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Betting on The Black Swan: Getting Rich The Impossible Way

Market Place — Tue, 03 Feb 2015 07:00:44 +0000

Nassim Nicholas Taleb is a trader and a philosopher. His books about the way people think about probability have been obscenely influential, and trading strategies based off of his ideas are becoming an indelible part of the market.

His strategies center around the idea of the “black swan,” an event that’s incredibly unlikely to happen according to the models but has significant power on the market when it does. He made a great deal of money from betting on these events over the last few decades, leveraging what he saw as the mis-pricing of options in order to generate massive returns.

Finding a Black Swan
Taleb defines a black swan event with three attributes: (1) It’s wholly unpredictable given current models, (2) its effect is powerful, and (3) it is incorporated into models after it happens. You can have a better chance of calculating the likelihood of these events than other traders, but Taleb is emphatic on one point, you cannot predict the black swan and you shouldn’t be trying to.

Betting on a black swan isn’t about trying to predict what’s going to happen next year, it’s about finding bets that are mis-priced because nobody has calculated the odds of them properly. Taleb made his money on options that covered all sorts of low probability thresholds that were eventually crossed, most notably during the 1987 stock market crash.

These events may only happen on average once every hundred years, but if you have a hundred of them, you start to average one a year. The payoff is, at the same time, incredibly high because of the extremely low probability. Balancing a portfolio around this idea can be incredibly lucrative, but it’s not for the lighthearted.

You need a strong background in valuing options in order to make this strategy work but, most importantly, you need to know how to build a portfolio. If you’re investing your own money on long term chances, you may run out of cash before anything has a chance of paying off.

Building a black swan portfolio
There’s no case in which an investor should rely entirely on long-odds high-payoff investments to make his money for him, especially when the odds are so long that they’re impossible to calculate. You need to build a portfolio that can offer a steadier stream of income while you wait for the big bets to pay off, assuming they will, or at least one that ensures you don’t lose all your money.

In order to accomplish this, Taleb advises a portfolio in which 80-90% of the money is put in something extremely safe, with Treasuries being the generic instrument, while the rest of the money is invested in out-of-the-money options that carry ridiculous levels of risk.

This portfolio, which he titled the barbell, means that there is a guaranteed floor. You can’t lose your safe money. At the same time there’s huge upside from that once-in-a-hundred year event. If you aren’t familiar with options, however, or you’re not disciplined in your creation of a portfolio, trying to follow this strategy may be enough to wipe you out completely.

Don’t rely on the black swan
It’s been close to thirty years since Taleb discovered the power of so called out-of-the-money options, and many traders have invested in strategies that mirror his in the intervening years. That has risen the price of options covering the kinds of trades he made his name off of.

He was gifted with the 1987 stock market crash as a demonstration of the power of this idea, but he does not believe that strategy would automatically an ordinary investor, simply because there isn’t enough information to price the risks, and therefore, the mean time to happen, properly.

The bottom line is that this strategy takes a lot of work and involves a lot of risk if mismanaged. The original idea was to hold a tiny portion of your money in options for the long term while keeping the rest in something with a lot of safety.

Many investors go for broke investing in what they believe is a Taleb inspired portfolio, forgetting that he was working for an investment bank, and playing with their money, when he invented the strategy.

There’s still money to be made in this area, and there’s still plenty of mispricing of options going on every single day. You have to know when to buy them, however, how to price them, and know how to build a portfolio around them. If not, your returns are going to look downright bad, and you may spend forever waiting for the black swan.

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Trader Personality Andy Krieger

Market Place — Tue, 14 Oct 2014 06:00:33 +0000

All Forex traders aspire to become super traders. Let’s consider the trader personality Andy Krieger. Most have a hunger for that one big deal which has the potential to immortalize their name in the currency trading market and the industry. However, contemplating about becoming a legendary trader is easier than accomplishing the goals which can get you there. It is still great to get a bit of inspiration from some of the world’s most diligent and hardcore traders. Andy Krieger is one of those legends.

