Killing of a Lifetime

30 percent of the fund. With Quantum's 1985 profit at $548 million, Soros would have made between $83 million and $166 million. "False-way, way off," Soros retorted when New York Magazine asked for a comment on these figures.

In an interview with Dorfman over breakfast in his Fifth Avenue apartment overlooking Central Park, Soros explained that he had done so well in 1985 because of:

• Large killings in the German mark and Japanese yen.

• A strong showing in bonds, such as long-term Treasuries.

• Large gains in foreign stocks.

Soros had not done as well in American stocks. "I'm not particularly good at playing the takeover game," he admitted. His off-andon investment in Disney in the mid-1980s seemed to substantiate his point. Ultimately, he triumphed, but the path had not been smooth.

In 1984, the Quantum Fund was one of Disney's largest shareholders outside the Disney family. The stock looked increasingly attractive because of several failed takeover attempts against the big entertainment firm. When takeover artist Saul Steinberg cast his eye on Disney, few believed that Disney would allow the takeover.

Few also believed that Disney would agree to Steinberg's greenmail either. Yet, that is precisely what happened, and Soros, along with others, lost a bundle when Disney stock plunged $20 a share. Weakened by the greenmail, Disney nonetheless bounced back, and Soros reinvested in the company. Marquez credited Raphael with sensing the trends at Disney: "Allan was very quick to understand what was happening. We had been looking at Disney as an undervalued asset base that was going to be monetized for various reasons. He looked at it as an asset base that was rich and could be grown and milked and wasn't to be shot through the head and put out of its misery." Accordingly, the Quantum Fund made a fivefold profit.

Crowning Soros's year in 1985 was the fact that Financial World ranked him number 2 among the 100 highest-paid people on Wall Street. According to the magazine, Soros made $66 million from his personal stake in the Quantum Fund's profits, along with $17.5 million in fees and a $10 million bonus from his fund's clients. He made that year, according to the magazine, $93.5 million.

By early January 1986, Soros had altered his portfolio dramatically. More bullish about the U.S. stock market, he increased U.S. stocks and stock-index futures and raised his foreign stock position so that together the American and foreign stocks totaled $2 billion in value. He dropped his position against the dollar from $500 million to zero.

In February he took his stock position down to $1.2 billion. On March 26, he felt good about his bullish thesis; the fall in oil suggested to him that he was right. Accordingly, he took his American and foreign stocks back up to $1.8 billion. Since early January the fund had improved its net asset value from $942 million to $1.3 billion. On April 4, Soros reduced his stock position, taking it down by $831 million. Ten days later he bought back $709 million. On May 20, he sold $687 million, mostly in index futures.

Forty percent of his stock positions and two-thirds of his foreign stock positions were tied up in the Finnish market, Japanese railroad and real estate stocks, and Hong Kong real estate stocks.

July 1986 brought two perplexing, contradictory trends, a continuing bull market and the fall of oil prices. The fall of oil prices could set off deflation, causing an economic collapse.

Finally, in September, Soros wrote with some degree of finality: "It is better to declare the phase I have called the 'Golden Age of Capitalism' as complete and try to identify the next phase."

Soros did very well in his real-time experiment. He took the Quantum Fund from $449 million-where it stood at the start of 1985-to $1.5 billion by the end of 1986. Yet he found the experiment more problematic as time wore on. The more he wrote in his diary, the more he felt compelled to justify to himself why he was making a certain investment move. He came to look at the experiment as a burden.

Lessons From The Intelligent Investor

Lessons From The Intelligent Investor

If you're like a lot of people watching the recession unfold, you have likely started to look at your finances under a microscope. Perhaps you have started saving the annual savings rate by people has started to recover a bit.

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