📘Detailed introduction to "The Alchemy of Finance"

By George Soros

🌟 Editor's Preface

Everyone's heard of financial tycoon George Soros. His most famous exploit was his 1992 attack on the British pound , which netted him over a billion dollars and forced the UK government to withdraw from the European Exchange Rate Mechanism (ERM), shocking the world.

But many Hong Kong people may not know that Soros is not just a speculator; he's also a thinker. His book, "The Alchemy of Finance," is a classic in the financial world, and it also proposes his theory of reflexivity.

While reading this, I felt that this book wasn't just a simple investment book. It was a "financial philosophy bible" 📚, combining philosophy, economics, and practical investment knowledge . Honestly, the content is quite mind-boggling 🤯, but if you want to understand Soros's thinking and perspective on the market, this book is a must-read!

📖 Book Introduction

Title: The Alchemy of Finance
Year of publication: 1987

📌 Several key points of the book:

• 🧠Reflexivity theory (markets are not rational, but self-reinforcing)
• 📊Investment Log (Soros actually released his trading history for a year!)
• 🔍Financial Market Insights (How to Understand Bubbles and Crises)
• 🌍Macroeconomic perspectives (currency, interest rates, international capital flows)

🧑🏫 Reflexivity Theory

Traditional economics (especially the efficient market hypothesis) believes that markets are rational and prices reflect all information .

But Soros said: Wrong! The market is made up of people, and people have biases and emotions. Prices and reality influence each other.

👉 The so-called "reflexivity":

• Investors' expectations → influence market prices
• Price changes → in turn affect investor expectations
• The result is a self-reinforcing cycle 🔄

example:

• The property market is rising 📈 → Investors think it will continue to rise → More people enter the market → The property market rises faster
• Until the bubble bursts 💥 → Investors panic → Panic accelerates the decline

Hong Kong people's version: It's like the "property speculation mentality" 🏠, where everyone thinks "property prices will only go up and never down", which results in pushing up property prices, and then everyone explodes and shouts.

📚 Summary of key points in the book

1️⃣ Financial Markets: Alchemy

Soros said finance is like alchemy because investors' beliefs can change reality.
For example: If everyone believes that a currency will depreciate, they will sell it, and it will actually fall.

2️⃣ Investment Log📒

One of the most interesting parts of the book is that Soros made public his trading records from 1985 to 1986.

• Channel picking opportunities
• How to increase or reduce positions
• How to face failure and adjust strategies

I think this is the most realistic part, because you can see that even financial giants have doubts and mistakes, but the best thing they do is correct them quickly .

3️⃣ Bubble and crisis

Soros proposed that "bubbles have their own life cycle":

1. incubation period
2. Rising period
3. frenzy period
4. collapse period
5. aftermath period

Hong Kong people should feel very familiar with this. The property market, stock market, and cryptocurrency 🚀 all follow this pattern.

4️⃣ Macro perspective

Soros is not just speculating in stocks, but also speculating in macroeconomics :

• Monetary Policy 🏦
• Interest rate trends 📉
• International capital flows💵
• Political events (e.g. European integration, US-China relations)

His investment philosophy is: look at the big picture, don't just look at a chart.

🧑🔬 Author Background: George Soros

• 🎓 Born in Hungary, moved to the UK and then to the US
• 🎩 Managed the Quantum Fund for many years, with an average annual return of over 30%
• 🐊 Nicknamed "Financial Tycoon", his most famous battle was the 1992 attack on the British pound.
• 🌍 He is also a philanthropist and founded the Open Society Foundation to sponsor education and human rights.

Soros's characteristic is that he is not only an investor, but also a thinker who often challenges traditional economic theories.

🎯 Editor's Review (Hong Kong Edition)

The editor thinks: This book is really not easy to read, but it is worth reading.

Takeaways:

• The market is not rational , so please don't blindly believe in the concept of "efficient market".
• Mentality affects the market , and market prices are often "artificially" created.
• Investing requires flexibility . Even someone as smart as Soros can make mistakes, but the key is to admit them and correct them quickly.
• Bubble is a cycle . Hong Kong people speculate in real estate, stocks and cryptocurrencies. It is best to remember the bubble lifecycle.

Hong Kong people use the analogy: the market is like playing mahjong. It does not rely solely on mathematical probability, but also depends on the opponent's psychology, the atmosphere at the table, and even "personal relationships."

🌈 Summary

The Alchemy of Finance is not a quick guide to getting rich by stock trading, but a "financial philosophy handbook." Its most important reminders are:

• Financial markets are not science, they are alchemy🔮
• Investor beliefs change reality🔄
• To succeed, you must understand "reflexivity" and "bubble cycles"

👉 If you want to understand how Soros became a "financial tycoon" and why he was able to win so much in the market, this book is a must-read! 🔥