Legendary investor George Soros is controversial, but his tremendous investment performance over a lifetime is indisputable. Soros attributes it to a concept called “reflexivity.”
Simply put, this refers to the tendency for market expectations to create market outcomes. For instance, when the market expects a fund to crash, it will sell off that fund, thereby causing it to crash.
Here’s the opportunity: when a fund crashes just because everyone thinks it will, the fund tends to bounce back when everyone realizes the market made a mistake.