Buffett vs. Soros: Investment Strategies

Legendary investment gurus Warren Buffett and George Soros are two of history's most famous and successful Wall Street figures. While both men have irrefutably achieved prominence in the finance realm, the paths they took to get there are largely divergent. This article profiles each of their unique stories.

Warren Buffett

Warren Buffett made his first investment at age 11. In his early 20s, he studied at Columbia University under the tutelage of his personal mentor, Benjamin Graham, who is widely known as the father of value investing. Graham argued that every security held an intrinsic value that was independent of its market price. This concept ultimately became the foundational investment philosophy of Buffett's first fund, Buffett Partnership, Ltd., which he launched in 1956 with an initial $105,100 investment.

Over the next 13 years, this fund mushroomed to more than $105 million in assets. Buffett eventually parlayed this success to buy and run Berkshire Hathaway, a holding company for a multitude of businesses. As of April 14, 2022, it's worth more than $760 billion, where each individual stock share is valued at an astonishingly high $516,435, mainly because Buffett refuses to perform a stock split on his company's shares.

As a value investor, Buffett is constantly in search of investment opportunities through which he can exploit price imbalances over an extended time horizon. And as an arbitrageur, Buffett is known to instruct his followers to "be fearful when others are greedy, and be greedy when others are fearful."

Much of his success harkens back to Graham's three cardinal rules:

1. Invest with a margin of safety
2. Profit from volatility
3. Know yourself

With these three tenets, Warren Buffett has been able to make rational investment decisions in the face of economic fluctuations.

George Soros

Born in Budapest in 1930, financial titan George Soros survived Nazi Germany-occupied Hungary and emigrated to the United Kingdom in 1947. Years later, after graduating from the London School of Economics, Soros began his professional career working for various merchant banks in the United Kingdom and the United States before launching his first hedge fund, Double Eagle, in 1969.

With the profits from this endeavor, Soros was able to seed his follow-up hedge fund, Soros Fund Management, in 1970. Since renamed the Quantum Fund, it ran from 1973 to 2011, during which time it returned roughly 20% to investors annually.

According to Soros, he shut down the fund mainly due to overly stringent Securities and Exchange Commission registration requirements. But Soros continues to take an active role in the administration of Soros Fund Management, a subsequent hedge fund he founded.

Unlike Buffett, who bases his investments on a company's intrinsic value, Soros relies on short-term volatility and highly leveraged transactions. In short, Soros is a speculator who places little importance on a company's fundamentals. For example, in the early 1990s, he made a multi-billion dollar bet that the British pound would significantly depreciate in value over the course of a single trading day.

In essence, Soros was directly battling the British central banking system in its attempt to keep the pound artificially competitive in foreign exchange markets. Soros pocketed $1 billion from the deal, earning him the nickname: "The Man Who Broke the Bank of England."

The Bottom Line

Warren Buffett and George Soros will forever be regarded as two of the world's most brilliant investing minds. While they employ radically different investing strategies, both men have achieved great success in their own disciplines.