When biopharmas ran into serious headwinds in the second-quarter, however, his fund substantially reduced its position in Teva. And again, the chart below of the stock's performance since the end of the first-quarter shows this was also a good move.
Put simply, his fund has an uncanny ability to time the markets and make oodles of money, at least most of the time.
Trying to time the market can result in huge mistakes
Despite his long-term success as an investor, he is human and makes mistakes -- mistakes it's even easier for an individual investor to make without the legions of analysts available to hedge funds. A look at his fund's moves in the second-quarter, for example, shows that the fund dumped its entire position in Gilead Sciences .
Why was this a terrible move? Since the second-quarter, Gilead shares have risen a whopping 45%, shown by the chart below.
So why did the Soros Fund exit such a profitable stock? My take is that the fund viewed Gilead's weakness following record-breaking sales of its hepatitis C drug Sovaldi as a sign that the stock wasn't going to live up to the hype. Indeed, many investors were confused by the lack of a move upwards after an amazing first-quarter for Gilead.
With the benefit of hindsight, we now know that the market appeared to be doubting Sovaldi's ability to continue posting monster sales quarter after quarter. And it wasn't until after Sovaldi's second-quarter sales were announced that the stock really began to take off (see chart above).
What's the lesson to be learned?
Gilead's stock performance has crushed even the best performing hedge and mutual funds this year. Investors that looked at Gilead's short-term weakness in the first half of this year, and lost faith as a result, missed out on this impressive gain.
At The Motley Fool, we advocate taking the long-view for exactly this reason. Investing in companies that have game-changing new products requires patience. Mr. Market doesn't always "get it " right off the bat, whereas consumers of the product do. As a result, there can be a mismatch between the performance of the company's stock and its underlying business. And time tends to be the best solution for this problem.
Foolish wrap-up
The financial media has recently made a big deal out of Soros' bearish bet against the broader market, leading many to believe that a major correction, on the order of perhaps 10% to 20%, is imminent. Nonetheless I think his fund's huge mistake with Gilead this year clearly shows that he doesn't have a crystal ball sitting in his office.
So, it's probably a bad idea to read too much into his fund's moves in either direction. After all, the market naturally waxes and wanes, and most large funds employ complex hedging strategies that aren't easily understood by outsiders.
For those of us lacking Soros-like intuition and resources, I think the best strategy is therefore to buy quality companies and hold them for the long-term. Indeed, this simplistic approach to Gilead would have resulted in absolutely monstrous returns over the past few years.
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The article What This Huge George Soros Mistake Can Teach You originally appeared on Fool.com.
George Budwell has no position in any stocks mentioned. The Motley Fool recommends Gilead Sciences and Teva Pharmaceutical Industries. The Motley Fool owns shares of Gilead Sciences. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