Black Monday, 1987

People who belong to the trading markets and those aspiring to become successful traders all know about the fateful incident that took place on October 19^th, 1987, when the stock market crashed. Dow Jones ended up falling 22%. The days that followed gestured towards a massive collapse of the world’s stock markets and most markets fell by 20% by the end of October. To the surprise of many, this collapse was not triggered by any single event. Experts believe that the collapse was a result of a mass panic that ended up devouring the entire market.

However, amidst everything, there was one currency trader working with Bankers’ Trust who wasn’t too concerned about what was going around him.

Introducing Andy Krieger

Andy Krieger, after graduating from Wharton School, joined Salomon Brothers and in 1986 joined Bankers’ Trust. It wasn’t long before he made his mark in the company, being labelled as one of the world’s most assertive and hard-hitting dealers. It was his reputation in the market that led the Bankers’ Trust to gain the full confidence and support of the board members. And it was because of this that he had a trading limit of $700 million, compared to the normal limit of $50 million.

The Attack on the ‘Kiwi’

In the wake of the stock market crash on that day, which has been noted in history books as Black Monday, Krieger became overly convinced and confident that the Kiwi (the New Zealand dollar) was susceptible to attack. Krieger, in light of his research, his diligence and aggressiveness chose to hit the Kiwi and take advantage of the situation. By utilizing his trading options, Krieger had the ability to leverage massive amounts and could own and control up to $30 to $40 million in actual currency.

And he did not hesitate to use his advantage to land a big speculative strike on the Kiwi in 1987. Because of the fact that he had a fairly large trading limit, he decided to leverage it by trading currency option spiking up to 400:1, which allowed him to topple the a massive amount of money to crush the Kiwi dollar. As a matter of fact, Krieger’s short position ended up being so large that he said it went past the entire country’s money supply. In simpler terms, he controlled more Kiwi dollars then there were in circulation in New Zealand.

The Outcome

Krieger’s move to destroy the currency had a catastrophic effect on the Kiwi dollar. The New Zealand dollar dropped by 5% against the US dollar in a span of just a couple of hours, allowing Krieger to make a staggering $300 million profit for the Bankers’ Trust just sitting there. Of course, the reaction of the Bank of New Zealand wasn’t pleasant. They were outraged and rightly so, but Krieger responded to their outrage by saying something only a man of calibre can say. He made it clear that Bankers’ Trust did not make a position that was significantly big for them. Instead he said that New Zealand did not have what it takes to handle the operations carried out by the company.

The damage he inflicted on the Kiwi dollar caused a lot of controversy for the New Zealand Central Bank. So much so that the New Zealand Central Bank and government official kept on asking the bosses at Bankers’ Trust to get him out of their currency. Shortly after the Kiwi incident, Krieger resigned from Bankers’ Trust and found started working for another trading legend and guru, George Soros.

So we can see that Andy Krieger is a trader personality. Part of why he resigned from Bankers’ Trust was also because of his disgust and anger at his former company which only gave a $3 million commission on a $300 million profit he made for them. After he left on good terms, Bankers’ Trust ended up reaffirming their foreign exchange and trade profits and that is because of the fact that they had no idea how Krieger operated and failed to understand his complex methods of trading.

Market Place

Trader Personality: Jesse Livermore

Market Place — Wed, 01 Oct 2014 06:00:11 +0000

Jesse Livermore, who is thought to be the grandfather of stock trading, was born in 1877 and died in 1940. Although Jesse traded more than 100 years ago, the principles he used for trading at the time are still practiced firmly by many of the legend’s followers today. He was an ordinary American citizen who rose to riches through trading and also saw his share of multi-million dollar losses.

