Introduction George Soros is chairman of Soros Fund Management. In 1970 he co-founded the Quantum Fund with Jim Rogers, which created the bulk of the Soros fortune.
Unlike Warren who created his wealth by investing in stocks that appreciate over a long time. George Soros does not suit the bill of an “investor” as defined by Ben Graham, instead, Soros made his fortune by successfully speculating.
On Black Wednesday (September 16, 1992), Soros became immediately famous when his fund sold short more than $10 billion worth of pounds, profiting from the Bank of England's reluctance to either raise its interest rates to levels comparable to those of other European Exchange Rate Mechanism countries or to float its currency. Finally, the Bank of England was forced to withdraw the currency from the European Exchange Rate Mechanism and to devalue the pound sterling, and Soros earned an estimated US$ 1.1 billion in the process. He was dubbed "the man who broke the Bank of England."
Over the years, George Soros is closely followed by investors. However, investors are often torn between do what he does and do what he says. In his 2008 book, The New Paradigm for Financial Markets, describes a "superbubble" that has built up over the past 25 years and is now ready to collapse. This is the third in a series of books he's written that have predicted disaster. As he states:
Indeed he ascribes his own success to being able to recognize when his predictions are wrong.
What made him a great investor (speculator)?
According to this article published in FT.com:
Recent Comment on Markets
One of the turn-around situation has to be now. Recently, on May 11, 2009, Soros declared that economy downward trend easing as he told a German Newspaper
The statement gave a shot in the arm to the global financial markets, as people viewed George Soros joined that “Green Shoots” camp.
1Q09 Sector Asset Allocation
At GuruFocus.com, we follow the long position of the equity portion of George Soros’s holdings.
In terms of sector allocation, in the first quarter of 2009, George Soros has noticeably reduced his financials (from 9.1% to 0.3%) stocks, and then to some degree basic material (from 18.7% to 16.4%). He has increased his holdings in Oil & Gas and Consumer Services sectors.
1Q09 Top Holdings
We said George Soros is more of a speculator than an investor. When come to the long equity position, he is willing to take some very concentrated positions in one or two industry. Right now, Oil and Gas is the name of the game, and Consumer Services names are catching up. George Soros’s top five holding as of March 31, 2009 include: Petroleo Brasileiro S.A.Petrobras (PBR, Financial), Potash Corp. of Saskatchewan Inc. (POT, Financial), Hess Corp. (HES, Financial), ConocoPhillips (COP, Financial), Lowe's Companies Inc. (LOW, Financial)
1Q09 Top Purchases
During the 1Q of 2009, Four out of Top 5 purchases of George Soros are retailers (Consumer Services): Macy's Inc., Lowe's Companies Inc., WalMart Stores Inc. (WMT, Financial), The Home Depot Inc. (HD, Financial); and one of the Top 5 purchases is a utility and power Company - Entergy Corp. (ETR, Financial)
Conclusion
Call him a speculator if you want, in 1Q09, George Soros has shifted his gears from Financials to Consumer Services. He bought heavily in retailers and utility company. Also, he maintained his heavy position in Oil and Gas companies.
Unlike Warren who created his wealth by investing in stocks that appreciate over a long time. George Soros does not suit the bill of an “investor” as defined by Ben Graham, instead, Soros made his fortune by successfully speculating.
On Black Wednesday (September 16, 1992), Soros became immediately famous when his fund sold short more than $10 billion worth of pounds, profiting from the Bank of England's reluctance to either raise its interest rates to levels comparable to those of other European Exchange Rate Mechanism countries or to float its currency. Finally, the Bank of England was forced to withdraw the currency from the European Exchange Rate Mechanism and to devalue the pound sterling, and Soros earned an estimated US$ 1.1 billion in the process. He was dubbed "the man who broke the Bank of England."
Over the years, George Soros is closely followed by investors. However, investors are often torn between do what he does and do what he says. In his 2008 book, The New Paradigm for Financial Markets, describes a "superbubble" that has built up over the past 25 years and is now ready to collapse. This is the third in a series of books he's written that have predicted disaster. As he states:
I have a record of crying wolf…. I did it first in The Alchemy of Finance (1987), then in The Crisis of Global Capitalism (1998) and now in this book. So it's three books predicting disaster. (After) the boy cried wolf three times . . . the wolf really came.
