The Reflectionary Theory

I spent yesterday listening to work by one of the greatest hedge fund managers, George Soros. He spent the first 2 hours of his book discussing philosophy. Soros bases his strategy not on financial or economic theory but on philosophical and behavioral study. I might not be doing Mr. Soros justice but I want to give a brief summation of his theory which will be helpful for all those trading overseas today and domestically tomorrow. Markets are inefficient due to participant manipulation. These participants influence prices based their perceptions, rationalizations (sometimes deluded) and biases. Most market panics and crashes are a return to reality. In essence individual participants turn objective facts into subjective actions. Rising prices can reaffirm a participant's rationalization of the valuation of a security. However, general consensus is sometimes a growing collection of misconceptions.
Bottom Line: You are your portfolios worst enemy. But you just have to give yourself a margin of error for the market participants skewing prices either upward or downward.