The Alchemy of Finance

The Alchemy of Finance doesn’t tell you how to become rich. So, if you’re hoping for a step-by-step breakdown of how to land yourself in the top 20 of the Forbes 400, walk away now.

This is a book for those involved in financial markets, particularly those with a philosophical leaning. A reasonable level of comfort with financial instruments and international economics is assumed and it reads as if it is written by a speculator for a speculator. The book outlines Soros’s theory of reflexivity, his view of markets through this lens and includes a trading diary in which he records his thought process and investment decisions in real time.

The first theme is Soros’ concept of reflexivity – which includes the explanation of what’s wrong with the current academic conception of economics / finance as a social science, and some theoretical background to his own perspective which regards finance as an ‘Alchemy’, not science. His theory and approach (and thinking process) are smart and persuasive and there are definitely some jewels embedded in the text. However the writing is a bit cumbersome, the text is very lengthy and sometimes boring, and the book in general is by no means an easy-read.

The 2nd theme is the actual “real-time experiment” as Soros calls it, in which Soros goes week-by-week detailing his trading activity, demonstrating how he’s returning ~130% through his fund in a little more than a year (this happens between the summers of 1985 and 1986). As impressive as this is, it was very hard for me to learn anything from this real time experiment. What I did learn is the very simple notion that there are speculator who actually make money in the market in the longer-term (well, there’s at least one).

What is the rating?

2.5/5

This book is old (I think I was in my nappies when it came out). How any of this is to be applied to present/future scenarios is not covered at all in the book. However, Soros does bring up interesting ideas, but there are far more interesting and easier to read books on the same topic. Maybe someone more familiar with the market than me would disagree as my practical experience is largely limited and knowledge is very academic.

Though we have to keep in mind that Soros has the greatest track record of any money manager, ever. This should give anyone who is interested in managing money, or managing their own money, a reason to read the book in which he describes exactly how he has made his billions.

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