy plays, and he stumbles. He has a line of howlers to his debit in oil stocks. The fact that he put money in Japan last year is no recommendation of Japan.

And that's the moral of the story. For a plumbing job get a plumber, for a gardening job get a gardener.

And keep your hand on your wallet if any one of them tells you he is a philosopher.