‘Boy Plunger’ was the nickname given to him early in his life when he started his journey towards a successful future as a trader through various bucket shops, which is another name for gambling houses. He used to trade there and started at the tender age of fifteen. When Livermore turned 40, he already had a $100 million fortune which in today’s terms can amount up to $6 billion dollars, a staggering amount. And he rose to fame when he shorted the market in 1929 when the entire US stock exchange was crippled.

The Trading Style of Jesse Livermore

Jesse was an active and successful trader in the US even before the great spike and plunge of the US economy. The Civil War, having been long over, people still remembered it. However, it was also era of great industrial development in the US at the time which presented a great deal of opportunities for smart traders and businessmen. It was at this time that America rose to becoming a safe haven for all who needed shelter and food.

This induced a massive influx of settlers who chose to escape the endless hardships of the Old World to embark on new beginnings through hard and honest labour. And this is what Jesse Livermore loved and the sort of environment he chose to invest in. He got involved with people like Henry Osborne Havemeyer, the owner of American Sugar Refining Co, along with the owner of the National City Bank, which has become Citigroup today, E.H. Harriman, the master of the railroads, J.P. Morgan legendary banker and the founder of Standard Oil, William Rockefellar.

He was rolling with all the big people responsible for developing these booming industries. Livermore was familiar with each and every industry, from coal to coffee, to sugar and the world of banking, which meant he had a tremendous amount of knowledge and information available to him at any given time.

Yet with all that knowledge, Livermore was convinced not to anticipate anything in the market and chose to be patient and let things swing in the way his knowledge enabled to predict and believe that it should and it did, so he did what he did best: invested in a bullish market and shorted in a bear market.

However, Livermore’s personal life was not as successful as one might imagine. Having endured three unsuccessful marriages he was also stricken with clinical depression which had been with him for a long time. And this is what led him to taking his own life in 1940.

The Grandmaster’s Principles in Momentum Trading

Although Jesse Livermore was active along time ago, trading in commodities and stocks, making millions. Believe it or not, the methods and principles he used are not so different from today’s financial world and just as legitimate. Jesse Livermore used to say a successful trader never acts on his own instincts until the market has deemed his instincts correct. If you try to understand the meaning behind what Livermore was talking about, it would do you good to remember you are in the market to make investments and not to form prophesies.

And many of the successful traders today follow in Jesse’s footsteps, which is not to anticipate but to follow the markets to a more fruitful return. The maestro also used to stress on the fact a trader can never buck the stock market, because there is never anything new. However, there are always variations of the same patterns, insightful for a man who traded 10 decades ago.

Livermore also emphasized on the fact one should never trade when he is unsure of the opportunities in the market, learn to hold money. This means all good trades need time and a lot of patience and greed is the worst enemy of a trader. All in all, Jesse Livermore’s wisdom still carries out, even today where everything is modernized in the world of stock, hedge funds and ETFs.

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Trader Personality: Paul Tudor Jones

Market Place — Sat, 27 Sep 2014 07:00:48 +0000

Born on the 28^th of September, 1954, in Memphis, Tennessee, Paul Tudor Jones II is the founder and owner of the Tudor Investment Corporation. The management of his other private investment partnerships is done through his own corporation, which you can refer to as hedge funds. Tudor Jones had an estimated net value of $3.2 billion in 2010 and as of now, it stands at $4.3 billion.

He studied and attained an undergraduate degree in economics from the University of Virginia in 1976 and was also a welterweight boxing champ. He began working on the trading floors in 1976 as a clerk and gradually became a broker for the famous firm E.F. Hutton four years after. In 1980, he was adamant on earning on his own and made a lot of profitable deals for almost two and half years before he started to get particularly ‘bored’ with his work.

After realizing that he has to do something else, he then successfully applied to the Harvard Business School, and to the surprise of many did not join because he realized the skill set he really wanted to capitalize on wasn’t going to be taught to him by anyone and decided to take another approach. He went to William Dunavant Jr. for career advice. Dunavant, who is the founder of one of the globe’s foremost and biggest cotton merchant company, sent him to meet another commodities broker by the name of Eli Tullis, who was in New Orleans.

