Soros' Investment Secret Number Eight: Identify Chaos

The unstable state of the market has been the ground on which Soros has tested his theory of contrarianism, arguing that financial markets are volatile and disorderly. The rule of the game is to take advantage of this disorder, and that is the way to make money. By investing in markets in an unstable state, his theory, although not perfect, eventually earned him the title of investment guru and the best investment manager in the world.

According to Soros' theoretical understanding, the intrinsic laws of financial market operation do not operate independently; the views, prejudices and psychological factors of market participants all contribute to or constrain the development of things, such that the final development may be beyond most people's expectation. It can be said that the operation of the market is not logical, but more psychological and based on group instincts. Different perceptions and predictions about something are often the main cause of confusion. Soros believes that the secret of success in financial markets lies in the extraordinary ability to anticipate the psychology of general expectations, and that precise predictions about the real world are not necessary.
Chaotic markets depend on the apparent divergence of participants' perceptions of things. The greater the divergence, the more chaotic the market becomes, when the prevailing bias is often unclear. As each side clings to its own views, the direction of prices is volatile.

Soros, on the other hand, revels in chaos because that is how he makes his money: By understanding revolutionary processes in the market. After the reunification of Germany, for example, when Britain joined the new monetary system created by the western European countries - the European exchange rate system - Soros seemed to see the chaos that was about to take place in the unstable European financial markets. Through years of observation, Soros accurately captured its instability and chaos occurred when the vast majority of people did not acknowledge that such instability existed. A single trade in this British pound blockade made almost $1 billion.
We can see from Soros' investment process that objective macroeconomic analysis and a good mental state are the main factors indispensable for us to identify chaos, seize the moment and win in chaos.