The Greatest Trades Of All Time from Thebusinessinsider.com
For the top 10 trading losses of all time, click here : http://www.traderji.com/risk-money-...w-they-happened-time-magazine-may-2012-a.html
This list is going to be controversial, however, just posting it as is. (See my note in the end)
1/11
Jesse Livermore: Shorting The 1929 Market Crash. Time Magazine named Livermore the "most fabulous living U.S. stock trader" with good reason. He became fabulously wealthy -- to the tune of $100 million -- by shorting the entire market ahead of the 1929 crash.
Livermore's story is the basis for the fictional book Reminsences of a Stock Operator.
2/11
Paul Tudor Jones: Shorting Black Friday. Jones made his fortune massively shorting stocks ahead of the Black Monday crash of 1987. As detailed in the 1987 movie "Trader", Jones is shown using technical analysis and comparing historical S&P charts to predict the upcoming crash.
Here's how Paul describes it in his own words:
"The one [example of risk control] on a percentage basis that's been the most profitable for me was the crash of 1987. There was a tremendous embedded derivatives accident waiting to happen in the crash of '87 because there was something in the market that time called portfolio insurance that essentially meant that when stocks started to go down it was going to create more selling because the people who had written these derivatives would be forced to sell on every down-tick. So it was a situation where you knew that if you ever got to a point where the market started to go down that the selling would actually cascade instead of dry up because of the measure of these derivative instruments that had been written. And in the crash of '87 you had an overvalued market and you also finally had a situation where every down-tick would create more selling and I think I understood the dynamics of that. The crash was something that was imminently forecastable to somebody that understood the measure of derivatives and how large they had grown in such a relatively short period of time and the impact that it would have on a relatively unknowing and na'e market. And the same exact thing happened in 1990 in Japan."
Though still performing well with his Tudor Jones invesment group, he prefers to stay out of the spotlight. Rumor has it that be bought up every copy of the movie "Trader" in existence, though the video has turned up on YouTube.
3/10
George Soros: Shorting The Pound. Soros is a man in his own league but one of his greatest trades dates back to the 1990s when Germany was in a state of destabilization and Britain was thriving. He made a billion pounds by shorting 10 billion worth of pound sterling
Investopedia tells the story of how Soros' bet against the GBP paid off:
"Many speculators, George Soros chief among them, wondered how long fixed exchange rates could fight market forces, and they began to take up short positions against the pound. Soros borrowed heavily to bet more on a drop in the pound. Britain raised its interest rates to double digits to try to attract investors. The government was hoping to alleviate the selling pressure by creating more buying pressure.
Paying out interest costs money, however, and the British government realized that it would lose billions trying to artificially prop up the pound. It withdrew from the ERM and the value of the pound plummeted against the mark. Soros made at least $1 billion off this one trade. For the British government's part, the devaluation of the pound actually helped, as it forced the excess interest and inflation out of the economy, making it an ideal environment for businesses."
Four key words stand out here: "At least one billion." This bet is what really propelled Soros into the realm of the true billionaire investor greats.
4/10
James Chanos: Shorting Enron. The fall of Enron left thousands of employees without pensions, income, and most importantly, jobs. For famous short-seller Jim Chanos, it was a monster profit opportunity.
The key for Chanos was a Wall Street Journal article that discussed the "gain-on-sale" accounting practices of energy trading firms. Through further investigation from 2000 to mid-2001, Chanos discovered that Enron was lying through its teeth and that its stock was mis-priced.
He explained. "The first Enron document my firm analyzed was its 1999 Form 10-K filing, which it had filed with the U.S. Securities and Exchange Commission. What immediately struck us was that despite using the "gain-on-sale" model, Enrons return on capital, a widely used measure of profitability, was a paltry 7 percent before taxes. That is, for every dollar in outside capital that Enron employed, it earned about seven cents.
This is important for two reasons. First, we viewed Enron as a trading company that was akin to an "energy hedge fund. For this type of firm a 7 percent return on capital seemed abysmally low, particularly given its market dominance and accounting methods. Second, it was our view that Enrons cost of capital was likely in excess of 7 percent and probably closer to 9 percent, which meant, from an economic cost point-of-view, that Enron wasnt really earning any money at all, despite reporting "profits" to its shareholders. This mismatch of Enrons cost of capital and its return on investment became the cornerstone for our bearish view on Enron and we began shorting Enron common stock in November of 2000."
