Another market guru has tripped up.
Prominent investor George Soros lost $1 billion since the presidential election, having shorted the equity market on expectations that it would crater following Donald Trump’s victory. In fact, the S&P 500, has rallied more than 8% since election day, with bank stocks being particular winners.
What explains such a failure from an otherwise highly successful fund manager?
Let’s first assume that Soros does or did historically possess special qualities as a manager. It is hard to actually prove out-performance these days, as fund managers are so ubiquitous that sustained performance no longer means very much.
Thousands of people tossing a coin mean that some will get 20 heads in a row merely due to the usual law of probability.
But being generous and more realistic in terms of Soros, let’s assume over the years that he has had a certain unique market instinct. After all, he has amassed such a large fortune that even a $1 billion loss isn’t that material.
In that case, what other explanations must we turn to in the case of this failed trade? Two come to mind.
Effectively, Soros let strongly held ideological biases affect his market judgment. Notwithstanding his great wealth, he is a sort of self-hating capitalist, with fairly radical liberal ideological shibboleths.
So the idea to him of a populist Trump beating a safe liberal such as Hillary Clinton could only imply one thing: imminent disaster. And he assumed that this disaster would surely be recognized by the market.
Of course, what Soros missed, like some of the other liberal elite that were shocked by Trump’s victory, is how out of touch he was with the vast numbers of alienated Americans who expressed themselves in the election. A significant percentage of the U.S. population simply howled in pain that they no longer trusted either the liberal left establishment or traditional Republicans and hence voted for a maverick such as Trump.