I have been meaning to read The Alchemy of Finance for a while now. And now that I’ve finally gotten around to it I hope this book review will help you decide if The Alchemy of Finance is right for you. So what’s this book all about anyway?
Well, keep reading! In this book review I’ll show you what The Alchemy of Finance is all about. You’ll also discover the major sections of the book and what they cover. Plus you’ll see the one part of this book that I could have done without. By the time you’re done reading you will be able to make an educated and informed decision about The Alchemy of Finance. Now let’s get down to business…
What The Alchemy of Finance is All About:
The main idea George Soros discusses in The Alchemy of Finance is his concept of “reflexivity.” Since The Alchemy of Finance was written in the late 1980’s, when efficient market theory was at it’s prime, these ideas of reflexivity flew in the face of conventional wisdom. But what’s reflexivity all about anyways?
Good question. So as a reminder, recall that efficient market theory dictates the market is all-knowing, and made out of logical and rational participants all acting in their best interest. But this dictum flew in the face of George Soros’ personal experience.
Soros discovered that the markets are a dynamic experiment that is always changing. They cannot be reduced to rational and linear models that don’t reflect their true complexity. He explains how not only do the fundamentals of a given stock determine it’s price. But also that the price action of the stock influences the fundamentals (by influencing lenders’ perception of credit-worthiness, for example).
This is a pretty wild idea. And it sounds like it caused some splashes when it was originally published back in the late 1980’s. But after Soros introduces his theory of reflexivity, he goes on to discuss it as it applies to financial markets. He look for reflexivity in the global trading of stocks, debt and currencies. And he does a good job sharing the implications of his though-experiments.
One Really Good Part of The Alchemy of Finance:
One part of The Alchemy of Finance that exceeded my expectations was Soros’ “real time experiment.” To help the reader understand and accept his theory of reflexivity, Soros keeps a personal diary for about 18 months. During this time, he explains his trading ideas and activities. You get to see in real-time how his approach works.
Be warned: He moves pretty quickly and you really get the impression that his mind is moving a mile a minute. It’s pretty impressive stuff. And once you see the returns he rack’s up you might start to get a little jealous too.
While the real time experiment isn’t entirely applicable or practical, it’s impressive that George Soros had the gaul to draw a line in the sand and stand by his ideas. It’s also neat how well it worked out (even though he was wrong on a lot of things). This personal diary of trading and investing is a unique perspective I haven’t seen anywhere else.
Once the real time experiment wraps-up, The Alchemy of Finance debriefs the experience. It then goes on to highlight some other areas of the world (such as commodity markets and central banking) that could benefit from embracing the reality of reflexivity.
The Alchemy of Finance was a pretty neat book and overall I enjoyed reading it. But there’s one part of this book that I could have done without.
Where The Alchemy of Finance Fell Short:
The Alchemy of Finance presents you with the notion of reflexivity. But in my opinion, the idea isn’t presented in an effective way. Let me tell you why…
For the first 35-50 pages of the book, Soros talks a little bit about his life and his experience. He explains how he came to be where he is, and what his personal interests and aspirations were. But he does this in an incredibly confusing way.
When The Alchemy of Finance describes the theory of reflexivity in abstract terms, it’s tough to follow along. I found the first 40 pages or so to be difficult to read. And I had to pay a lot of attention to follow along. To his credit, Soros advises that some readers may want to skip ahead and avoid the first chapter altogether.
That said, once The Alchemy of Finance starts applying the ideas of reflexivity to the financial markets, things get really interesting. It’s much easier to understand these ideas when you can see how they work in practice. Make sense?
Now, let’s wrap up this book review.
The Alchemy of Finance – The Final Word:
The Alchemy of Finance is an interesting book written by one of the great minds in macro-driven global finance, speculating and trading. For that reason alone, I think you should buy TThe Alchemy of Finance on Amazon.
But if you want some more information you can also watch the brief video book review below. Thanks for reading along and let me know in the comments below if you end up buying The Alchemy of Finance.