So in the summer of 2001, as Enron's stock began to slip, Chanos shorted the living hell out of the company. The rest, including the fate of Enron, is history.
5/10
John Templeton Shorts The Internet Bubble. At the ripe old age of 88, just 8 years before his death, legendary investor Sir John Templeton made one last wallop of a bet, when he decided to short a basket of internet stocks.
He called it the easiest money he ever made, and his trick was simply to sell stocks ahead of the six-month lock-up expiry after their IPO, when a flood of newly-minted millionaires sought to cash out.
This wasn't his first amazing move, by any means. From an interview with Smart Money:
Q: In 1939 you bought $100 worth of every New York Stock Exchange listed stock that was trading under $1 per share. There were 104 names, and 37 were already in bankruptcy. Why did you do it?
John Templeton: I was sitting in my office at 30 Rockefeller Plaza in Manhattan when the news came out that Hitler had invaded Poland. It was obvious within a few days that it was going to lead to the Second World War. During war, everything that was in surplus, and therefore unprofitable, becomes scarce and profitable. Three years later I had a profit on 100 out of the 104.
6/10
John Paulson: Shorting Subprime. Paulson & Co. hedge fund betted against the subprime mortgage crisis back in early 2007.
The payoff? A $1 billion profit. Of course, a lot of folks bet that a housing collapse would come, but Paulson's bet was special for a couple of reasons. First was timing.
Globe and Mail : "For Mr. Paulson, it all boiled down to one chart which [partner Paolo] Pellegrini produced showing the inflation-adjusted growth in housing prices over time divided by wage growth. The data clearly showed a rapid explosion upward away from the general trend starting in 2000. He assumed this trend would not continue indefinitely and revert (even overshoot). He was right."
Then the question was: what would be the best way to make this bet? As it turned out, anything would have sufficed (shorting banks, shorting homebuilders, etc.) but Paulson had the banks write credit-default swaps on mortgage-backed securities, which he then proceeded to snap up. When those underlying MBS failed to deliver, those CDS soared in value.
7/10
John Paulson bets on reflation. John Paulson is the only investor we have to include twice on this list, due to his brilliant playing of the market rebound.
See, lots of bears made money on the way down, but perhaps due to their permanently bearish tempermant, or whatever else, they lost money on the way back up.
Paulson largely switched course, betting that the Fed would create reflation, which is exactly what happened. His controversial bets on precious metals, banks, and MBS proved right on the money.
8/10
Kyle Bass: Subprime Derivatives. Kyle Bass, a hedge fund manager from Dallas, Texas, deserves to be recognized for making basically the same bet as John Paulson, profiting enormously from the housing collapse.
9/10
Andrew Hall's Amazing Oil Trade. Andrew Hall is famous for being owed a $100 million bonus by bailed-out bank Citigroup, prompting so much controversy that the bank actually ended up selling his trading unit called Phibro.
So what did Hall do to deserve the bonus? Basically he made really outsize bets that paid-off huge.
Time Magazine explains : Hall's success in calling the oil market is what has led him to demand higher pay than most. In 2003, Hall had the belief that the price of oil would rise dramatically in the next few years. Back then, oil was trading at around $30 a barrel, and coming out of a recession few thought prices would rise anytime soon. So Hall bought so-called long-dated oil-futures contracts that would pay off if the price of oil topped $100 at some point in the next five years. Because Hall made a bet oil would reach a price that few could imagine was possible, he was able to buy the contracts cheaply. It was a risky move. If the price of oil never reached $100, the contracts would expire worthless. Instead, when oil topped $100 in 2008, Hall's Phibro division made a bundle, far more than he would have made had he just bought oil, or one of the many oil exchange-traded funds (ETFs) that individuals and even some professionals like to trade.
In fact, much of Hall's ability to produce outsized profits for Citi comes from the creative ways he had found to make money off the oil markets, doing things that would either be impossible for the average small trader or that most traders just won't think of. Earlier this year, for instance, Hall and his traders rented a tanker and filled it with 1 million barrels of oil. Oil prices were down, but most traders thought they were going up again, so futures contracts pegged to distant-month deliveries were expensive. The better deal was the real thing, and with the shipping business mired in the recession, Hall was able to get a tanker to park offshore somewhere with his oil for a very modest sum. "You were able to get a better price if you were willing to take possession of the actual commodity, but it's much riskier," says Rachel Ziemba, a senior research analyst at RGE Monitor.