Indeed he ascribes his own success to being able to recognize when his predictions are wrong.
I'm only rich because I know when I'm wrong… I basically have survived by recognizing my mistakes. I very often used to get backaches due to the fact that I was wrong. Whenever you are wrong you have to fight or [take] flight. When make the decision, the backache goes away.
What made him a great investor (speculator)?
According to this article published in FT.com:
Soros attributes his effectiveness as an investor to his philosophical views about the contingent nature of human knowledge: “I think that my conceptual framework, which basically emphasises the importance of misconceptions, makes me extremely critical of my own decisions … I know that I am bound to be wrong, and therefore am more likely to correct my own mistakes.”
Soros’s radar for revolution is the second key to his investing style. He looks for “game-changing moments, not incremental ones”, according to Sebastian Mallaby, the Washington Post columnist and author who is writing a history of hedge funds. As examples, Mallaby cites Quantum’s shorting of the pound and Soros’s 1985 “Plaza Accord” bet that the dollar would fall against the yen – his two most famous currency trades – as well as a lesser-known 1973 bet that, as a consequence of the Arab-Israeli war, defense stocks would soar. “It’s not that reflexivity tells you what to do, but it tells you to be on the look-out for turn-around situations,” Mallaby said. “It’s an attitude of mind.”
Recent Comment on Markets
One of the turn-around situation has to be now. Recently, on May 11, 2009, Soros declared that economy downward trend easing as he told a German Newspaper
The economic freefall has been stopped, the collapse of the financial system averted. National economic stimulus programmes are starting to take effect. The downward dynamic is easing
The statement gave a shot in the arm to the global financial markets, as people viewed George Soros joined that “Green Shoots” camp.
1Q09 Sector Asset Allocation
At GuruFocus.com, we follow the long position of the equity portion of George Soros’s holdings.
In terms of sector allocation, in the first quarter of 2009, George Soros has noticeably reduced his financials (from 9.1% to 0.3%) stocks, and then to some degree basic material (from 18.7% to 16.4%). He has increased his holdings in Oil & Gas and Consumer Services sectors.
| Industry | 2008-12-31 | 2009-03-31 |
|---|---|---|
| Technology | 2.4% | 2% |
| Financials | 9.1% | 0.3% |
| Telecommunications | 0.1% | 0.2% |
| Consumer Services | 13% | 17.9% |
| Health Care | 2.1% | 2% |
| Consumer Goods | 3.1% | 4.4% |
| Industrials | 5.1% | 3.4% |
| Basic Materials | 18.7% | 16.4% |
| Oil & Gas | 45.3% | 47.1% |
1Q09 Top Holdings
We said George Soros is more of a speculator than an investor. When come to the long equity position, he is willing to take some very concentrated positions in one or two industry. Right now, Oil and Gas is the name of the game, and Consumer Services names are catching up. George Soros’s top five holding as of March 31, 2009 include: Petroleo Brasileiro S.A.Petrobras (PBR, Financial), Potash Corp. of Saskatchewan Inc. (POT, Financial), Hess Corp. (HES, Financial), ConocoPhillips (COP, Financial), Lowe's Companies Inc. (LOW, Financial)
No. 1: Petroleo Brasileiro S.A.Petrobras (PBR), Weightings: 30.51% - 31,601,715 Shares
PBR is a Brazil Oil and Gas company operating in exploration, production, refining, retailing, and transportation of petroleum and its byproducts at home and abroad. Petroleo Brasileiro S.A.Petrobras has a market cap of $189.92 billion; its shares were traded at around $43.51 with a P/E ratio of 0.3 and P/S ratio of 1.5. The dividend yield of Petroleo Brasileiro S.A.Petrobras stocks is 0.7%. Petroleo Brasileiro S.A.Petrobras had an annual average earning growth of 48% over the past 5 years.
Soros started to buy PBR in Q4 of 2006. He heavily increased his position in Q2 and Q3 of 2008 when oil price and PBR stock price was high flying. With Oil price down from $147 per barrel and PBR down significant from over $70 per share, George Soros kept on buying the stock in Q4. Recently, PBR stock price has recovered substantially from around $20 per share to over $40 per share, and we see Soros sold some shares of PBR.