It was Tullis who took him in and began to mentor him, showing him the ropes of cotton trades and painted the future of the cotton industry on the New York Stock Exchange.

The Early Success of Paul Tudor Jones

In 1980, Jones proceeded towards establishing his own company, the Tudor Investment Corporation, which is regarded as today’s foremost organization in asset management companies and has its headquarters in Greenwich, Connecticut. The corporation consists of affiliations tied to leading active trading, investing and research in global equity, venture capitalism, currency, debt, and the commodities markets.

Jones became really popular following the events of Black Monday in 1987, when he accurately predicted the markets, earning massive profits due to large short trade positions. He, along with his colleague and friend, Hunt Taylor went on to successfully create FINEX, the financial futures’ section of the New Board of Trade and were also instrumental in the making of US dollar index futures contracts.

Paul Tudor Jones also went on to becoming the Chairman of the New York Cotton Exchange from 1992 to 1995.

The Futures Trading Strategies of Paul Tudor Jones

Paul Tudor Jones is a contrarian investor. He keeps going for single trades until an idea essentially changes his mind. Most of the times he works on keeping his position in the markets cut down. Then he attempts to trade in small amounts when he has trouble hauling in good trades. Jones also considers himself as the best when it comes to identifying and taking advantage of market opportunities. When he thinks up of a brilliant idea, he initiates the pursuit of its implementation from a low risk perspective until he is deemed and proved wrong or at least till another idea befalls him.

He is also a swing trader and believes that considerable money can be made at different market turns. Although he has missed quite a bit of meat all around the middle, he always managed to catch a good share of tops and bottoms. He is by the far the calmest investor and trader of all and is always relaxed, thinks coolly and always exits the market swiftly whenever his losing position in the market starts to get to him.

Jones has the habit to decrease his trading mass when he sees he might lose and increases it as his trades get successful. Plus, he also tracks his whole portfolio equity in real-time and believes that prices always move first, the fundamentals should always be a secondary concern. He always looks at the bigger picture and does not even think about the losses he incurred moments ago. Jones also emphasizes deeply on not involving your ego in the game. He says that a good trader always questions his ability and form at every turn, always yearning to improve. If you think you are better than the rest, you will fail.

Contributions

Paul Tudor Jones has also made sizeable donations to the University of Virginia, his Alma mater, and has contributed $35 million for the development of a brand new basketball arena which he named after his father, John Paul Jones.

Married to a former Australian model Sonia since 1988, Jones and his wife have four children together.

Market Place

Trader Personality: Jim Rogers

Market Place — Fri, 26 Sep 2014 06:00:28 +0000

Which trader doesn’t dream of making millions and conveniently retire at the age of 30? Surely, it is every investor’s sole purpose and their dream. But for market guru and legend Jim Rogers, a commodities trader, it was just the dawn of an illustrious career on Wall Street that has lasted for over 60 years and has helped him make millions of dollars.

Jim Rogers amassed his wealth and grew his business empire using his phenomenal ability to monitor and pinpoint long-term trends long before anyone else could which blissfully ended up building him a reputation as a sharp contrarian. Rogers retired at the age of 38 to pursue his love of motorbike riding around the globe, and since his retirement he has also been a treasured guest professor of finance at Columbia Business School.

Rogers is known for the huge gains in commodity he made back in the early 2000’s, but he really became a living legend after correctly forecasting the collapse of the housing market, ending up making millions.

A Look into the Early Life of the Rogers

Rogers always had a fondness or affinity rather, for business, beginning from an early age. In fact, Rogers first started stepping on the trading floor in the financial world at the age of 5 and used to sell peanuts and gather empty bottles that were left behind by baseball fans in Alabama. Rogers graduated from Yale University back in 1964 and has a Bachelor’s degree in history. After his studies, he went on working as an investment banker on Wall Street which eventually led him to meeting another billionaire stock market legend, George Soros.

