Government bonds are among the many investment instruments favored by investors. This is because they come with a guarantee from the government. In practice, they require the right strategy to deliver the results investors desire.
Among the world’s well-known superinvestors is George Soros with the Contrarian concept, or, more simply, the courage to go against the existing current. He dares to extract profits from places considered unpopular or too risky by investors.
You might be wondering why you should go against the existing current. Why take a risky path. What does the Contrarian concept promise. Here is the full explanation.
Who Is George Soros?
Before diving deeper into the Contrarian concept for your government bond investments, let’s first get to know George Soros. George Soros is known as a successful financier from America. The Hungary-born figure was reported to have a net worth of 6.7 billion dollars as of November 2023.
Surprisingly, George Soros did not study economics in college. He studied philosophy. However, he set aside his desire to become a philosopher and chose to join the London merchant bank Singer & Friedlander.
In 1973, the Soros Fund—now called the Quantum Endowment Fund—was founded by George Soros. The institution would go on to give rise to various associated companies. George Soros is a short-term speculator. He makes large bets with high leverage on the direction of financial markets.
His hedge fund, known for a global macro strategy, is a philosophy centered on large one-way bets on movements in exchange rates, commodity prices, stocks, bonds, derivatives, and other assets based on macroeconomic analysis.
He was once nicknamed the man who could break the Bank of England. In 1992, Soros borrowed billions of dollars in pound sterling and exchanged them for German marks.
Then, when the pound fell, Soros repaid his creditors according to the pound’s new and lower value. He employed a similar strategy with Asian currencies during the 1997 Asian Financial Crisis.
What Soros did made governments worry he would take an interest in their currencies. Even so, Soros did not always succeed. In 1987, Soros suffered a 300 million dollar loss. He also lost 2 billion dollars in 1998 during the Russian debt crisis.
However, his track record continues. In 2023, Soros Fund held shares in:
- Alphabet Inc. (portfolio weight: 2.6%)
- Novo Nordisk AS (2%)
- Abcam PLC (2%)
- Liberty Broadband Corp. (1.8%)
- AerCap Holdings NV (1.7%)
- CRH PLC (1.6%)
- com Inc. (1.4%)
So what can you learn from George Soros for your investments.
Learning Success from George Soros
George Soros has several sharp strategies you can learn and apply to investing. Here are a few of them:
1. The Philosophy of Reflexivity for Investing
Soros applies a philosophy called reflexivity, where you, as a market participant, can influence the market itself. To do this, you need to research and observe market sentiment and behavior.
You also need to pay attention to global macroeconomic trends, including changes in interest rates, economic growth, and prevailing inflation levels.
Understanding what is happening in the global economy can help you identify investment opportunities with more favorable outcomes.
2. Dare to Go Against the Current (Contrarian)
This is the concept that brought Soros success. Instead of following the current, he chooses to go against it. Of course, he applies this concept only after his analysis supports a decision to go against the trend.
Soros also boldly seizes opportunities in places that many investors consider too risky.
3. Implementing the High Risk, High Return Concept
Soros indeed has a high level of boldness. He chooses to take risks that cannot be considered low when other investors hesitate or even retreat. This principle is combined with the philosophy of reflexivity.
Implementing the Contrarian Concept in Investing
How can the contrarian concept be implemented in your investments. Here is the explanation.
1. General Understanding
Most investors may prefer to follow the market current to reduce the risk of loss. George Soros is different; he prefers to go against the current. In other words, an investor chooses to enter the market when stocks are experiencing a decline.
The main challenge in applying this concept is accurately identifying undervalued opportunities. This identification requires extensive research and a deep understanding of fundamental analysis.
2. Traits of Investors Who Successfully Implement the Contrarian Concept
There are several traits of an investor who successfully implements the contrarian concept:
- Not engaging in short selling and betting on failing companies.
- Able to get through down markets because they keep their portfolio free of debt.
- Not using margin, but willing to use it when there is a good investment opportunity.
- Choosing to focus on companies that have competitive advantages over their peers.
- Not selecting companies with high, mismanaged debt.
- Investing across various mutual funds and stocks in different sectors, companies, and asset classes. This helps reduce capital loss in a short period.
3. Is the Contrarian Concept Relevant to Bonds
The contrarian concept is relevant for both short-term and long-term bonds. Short-term bonds have maturities under three years and tend to have more stable prices on the secondary market.
Meanwhile, long-term bonds tend to be more sensitive to market fluctuations.
When it comes to Soros, he rarely applied the contrarian concept to pure bonds. He implemented this concept through macro positions in the currency market and interest rate futures (bond derivatives).
Time to Invest with DBS Treasures Priority Banking
George Soros’s contrarian concept is not only for bonds. There are various types of investments where you can apply it, some of which include: large value, large growth, health sector funds, bank loan funds, large blend, foreign large blend, and derivative income.
For those of you who want to invest in bonds, DBS Treasures priority banking is ready to be your trusted partner, providing transaction convenience anytime and anywhere.
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