10/10
Martin Armstrong calls the date of the 1987 crash. The final trade on our list comes from a true eccentric, who remains shrouded in mystery.
Martin Armstrong -- currently in jail, accused of bilking Japanese investors -- uses wave patterns, numerology, and the number Pi.
Like Paul Tudor Jones, he predicted the 1987 crash -- though what's special is that he predicted it to the day. Even he says he was stunned by his accuracy: The next quarter cycle turning point was arriving 1987.8 and the Crash of 1987 unfolded right on cue. It was at this time that a truly amazing development took place. The target date of 1987.8 was precisely October 19th, 1987 the day of the low. While individual models specifically based upon the stock market were successful in pinpointing the high and low days, I did not think for one moment that a business cycle that was derived from an average could pinpoint a precise day; it simply did not seem logical.
After 1987, I began to explore the possibility that coincidence should not be just assumed. I began researching this model even more with the possibility that precision, no matter how illogical, might possibly exist. I began viewing this business cycle not from a mere economic perspective, but from physics and math. If this business cycle were indeed real, then perhaps other fields of science would hold a clue to this mystery. Physics helped me understand the mechanism that would drive the business cycle but mathematics would perhaps answer the quantitative mystery. I soon began to understand that the circle is a perfect order. Clearly, major historical events that took place in conjunction with this model involved the forces of nature as well. If this business cycle was significant, surely it must encompass something more than the mere economic footprints of mankind throughout the ages.
Note : The list and the order is going to be questionable, but have posted mostly it as is and edited for brevity. Other notable trader is David Teppers hedge fund which reportedly made made 7 billion, why is he not on the list.? The answer to that, I dont know. It could be his large losses of US$ 450 million in 1988 alone, but even then he should in my opinion qualify to be in the top ten!
John Paulson the big bet trader who has the unique distinction to be twice in the top 10 list, has subsequently lost US$ 489 million in just one wrong best on Sino-Forest stock, besides this, many of his funds generated double digit negative returns which considering his fund size (over US$ 30 billion) may well result in over a billion dollar loss. This just goes to remind all traders dont let success carry you away, be humble always. A wise trader knows the market is always right, and you cant argue against it.
An interesting observation : 8 of the top 10 ten trades are bets on going short. Something to think about.
For the top 10 trading losses of all time, click here : http://www.traderji.com/risk-money-...w-they-happened-time-magazine-may-2012-a.html
This list is going to be controversial, however, just posting it as is. (See my note in the end)
1/11
Jesse Livermore: Shorting The 1929 Market Crash. Time Magazine named Livermore the "most fabulous living U.S. stock trader" with good reason. He became fabulously wealthy -- to the tune of $100 million -- by shorting the entire market ahead of the 1929 crash.
Livermore's story is the basis for the fictional book Reminsences of a Stock Operator.
2/11
Paul Tudor Jones: Shorting Black Friday. Jones made his fortune massively shorting stocks ahead of the Black Monday crash of 1987. As detailed in the 1987 movie "Trader", Jones is shown using technical analysis and comparing historical S&P charts to predict the upcoming crash.
Here's how Paul describes it in his own words:
"The one [example of risk control] on a percentage basis that's been the most profitable for me was the crash of 1987. There was a tremendous embedded derivatives accident waiting to happen in the crash of '87 because there was something in the market that time called portfolio insurance that essentially meant that when stocks started to go down it was going to create more selling because the people who had written these derivatives would be forced to sell on every down-tick. So it was a situation where you knew that if you ever got to a point where the market started to go down that the selling would actually cascade instead of dry up because of the measure of these derivative instruments that had been written. And in the crash of '87 you had an overvalued market and you also finally had a situation where every down-tick would create more selling and I think I understood the dynamics of that. The crash was something that was imminently forecastable to somebody that understood the measure of derivatives and how large they had grown in such a relatively short period of time and the impact that it would have on a relatively unknowing and na'e market. And the same exact thing happened in 1990 in Japan."
Though still performing well with his Tudor Jones invesment group, he prefers to stay out of the spotlight. Rumor has it that be bought up every copy of the movie "Trader" in existence, though the video has turned up on YouTube.