It was him and Soros that founded the exceptional Quantum Fund in 1973 which made a stupendous amount of money in its first 10 years, enjoying up to 4200% in returns. His early success allowed him to retire earlier than most traders. But that wasn’t the end of his career. Rogers still trades as a private trader and an astute investor, securing massive gains on the way. Moreover, he is also the author of the book “Investment Biker”, published in 1990, and is about his trip around the world on his motorbike.

Rogers’ Investment Methodologies and Massive Gains

Rogers has a timely approach to investing and employs a top-down model when analyzing the economy, which according to him is instrumental in guiding his investment methods and style. Rogers also said he has never been able to time the markets. So, instead he has adopted a long-term approach to investing.

Jim is a popular contrarian investor and his eagerness and assertiveness has led him to always go against the tide of the buck and grain and has allowed him to form some diligent ideas. He is also well-known for his ability to spot particularly long-term trends faster than any other trader or investor. After being instrumental in the success of Quantum Fund in the early 70’s and 80’s, he was able to call the commodities boom a decade later allowing him to establish the Rogers International Commodity Index in 1998 before the boom of the commodities market in the 2000’s.

The key feature in the way Rogers invests and trades is nothing but patience. Irrespective of whether he was predicting the early boom of the commodities market in the 2000’s or shorting the market in the 2008 stock market collapse, he has always focused on being patient and has emphasized its importance to follow through a successful investment. To sum it all up, this is what Jim Rogers said about being patient in the market, “I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime.”

Jim Roger’s Investment Portfolio: What Does He Hold Now?

Rogers has his target set on what he believes to be the greatest of all opportunities that happened to have landed on his lap: the food and agriculture industry. He is also big on bullish commodities and analyzes that the ceasing process of the central bank will sustain hard assets. He also invests in precious metals like gold and silver and is particularly fond of these metals. Back in 2011, he mentioned that in 1987, gold and silver stock fluctuated from 40% to 80%, but compared to what’s going to happen now, that era seems like a blip.

In 2007, Rogers moved to Singapore with his family to further take advantage of the growth of the nation’s economy. Rogers even started his the Rogers Global Resources Equity Index, an index primarily designed to capitalize on the most liquid companies pertaining to agriculture, mining and metals and alternative energy industries in 2011.

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Top 10 Successful Traders Ever

Market Place — Thu, 25 Sep 2014 06:00:38 +0000

There are a number of fundamental differences between a trader and an investor. The only similarity they may share is that both investors and traders can lose money just as easily as they make it. We can learn from the successful traders.

To start trading though, you don’t need an investment or apply for a loan. You’d be surprised to know some of the world’s most brilliant and legendary traders themselves went through a lot of trial and tribulations before they became what they are today and before their names were immortalized in the history of trading.

Mentioned below are the names of the top successful traders who managed to beat others in the market through their skill, their diligence, tenacity and instincts. So, get ready to get some inspiration.

Top Ten Successful Traders of the World

1. Jesse Livermore – The Master of Speculation

The skill of speculation that Jesse possessed thrived when he accurately predicted the 1929 stock market collapse. Livermore began trading as a 15-year old, trading at various gambling houses and through his studies and research he rose to fame and power when forecasted the 1907 and the 1929 markets collapses and made $100 million (which in today’s terms amounts up to $6 billion), in the blink of an eye. Having been associated with various industrialists at the time, Jesse proved to be instrumental in contributing towards America’s industrial revolution.

2. Paul Tudor Jones – Understanding the Core Dynamics of Trading

Paul Tudor Jones, another trading genius, called on the 1987 stock market crash because of that the day became labelled as Black Monday. Tudor accurately predicted the fall of the market by recognizing and understanding a series of events that led him to success. He understood at the time if the market started to descend rather than dry up, selling in the market would actually cascade. Jones understood an overvalued market would definitely give birth to more selling. Gambling on this, Paul went on making $100 million faster than you could say ‘I want to be rich!’