The story sounds much like the much-publicized Warren Buffett’s play in ConocoPhillips (COP), and accidentally, Warren Buffett has been selling COP as well. COP is the No.4 position in George Soros’s portfolio, and we will have more on this later on. Despite the unloading, over 30% of George Soros’s stocks portfolio goes into this one stock, you cannot say he does not have conviction to the stock.
No. 2: Potash Corp. of Saskatchewan Inc. (POT), Weightings: 14.58% - 5,695,503 Shares
Potash Corporation of Saskatchewan Inc. is the world's largest potash company, the third largest phoshate producer and the second largest nitrogen producer. Potash Corp. of Saskatchewan Inc. has a market cap of $34.01 billion; its shares were traded at around $114.77 with a P/E ratio of 11.2 and P/S ratio of 3.7. The dividend yield of Potash Corp. of Saskatchewan Inc. stocks is 0.3%. Potash Corp. of Saskatchewan Inc. had an annual average earning growth of 12.6% over the past 10 years.
George Soros showed an interest in POT in 1Q of 2007 and he has been buying the fertilizer company since them. Through 1Q09, he has accumulated about 5.7 million shares. Even if he has strong conviction in this stock, George Soros has to be patient for this stock to play out and make money for him as most of his accumulation happened in 2Q08, when the stock price was around $200 per share.
No. 3: Hess Corp. (HES), Weightings: 6.29% - 3,660,302 Shares
Hess Corporation is an energy company engaged in the exploration for and the production, purchase, transportation, and sale of crude oil and natural gas as well as the production and sale of refined petroleum products electricity. Hess Corp. has a market cap of $21.38 billion; its shares were traded at around $65.65 with a P/E ratio of 13.6 and P/S ratio of 0.5. The dividend yield of Hess Corp. stocks is 0.7%. Hess Corp. had an annual average earning growth of 19.2% over the past 10 years. GuruFocus rated Hess Corp. the business predictability rank of 3.5-star.
George Soros started to buy the stock in Q2 of 2008. He quickly built a position through the end of 2008 when he owned over 4 million shares. In 1Q09, he sold a small position of the stock at a loss.
No. 4: ConocoPhillips (COP), Weightings: 5.13% - 4,135,850 Shares
ConocoPhillips is a major energy company with operations in some 49 countries. ConocoPhillips has a market cap of $67.48 billion; its shares were traded at around $45.61 with a P/E ratio of 5.2 and P/S ratio of 0.3. The dividend yield of ConocoPhillips stocks is 4.2%. ConocoPhillips had an annual average earning growth of 19% over the past 10 years.
George Soros started to buy COP in 2Q of 2007, and he has not stopped buying more shares since then. Even in 1Q09, Soros bough about 700,000 shares more of COP while Warren Buffett sold shares of COP.
Among the top five positions, three of them are Oil & Gas companies. In 1Q09, Soros sold some PBR and HES but added to COP. Stock prices of Oil & Gas companies have recovered, which contributed to the weighting increase of these companies in Soros’s portfolio. We believe George Soros will continue to ride out in this sector.
No. 5: Lowe's Companies Inc. (LOW), Weightings: 3.1% - 5,362,000 Shares
Lowe's specializes in offering products and services for home improvement, home décor, home maintenance, home repair and remodeling, and maintenance of commercial buildings. Lowe's principal customer groups are do-it-yourself retail customers and commercial business customers. Lowe's Companies Inc. has a market cap of $27.94 billion; its shares were traded at around $19.02 with a P/E ratio of 13.6 and P/S ratio of 0.6. The dividend yield of Lowe's Companies Inc. stocks is 1.8%. Lowe's Companies Inc. had an annual average earning growth of 21.4% over the past 10 years. GuruFocus rated Lowe's Companies Inc. the business predictability rank of 5-star.
LOW is a new Top-5 holding for George Soros. He had an interest in the company since 4Q07 and did not buy into the company heavily until 4Q08. Then in 1Q09, he added over 400% to his position and now he owns more than 5 million shares.
