Transcript of Video Network Interview: Soro’s Winners & Losers of 2008

02/19/2009 3:20 pm EST

Focus:

Howard Gold

Founder & President, GoldenEgg Investing

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ABOUT THE SPEAKER

Nicholas Vardy is the editor of Vardy's Global Bull Market Alert, Vardy's Global Stock Investor, and The Global Guru, a weekly e-letter with over 145,000 subscribers. He is As CIO of Global Guru Capital (www.globalgurucap.com), and founder of the London Junto (www.londonjunto.com), a regular gathering where leading London hedge fund managers meet to debate the top investment issues of the day. Mr. Vardy has been quoted in the Wall Street Journal, Newsweek, Investors Business Daily, MSN Money Central, AOL, Yahoo Finance, and CBS Marketwatch. He has also been regular contributor to the Fox Business Network and CNN International. He is a Chartered Financial Analyst and a graduate of Stanford University and Harvard Law School as well as a former Fulbright scholar.

PRESENTATION

Howard R. Gold - Executive Editor, MoneyShow.com
What did George Soros buy in 2008? We'll ask Nicholas Vardy. Hello, Nick, how are you?

Nicholas Vardy - CFA
Good, thank you.

Howard R. Gold - Executive Editor, MoneyShow.com
Nick, you are associated with the London Junto, which is an organization of hedge fund managers in London, and you track the performance and the trading of hedge fund people, and recently George Soros wrote an extraordinary piece in the Financial Times where he detailed the kinds of trades he made; in an excruciatingly honest way, told what he made and what he lost on.  What did you see from that that was particularly interesting to you?

Nicholas Vardy - CFA
Well the first thing was that in a very, very, very, very difficult year this 78-year-old man, the grandfather of all hedge fund managers, made money. He was up about 10% this year, which is a lot more than almost anyone else who was in the hedge fund space this year. Hedge funds, on average, are probably down about 20%, 25% in 2008.

What was interesting about his comments was that he focused not on the things he did right, but actually the things he did wrong. He shows a lot of self-awareness in terms of actually managing his money.

What he invested in, he said that he was wrong about decoupling. You know, this idea of how emerging markets are going to do well while the U.S. just does badly. So he actually said he lost a lot of money in India and China, he never cut out those positions. He was also long on some of the big commodity stocks, like Rio Tinto. He also had a big, long position in Petrobras, the Brazilian oil company in which he ultimately lost 75% of his money. And he also pointed out that unfortunately, even though he is an experienced shorter of stocks, he was unable to make money shorting this stock, shorting the U.S. stock market in October during that big collapse.

So you've got to ask yourself the question, if he is so - if he has lost so much money in all of these other areas, where did he make it up? Well, he basically made it up in currencies.

Howard R. Gold - Executive Editor, MoneyShow.com
That was his forte; obviously, he's the man who broke the Bank of England, right?

Nicholas Vardy - CFA
Exactly, exactly. And so one of the things he did was he shorted the pound against the U.S. dollar, probably around the 2 pound level last year. The pound actually collapsed about 30% since then, it traded down to about 1.35 to the dollar this past January. He also went long the U.S. dollar, in spite of the fact that he was a Cassandra, a doom and gloomer, he realized early on that the U.S. dollar was actually a big safe haven during terms of financial crisis. He actually likened it to an ill patient having a fever. So it is evidence of sickness, but it is a necessary phenomenon.

And so basically he made all of his money in currency trading, and he said he had to work very, very hard to make up for all of the losses of his outsource managers in all his other asset classes.

Howard R. Gold - Executive Editor, MoneyShow.com
He also said he overtraded the positions. He says, "the positions I took were too large for the increasingly volatile markets, and in order to manage my risk I could not go against the market in a big way." I think that's an extraordinary admission from someone like that.

Nicholas Vardy - CFA
Yeah, I mean, I think you get a good sense of what his trading style is if you read his book, "The Alchemy of Finance" which published over 20 years ago in 1987 where he basically runs a trading diary of his investment style.

And look, in terms of trading, last year was a really, really tough year for markets. There weren't that many trends around, though managed futures strategies did okay, but certainly in the markets that he looked at there weren't a lot of sustainable trends, a lot of those trends were down. It is harder to trade markets on the short side than long side. So he worked hard for his money and it is amazing that he did that well.

Howard R. Gold - Executive Editor, MoneyShow.com
Thank you very much.

Nicholas Vardy - CFA
Thank you.

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