Retail Trader: Should You Try to Trade Like a Billionaire?

Legendary hedge fund manager George Soros is known for being a hands-on trader with an uncanny ability to make money. And when the opportunity presents itself, he’s not shy about making big bets. Case in point: His 1992 short of the British pound, which almost toppled the Bank of England and netted him a $1 billion profit, according to a 2002 article in The Telegraph, a British newspaper.

Think about how rich people invest and consider: Does it make sense for the average person to try to emulate someone like Soros, or any number of billionaire traders, when it comes to their own trading? Probably not. Let’s look at a few reasons.

We Can’t Look Behind the Curtain

Part of the problem is that we have no real way to go behind the scenes and see what these billionaire traders are doing in their funds, let alone know what they are thinking. The small glimpses we do get are usually heavily orchestrated sound bites in the financial press—sometimes simply aimed at moving markets to the benefit of positions they already own.

Some trades can be seen via documents filed with the Securities and Exchange Commission (SEC), but these documents aren’t made public until months after the fact. Even the SEC admits that hedge funds don’t always have to disclose what they are doing. The SEC’s website says:

“Unlike mutual funds, hedge funds are not subject to some of the regulations that are designed to protect investors. Depending on the amount of assets in the hedge funds advised by a manager, some hedge fund managers may not be required to register or to file public reports with the SEC." 

Hedge funds move billions of dollars in and out of the market, and try to do so in the least conspicuous way.

“Without the disclosure that the securities laws require for most mutual funds, it can be more difficult to fully evaluate the terms of an investment in a hedge fund. It may also be difficult to verify representations you receive from a hedge fund.”

Hedge funds move billions of dollars in and out of the market, and try to do so in the least conspicuous way. This lack of transparency works against the average trader’s hopes of gleaning any significant insight. 

Advantage after Advantage

In addition to being less subject to disclosure, billionaire traders and the funds they run have other advantages that most of us just don’t have. These include far more access to information.

The Internet has been a boon to the retail investor, not only in terms of ease of execution, but also in the amount of resources now available to evaluate and analyze stocks. However, it’s tough to beat a team of analysts who can dissect the pros and cons of a company, or, if need be, call up the CEO and ask questions.

It’s tough to beat a team of analysts who can dissect the pros and cons of a company, or, if need be, call up the CEO and ask questions.

This access may give hedge funds better opportunities on the buy side as well as the ability to make quicker exits on positions that aren’t working out.

They also have the advantage of time and money. Not every position in their portfolio must work at once, and because they have access to large amounts of capital, they can scale into secondary positions and give those positions a longer runway to become profitable than the average retail trader can. 

It’s Hard to Read a Billionaire

Billionaires as a group are generally highly intelligent people who tend to think outside the box. But sometimes their thinking is so different, it breaks the box.

Even though he’s written a dozen books about markets and trading, George Soros’ criteria for entering and exiting trades remained shrouded in mystery. That is, until his son, Robert, spilled the beans in a 2014 interview with The Irish Times. In that interview, Robert explained, “My father will sit down and give you theories to explain why he does this or that. But … you know [that] the reason he changes his position on the market or whatever is because his back starts killing him. It has nothing to do with reason. He literally goes into a spasm and it’s this early warning sign.”

Billionaires as a group are generally highly intelligent people who tend to think outside the box. But sometimes their thinking is so different, it breaks the box.

Although Soros’ particular trading technique may be an outlier, it does illustrate how hard, if not impossible, it can be for the average retail trader to factor in the individual quirks and idiosyncrasies these high-level traders have.

As with most things in life, you might do your best trading when you do it in a style or methodology that you’re comfortable with and that fits your own personality, goals and risk tolerance. And who knows, by doing that instead of trying to copy the traits of a billionaire trader, you just might be able to have some trading success of your own.