1Q09 Top Purchases
During the 1Q of 2009, Four out of Top 5 purchases of George Soros are retailers (Consumer Services): Macy's Inc., Lowe's Companies Inc., WalMart Stores Inc. (WMT, Financial), The Home Depot Inc. (HD, Financial); and one of the Top 5 purchases is a utility and power Company - Entergy Corp. (ETR, Financial)
No. 1: Macy's Inc. (M, Financial) - Total: 9,846,947 Shares
Federated Department Stores is a full-line department stores in the United States. The Company's subsidiaries operate department stores under the names Bloomingdale's, The Bon, Marche, Burdines, Goldsmith's, Lazarus, Macy's, Rich's and Stern's. These department stores sell a wide range of merchandise including men's, women's and children's apparel and accessories, cosmetics, home furnishings, and other consumer goods.
Macy's Inc. has a market cap of $4.69 billion; its shares were traded at around $11.17 with a P/E ratio of 10 and P/S ratio of 0.2. The dividend yield of Macy's Inc. stocks is 1.8%. Macy's Inc. had an annual average earning growth of 2.6% over the past 10 years. GuruFocus rated Macy's Inc. the business predictability rank of 2-star.
George Soros bought over 9 million share of Macy’s in 1Q09 and his total holding of the company is 9.8 million shares.
No. 2: Lowe's Companies Inc. (LOW) - Total: 5,362,000 Shares
George Soros bought over 4 million shares of LOW and his total holding in the company is 5.4 million shares.
No. 3: WalMart Stores Inc. (WMT) - Total: 1,817,589 Shares
Wal-Mart Stores Inc. is the world's largest retailer. WalMart Stores Inc. has a market cap of $193.41 billion; its shares were traded at around $49.55 with a P/E ratio of 14.4 and P/S ratio of 0.5. The dividend yield of WalMart Stores Inc. stocks is 2.2%. WalMart Stores Inc. had an annual average earning growth of 13.3% over the past 10 years. GuruFocus rated WalMart Stores Inc. the business predictability rank of 5-star.
George Soros has been trading in and out of WMT. He held as many as 3.8 million shares of WMT as of 3Q08 but by 4Q08 he sold down to less than 0.5 million shares. However, by the end of 1Q09, we see his position came back to a little over 1.8 million.
Perhaps George Soros once again did what Warren Buffett did in 4Q08, namely sell down the companies less affected by the stock market crash in order to raise cash for other uses. For Warren Buffett, it was JNJ and PG, for George Soros, it was WMT. There is no doubt, George Soros likes the stock, else, he would not buy so many shares back.
No. 4: The Home Depot Inc. (HD) - Total: 3,928,500 Shares
Home Depot is the one of world's largest home improvement retailer. The Home Depot Inc. has a market cap of $38.4 billion; its shares were traded at around $22.7 with a P/E ratio of 13.3 and P/S ratio of 0.6. The dividend yield of The Home Depot Inc. stocks is 4%. The Home Depot Inc. had an annual average earning growth of 19.5% over the past 10 years. GuruFocus rated The Home Depot Inc. the business predictability rank of 5-star.
It is interesting to see George Soros bought heavily into both LOW and HD. The stock here is almost identical to that about LOW. He had a very small position in HD up to 3Q08 then the market crash came and he started to buy heavily (about 1 million shares) in 4Q08. Market went down further in 2009 and George essentially brought the truck and bought another 2.9 million shares.
No. 5: Entergy Corp. (ETR) - Total: 968,000 Shares
This is the only non-retailer company in the Top 5 companies that George Soros bought during the quarter.
Entergy Corporation engages principally in the following businesses: domestic utility operations, power marketing and trading, global power development, and domestic non-utility nuclear operations. Entergy Corp. has a market cap of $13.96 billion; its shares were traded at around $73.68 with a P/E ratio of 11.8 and P/S ratio of 1.1. The dividend yield of Entergy Corp. stocks is 4.1%. Entergy Corp. had an annual average earning growth of 2.5% over the past 10 years.
Again, the same buying pattern happens here: George Soros owned a small position in the company since 2007 and did not buy heavily until recently when the stock market brought the stock price down to an attractive level. The power and utility company saw its price dropped from over $120 down to a little over $60. That is when George Soros started to buy heavily.
Conclusion
Call him a speculator if you want, in 1Q09, George Soros has shifted his gears from Financials to Consumer Services. He bought heavily in retailers and utility company. Also, he maintained his heavy position in Oil and Gas companies.
