Every day thousands of trades are conducted between traders around the world, but – let’s face it - most of them will never be remembered. The trades that stay in history have to be truly epic. A really incredible trade occurs when a brilliant person uses all their intelligence, intuition and creativity to find just the right moment to strike, sometimes against all odds, against all logic. Fortunes are made during crashes, collapses and crises or just by being the first to foresee a truly spectacular opportunity.
We’ve compiled a list of trades throughout history that have all these qualities to be considered as the greatest trades of all time.
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Jesse Livermore is a legendary speculator, famous for correctly predicting the 1907 and 1929 stock market crashes. The Great Crash of 1929, which signaled the beginning of the 10-year Great Depression, was the 20th century’s most important economic event. After predicting the end of a period when US assets were booming in value, Livermore decided to short almost the entire stock market. That trade bagged him about $100 million, which is equivalent to over $1.4 billion today. He is considered an innovator in the art of speculation and world’s top traders swear by the ‘Reminiscences of a Stock Operator’, a book based on his trading philosophy and career.
Through the use of technical analysis and historical S&P data, Paul Tudor Jones predicted that the stock market was going to crash in 1987 and proceeded to massively short stocks. His analysis was based on the facts that stocks had returned over 40% in seven months and were overextended, international stock markets were falling and portfolio insurance was gaining momentum. These factors send the stock market into a selling frenzy, with the Dow Jones Industrial Average plunging 22% - the largest single-day decline ever, and Jones tripling his money, with a $100 million profit. Shortly after, PBS released a documentary about Paul Tudor Jones, titled ‘Trader’.
George Soros remained in history as ‘the man who broke the Bank of England’, as he placed an iconic short trade in 1992 that made him a Wall Street legend. Soros believed that interest rates in the UK were too low and inflation was too high. He, also, felt that it was a mistake for the UK to join the European Exchange Rate Mechanism – a body aimed to unify EU economies –, as it would injure the sterling in the long run. So, he shorted a staggering $10 billion worth of British pounds. The enormous selling pressure pummeled the sterling, forcing the UK to leave ERM and forming a new currency regime for the country. Soros made $1 billion from that trade, which was an inconceivable amount back then.
Few people predicted the real estate bubble burst in 2007, and even fewer got the timing just right. John Paulson was one of them. Banks were giving loans to individuals who could not afford to repay them, and these defective mortgages were backed by worthless derivative contracts, named credit default obligations (CDOs). Paulson saw the fragility of the situation and bet heavily against them. What he did was persuade banks to issue credit default swaps (CDSs) that shorted CDOs, and then proceeded to buy as many as possible. Then, he just waited for the market to collapse and cashed in. Paulson’s hedge fund netted around $4 billion on the bet, rendering it the top performing fund during one of the most severe crises in the US history.
Jim Chanos is considered as one of the top short-sellers in the world. After thorough research, he correctly predicted the demise of Enron and made a killing out of it. Chanos began to dig into Enron as early as 2000. When he spotted red flags in the company’s accounting practices, he looked into the company deeper, revealed more discrepancies, informed the media, planned his short position and ultimately got rich, when the Enron scandal was exposed in October 2001. The Enron scandal had an enormous impact, as it was the biggest bankruptcy so far, which also resulted in the dissolution of the Arthur Andersen accounting firm (among the ‘Big Five’ at the time) and the introduction of new regulations.
Back in the 1990s, commodities were in a long bear market. Jim Rogers saw the advent of a bull market from far away and made a bet that it will remain strong for a decade and more. So, he created the Rogers International Commodity Index in 1996 and put his effort into making it investable. From 1998 till the end of 2010, that index had consistently returned 209%, compared to the S&P 500 that returned 10%, during the same period. Rogers still argues that the commodities market will remain bullish, as paper assets become worthless and demand for certain commodities becomes stronger. If this turns out to be correct, the significance of his call will be tremendous.
Legendary investor Sir John Templeton was a veteran in making short trades, who made his best and biggest trade ever eight years before his death in 2000. Right before the dot-com bubble burst, he shorted a basket of internet stocks, describing it as the easiest money he ever made. What he did was sell all his stocks just before the post-IPO six-month lock-up expiry, when a bunch of newly created tech millionaires sought to cash out. That move made him $80 million in a few weeks. Another bet that Templeton is famous for is putting $100 each in 104 NYSE stocks that were trading under $1 in 1939. In 4 years, his portfolio quadrupled and made profit on 100 out of the 104.
In 2003, when the price of oil was trading at $30 per barrel and the world had just recovered from the dot-com bubble, Andrew Hall bet that oil would climb to $100 within five years. When the price of oil skyrocketed above $100 million in 2008, Citigroup – which was Hall’s employer - made a fortune and Hall bagged $100 million. Hall prepared the contracts in a way that if the price of oil did not reach $100 within five years, they would expire with no value. Thus, it took guts and a brilliant analysis from Hall to conduct that trade. The importance of his bet lies on the fact that not only did he foresee the direction of the price and spotted a good entry point, but he also determined the timeframe and the move’s price level.
In early 2009, after the financial crisis showed its face and everyone thought the financial system was falling apart, David Tepper – an expert in distressed assets – made one of the best trades of the recession. With impeccable timing and detailed analysis, he bought huge quantities of the severely depressed stocks of Citigroup (C) and Bank of America (BAC). At the time, there was a lot of concern that these banks would be nationalized. A few months later, at the end of the year, Citigroup tripled and Bank of America quadrupled in value from their earlier lows, earning Tepper’s hedge fund a $7 billion profit.
Louis Bacon is famous for beating the CIA, the US president and other top government officials in predicting that Saddam Hussein would invade Kuwait back in the 1990s. So, he went long on oil and short on stocks and gained his hedge fund a return of 86%, as global oil supply froze, oil spiked and stocks plunged. Bacon, also, predicted that the US would quickly defeat Iraq and that the oil market would recover. His accurate predictions on market events around the Iraq war earned him numerous investors from all over the world and his hedge fund a 35% annual return for thirteen consecutive years.
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