3/10
George Soros: Shorting The Pound. Soros is a man in his own league but one of his greatest trades dates back to the 1990s when Germany was in a state of destabilization and Britain was thriving. He made a billion pounds by shorting 10 billion worth of pound sterling
Investopedia tells the story of how Soros' bet against the GBP paid off:
"Many speculators, George Soros chief among them, wondered how long fixed exchange rates could fight market forces, and they began to take up short positions against the pound. Soros borrowed heavily to bet more on a drop in the pound. Britain raised its interest rates to double digits to try to attract investors. The government was hoping to alleviate the selling pressure by creating more buying pressure.
Paying out interest costs money, however, and the British government realized that it would lose billions trying to artificially prop up the pound. It withdrew from the ERM and the value of the pound plummeted against the mark. Soros made at least $1 billion off this one trade. For the British government's part, the devaluation of the pound actually helped, as it forced the excess interest and inflation out of the economy, making it an ideal environment for businesses."
Four key words stand out here: "At least one billion." This bet is what really propelled Soros into the realm of the true billionaire investor greats.
4/10
James Chanos: Shorting Enron. The fall of Enron left thousands of employees without pensions, income, and most importantly, jobs. For famous short-seller Jim Chanos, it was a monster profit opportunity.
The key for Chanos was a Wall Street Journal article that discussed the "gain-on-sale" accounting practices of energy trading firms. Through further investigation from 2000 to mid-2001, Chanos discovered that Enron was lying through its teeth and that its stock was mis-priced.
He explained. "The first Enron document my firm analyzed was its 1999 Form 10-K filing, which it had filed with the U.S. Securities and Exchange Commission. What immediately struck us was that despite using the "gain-on-sale" model, Enrons return on capital, a widely used measure of profitability, was a paltry 7 percent before taxes. That is, for every dollar in outside capital that Enron employed, it earned about seven cents.
This is important for two reasons. First, we viewed Enron as a trading company that was akin to an "energy hedge fund. For this type of firm a 7 percent return on capital seemed abysmally low, particularly given its market dominance and accounting methods. Second, it was our view that Enrons cost of capital was likely in excess of 7 percent and probably closer to 9 percent, which meant, from an economic cost point-of-view, that Enron wasnt really earning any money at all, despite reporting "profits" to its shareholders. This mismatch of Enrons cost of capital and its return on investment became the cornerstone for our bearish view on Enron and we began shorting Enron common stock in November of 2000."
So in the summer of 2001, as Enron's stock began to slip, Chanos shorted the living hell out of the company. The rest, including the fate of Enron, is history.
5/10
John Templeton Shorts The Internet Bubble. At the ripe old age of 88, just 8 years before his death, legendary investor Sir John Templeton made one last wallop of a bet, when he decided to short a basket of internet stocks.
He called it the easiest money he ever made, and his trick was simply to sell stocks ahead of the six-month lock-up expiry after their IPO, when a flood of newly-minted millionaires sought to cash out.
This wasn't his first amazing move, by any means. From an interview with Smart Money:
Q: In 1939 you bought $100 worth of every New York Stock Exchange listed stock that was trading under $1 per share. There were 104 names, and 37 were already in bankruptcy. Why did you do it?
John Templeton: I was sitting in my office at 30 Rockefeller Plaza in Manhattan when the news came out that Hitler had invaded Poland. It was obvious within a few days that it was going to lead to the Second World War. During war, everything that was in surplus, and therefore unprofitable, becomes scarce and profitable. Three years later I had a profit on 100 out of the 104.
6/10
John Paulson: Shorting Subprime. Paulson & Co. hedge fund betted against the subprime mortgage crisis back in early 2007.
The payoff? A $1 billion profit. Of course, a lot of folks bet that a housing collapse would come, but Paulson's bet was special for a couple of reasons. First was timing.
Globe and Mail : "For Mr. Paulson, it all boiled down to one chart which [partner Paolo] Pellegrini produced showing the inflation-adjusted growth in housing prices over time divided by wage growth. The data clearly showed a rapid explosion upward away from the general trend starting in 2000. He assumed this trend would not continue indefinitely and revert (even overshoot). He was right."
Then the question was: what would be the best way to make this bet? As it turned out, anything would have sufficed (shorting banks, shorting homebuilders, etc.) but Paulson had the banks write credit-default swaps on mortgage-backed securities, which he then proceeded to snap up. When those underlying MBS failed to deliver, those CDS soared in value.
7/10
John Paulson bets on reflation. John Paulson is the only investor we have to include twice on this list, due to his brilliant playing of the market rebound.
See, lots of bears made money on the way down, but perhaps due to their permanently bearish tempermant, or whatever else, they lost money on the way back up.