3. George Soros – Defeating the Bank of England

As if this man needs any introduction at all, George Soros is the trader who broke the Bank of England without breaking a sweat. He predicted that the pound was going to fall and shorted it, making an easy $1 billion. Although many other traders deemed this gamble as nothing short of reckless, Soros was pleased about it. Well, of course, he would be. It was a ridiculously rewarding gamble! George forced the Bank of England to withdraw from the ERM (European Exchange Rate Mechanism).

4. John Templeton – Betting on Japanese Assets and Winning

Templeton was the master of mutual funds. He invested $100,000 in Japanese assets when Japan was undergoing an economic change for the better, Templeton ended up making $55 million on a $100,000 investment. And in 1999, when Japan was starting to achieve it economic goals, Templeton decided to invest 60% of his funds into Japanese assets, which was again a spectacular success.

5. Andrew Hall – Predicting the Oil Prices

In 2003, a barrel of oil was traded at $30. At the time, Andrew Hall predicted the price per barrel of oil is going to reach $100 within the next 5 years. Turned out his gamble was spot-on. He worked for Citigroup, making a ton of money for his employer. The trader made about $100 million.

6. Paul Rotter – The Master Flipper

An expert in gauging the market’s psychology, his techniques were impeccable and significantly aided him in becoming a master of the markets. Paul being the initiator, his ideas and strategies proved to be instrumental in conducting trades on the Eurex exchange (Bund, Bobl and Schatz) markets.

7. John Paulson – Shorting Real Estate

John Paulson is known for successfully executing what is known as the ‘greatest trade ever’. Paulson accurately predicted the asset bubble in the real estate market which had the potential for bringing in billions of dollars into Wall Street. Paulson ended up making $15 billion for his employers in 2007 for which he got a dizzying $3.7 billion.

8. Jim Chanos – The Perceptive Short Seller

Jim Chanos rose to fame in October 2001 shortly after the downfall of Enron. Chanos was a master when it coming to shorting trades and made heavy profits by selling commodity currency and security. His most popular shorts include Baldwin-United and as of late, homebuilders like KB Home.

9. Louis Bacon – The Gamble on Geopolitical Factors

Bacon is one of successful traders and ended up rightly predicting that Saddam Hussein would invade Kuwait. Just a year after that, he also predicted and gambled on the fact that the US would defeat Iraq when the oil markets were beginning to recover. He was a master at trading using geopolitical motivators and aspects and has made a lot of money doing so.

10. David Tepper – Investing Money in Diminishing Assets

The last on the list, another successful traders is Tepper has a record for investing in distressed assets and has made a lot of money doing so. He predicted the Bank of America along with Citigroup will not be nationalized and he made a fortune. David bought extremely depreciated shares and saw them grow tremendously in value towards the end of 2009.

So, these are the best traders you can learn from and be inspired by.

Market Place

The Best Traders Alive

Market Place — Tue, 23 Sep 2014 06:00:26 +0000

While it is true that investors trade to make money, a trade, strictly in technical terms, does not necessarily have to be an investment in anything. Let’s consider the best traders alive. Do you know why? The answer to this question lies in the explanation of value investing given by Benjamin Graham, who is known to be the father of all value investment and movements. According to Benjamin Graham, an investment should always guarantee one thing, and that is the “safety of principal and a lucrative return”. In light of this information, the difference between a ‘trader’ and an ‘investor’ becomes significantly clear.

An investor takes their time to put in their money, and is in the habit of making informed and diligent decisions after a thorough evaluation of a particular set of business fundamentals of a specific company or organization. A trader, on the other hand, applies the use of careful evaluation and technical analysis to focus on the core aspects of the trading market, and then bets on which of them have the potential to provide a hefty profit with limited market volatility.

