Soros Investment Tip #3: Ineffective Markets

The inefficient market theory is based on Soros' philosophical research. He believes that human cognition is not perfect and that all perceptions are flawed or distorted. People rely on their own perceptions to anticipate the market and interact with the intrinsic laws of value that affect prices, even as market movements manipulate the development of demand and supply, so that he concludes that the market we are dealing with is not rational and is an inefficient market.

This theory is incompatible with traditional economic theory, which holds that the market operates with its own logic and rationality, and that the development of the market is ultimately towards a point of equilibrium, the prerequisites for which are, firstly, that people have perfect access to market information at any given time, and secondly, that market prices reflect all valid information.
Usually most analysts adhere to the theory of effective markets by having their own information and analysis of current prices, reinforcing the development of current trends, fueled by the public, making the market even more irrational and becoming ineffective. The market excesses caused by capital manipulation, forced positions, the use of agricultural futures by index funds for value protection, the trading behavior of hedge funds, etc., cannot be said to be moving towards the equilibrium point of the market, and there is no need to blame the market for this, because, according to Soros, this is precisely the stage when the characteristics of an ineffective market - irrationality - are most pronounced, and therefore the analysts' judgement of the market at this time the basis for analysts' judgements was also unreliable.

In the 1980s, Soros set up a series of charitable funds in eastern Europe and the former soviet union, ostensibly for charity, but in fact one of their main objectives was to change the planned economic system in these countries from a closed society to a free, fully market-oriented free economy, because only then would his funds have a broader scope for development. Recognizing and taking full advantage of the ineffectiveness of the market provided an important precondition for Soros' investments.