For weeks, so-called experts have battled back and forth over whether the stock market will continue to reach new highs, or if it will come crashing down in the next few months. Now, one of the world’s most respected investors has decided to put in his two cents—only in this case, it’s his two billion dollars.
George Soros has spent a lifetime as a trader and analyst. His Quantum Fund is widely recognized as the most successful hedge fund in history. In the 1990s he earned the moniker “the man who broke the Bank of England” when he short-sold the equivalent of $10 billion in pounds. In May 2008, his book The New Paradigm for Financial Markets spoke of a ‘super-bubble’ that would soon burst. The stock market collapse dominated headlines later that same year.
When George Soros talks, the financial world listens.
This time, Soros is putting a significant chunk of money where his mouth is. His most recent 13-F filing (a form required by the SEC of any institutional investment manager with discretion over $100 million or more in securities) showed an increase of over 600% in Soros’ short position against the S&P 500. His total position rose to $2.2 billion, or 17% of his vast portfolio.
A short position occurs when Investor A borrows shares from a broker and sells them on the open market to Investor B. The borrowed stock must eventually be re-purchased (by A) and returned to the broker. If the stock falls in price in the interim, Investor A buys back the stock (from B) at a lower price than he sold it, thus turning a profit. In simple terms, Investor A is betting that the stock’s price will fall, whereas Investor B expects the price to rise.
But Soros hasn’t sold an individual stock—he placed an option on an S&P 500 exchange-traded fund (ETF). He’s betting that the collective stock values of the 500 large companies that comprise that index will take a tumble in the near future. This approach allows him to sell his options—all 11.3 million of them—at a profit, should the market fall.
Investors pay close attention to these 13-F filings—which occur quarterly—to see where the ‘smart money’ is heading. Historically, George Soros has been at the head of the class. Who’s willing to bet against his $2.2 billion?