Paulson largely switched course, betting that the Fed would create reflation, which is exactly what happened. His controversial bets on precious metals, banks, and MBS proved right on the money.
8/10
Kyle Bass: Subprime Derivatives. Kyle Bass, a hedge fund manager from Dallas, Texas, deserves to be recognized for making basically the same bet as John Paulson, profiting enormously from the housing collapse.
9/10
Andrew Hall's Amazing Oil Trade. Andrew Hall is famous for being owed a $100 million bonus by bailed-out bank Citigroup, prompting so much controversy that the bank actually ended up selling his trading unit called Phibro.
So what did Hall do to deserve the bonus? Basically he made really outsize bets that paid-off huge.
Time Magazine explains : Hall's success in calling the oil market is what has led him to demand higher pay than most. In 2003, Hall had the belief that the price of oil would rise dramatically in the next few years. Back then, oil was trading at around $30 a barrel, and coming out of a recession few thought prices would rise anytime soon. So Hall bought so-called long-dated oil-futures contracts that would pay off if the price of oil topped $100 at some point in the next five years. Because Hall made a bet oil would reach a price that few could imagine was possible, he was able to buy the contracts cheaply. It was a risky move. If the price of oil never reached $100, the contracts would expire worthless. Instead, when oil topped $100 in 2008, Hall's Phibro division made a bundle, far more than he would have made had he just bought oil, or one of the many oil exchange-traded funds (ETFs) that individuals and even some professionals like to trade.
In fact, much of Hall's ability to produce outsized profits for Citi comes from the creative ways he had found to make money off the oil markets, doing things that would either be impossible for the average small trader or that most traders just won't think of. Earlier this year, for instance, Hall and his traders rented a tanker and filled it with 1 million barrels of oil. Oil prices were down, but most traders thought they were going up again, so futures contracts pegged to distant-month deliveries were expensive. The better deal was the real thing, and with the shipping business mired in the recession, Hall was able to get a tanker to park offshore somewhere with his oil for a very modest sum. "You were able to get a better price if you were willing to take possession of the actual commodity, but it's much riskier," says Rachel Ziemba, a senior research analyst at RGE Monitor.
10/10
Martin Armstrong calls the date of the 1987 crash. The final trade on our list comes from a true eccentric, who remains shrouded in mystery.
Martin Armstrong -- currently in jail, accused of bilking Japanese investors -- uses wave patterns, numerology, and the number Pi.
Like Paul Tudor Jones, he predicted the 1987 crash -- though what's special is that he predicted it to the day. Even he says he was stunned by his accuracy: The next quarter cycle turning point was arriving 1987.8 and the Crash of 1987 unfolded right on cue. It was at this time that a truly amazing development took place. The target date of 1987.8 was precisely October 19th, 1987 the day of the low. While individual models specifically based upon the stock market were successful in pinpointing the high and low days, I did not think for one moment that a business cycle that was derived from an average could pinpoint a precise day; it simply did not seem logical.
After 1987, I began to explore the possibility that coincidence should not be just assumed. I began researching this model even more with the possibility that precision, no matter how illogical, might possibly exist. I began viewing this business cycle not from a mere economic perspective, but from physics and math. If this business cycle were indeed real, then perhaps other fields of science would hold a clue to this mystery. Physics helped me understand the mechanism that would drive the business cycle but mathematics would perhaps answer the quantitative mystery. I soon began to understand that the circle is a perfect order. Clearly, major historical events that took place in conjunction with this model involved the forces of nature as well. If this business cycle was significant, surely it must encompass something more than the mere economic footprints of mankind throughout the ages.
Note : The list and the order is going to be questionable, but have posted mostly it as is and edited for brevity. Other notable trader is David Teppers hedge fund which reportedly made made 7 billion, why is he not on the list.? The answer to that, I dont know. It could be his large losses of US$ 450 million in 1988 alone, but even then he should in my opinion qualify to be in the top ten!
John Paulson the big bet trader who has the unique distinction to be twice in the top 10 list, has subsequently lost US$ 489 million in just one wrong best on Sino-Forest stock, besides this, many of his funds generated double digit negative returns which considering his fund size (over US$ 30 billion) may well result in over a billion dollar loss. This just goes to remind all traders dont let success carry you away, be humble always. A wise trader knows the market is always right, and you cant argue against it.
An interesting observation : 8 of the top 10 ten trades are bets on going short. Something to think about.
