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George Soros, The Man Who Broke The Pound
The greatest short trade of all time.
George Soros is a well-known investor, philanthropist, and political activist. He is the founder of Soros Fund Management, a hedge fund that made him one of the wealthiest people in the world. Soros is also known for his political activism, including his support for democracy, human rights, and open societies.
The big short
Soros built the name he has today off one trade in particular. In 1992, Soros made a significant profit by short-selling the British pound.
In Britain, September 16, 1992, was the day when speculators, and Soros especially, "broke the pound." This euphemism is used to describe the moment in time where market forces coalesced to force the British government to exit the European Exchange Rate Mechanism (ERM) by removing its currency from that agreement.
Joining the ERM was part of Britain's effort to help unify the European economies. However, it soon became clear that Britain could not adhere to the agreed-upon terms.
George Soros speculated that the pound was overvalued at this time and that the British government would not be able to maintain its value within the European Exchange Rate Mechanism.
His speculation paid off.
Soros and his hedge fund placed a large bet against the pound, selling it short in the foreign exchange markets. As a result, the pound's value plummeted, leading to a crisis for the British government and the Bank of England. The Bank of England was forced to withdraw from the ERM, and the value of the pound dropped by around 15% in a single day. Soros and his hedge fund made a profit of around $1 billion from the trade.
This event became known as "Black Wednesday” and was a turning point for the British economy. It marked the beginning of the UK's economic recovery and eventual entry into the European Union. Soros became a controversial figure in the UK, with some accusing him of profiting from the country's economic troubles. However, others saw him as a savvy investor who had correctly predicted the pound's eventual decline.
This short trade is regarded as one of the greatest of all time.
As of March 2021, he had a net worth of $8.6 billion, having donated more than $32 billion to the Open Society Foundations, of which $15 billion has already been distributed, representing 64% of his original fortune. Forbes called him the "most generous giver" (in terms of percentage of net worth).
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