Exactly fourteen years ago, it was very common for people to terminate their employment, get the cash out of their 401k plan and start down the line of trading, and that too from the ease of their homes. Fuelled by a large and volatile stock market with real estate bubbles, it was easy to throw away investments, but it was easy to make money as well. However, things have changed over the past couple of years. The recession that crippled the economy in 2007, for example, also resulted in the consistent proliferation of financial regulations.

Moreover, who can ignore the significant advancements in technology which allow trading to be carried out by powerful software and sophisticated algorithms. Did you know that today, 50% to 70% of all trading is done through complex algorithms every given day?

Losing money in today’s financial markets is routine and there are many traders and investors who lose massive amounts of money in the span of a single trading day. On top of this, these traders hope their gains will fill in for the losses they have experienced. And in order to gain more money, traders have to incur substantial expenses to pay for rising transaction and trading costs, and to pay for keeping up with traders who use state of the art trading software and platforms.

With all of this being said, there is still a selective number of traders who possess the diligence, the grit, the boldness, and the heart to go against the odds and make money along the way. Here are a few of those people:

Paul Tudor Jones (1954-Present)

Paul Tudor Jones is the founder of the Tudor Investment Corporation, which consists of a $12 billion hedge fund. Tudor is famous for short selling his stocks in the 1987 stock market crash which ended up making him $100 million. He did this by predicting a massive multiplier effect on the portfolio insurance on the bear market.

Portfolio insurance is a risk management instrument popularly used by traders around the world. Investors and traders use portfolio insurance to reduce the investment risks which could threaten their portfolio. Jones’ brilliant analytical insight led to this prediction which in turn helped him become a very rich trader in 1987. He has an estimated net worth of $3.6 billion and still heads his own hedge fund.

George Soros (1930-Present)

Soros is by far the most popular trader of all time. In fact, he is known as “The Man Who Broke the Bank of England”. George Soros made a well calculated bet in 1992 that the British pound would deflate in value. The British pound at that time was on an ERM – the European Exchange Rate Mechanism – which was introduced to keep the currencies held together in a defined boundary to maximize financial stability. George Soros, along with his partners from the Quantum Investment Fund, found a pattern which led him to believe the pound would become weak and thus would not be able to survive in the ERM.

He then made a short position, borrowed a substantial amount of money from the fund, and made $1 billion.

John Paulson (1955-Present)

John Paulson is renowned for carrying out what is known as the ‘greatest trade ever’. Paulson became a wealthy trader in 2007, when he shorted the real estate market via the collateralized-debt market. He was the founding member of Paulson & Co., which was established in 1994. Although being a brilliant trader, Paulson was not very popular in Wall Street, at least not until the crippling of the economy in 2007.

John Paulson

Successfully forecasting a massive asset bubble in the real estate market, he helped his funds make a massive $15 billion, out which he got a cool $3.7 billion. Paul still manages his companies and is worth an estimated $11 billion.

Come to think of it, all three super traders shared one thing in common: each of their brilliant and high paying ideas was based on leveraged shorts. What does that tell you? It tells you that all traders have clear conflicts of interest, and each trader is motivated to make profits from a fluctuating market.

Market Place

The Greatest Traders in History

Market Place — Fri, 19 Sep 2014 06:00:30 +0000

Every day, there are thousands upon thousands of trades and transactions which are conducted between investors all across the globe. However, if you come to think of it, many of those investors will not be remembered for anything. And in this regard, the legendary trades which have become a memorable part of financial history have to be absolutely amazing indeed.

If you are thinking the guys who made it into the history books simply landed there through making tons of money in the market, then you are wrong. Some of the greatest trades ever made have been made by people who used their intellect, their gut feeling, and cunning and intuition to determine the right moment to strike and to make it big, even when everybody else thought they were simply nuts for making such trades.

Just pause and think for a second. The famous John Paulson shorted the housing market of the US when every trader on Wall Street deemed the market bullish. Jim Chanos kept his Enron shares short even though he knew the stocks were going to shoot up. Now, moves like those require critical analysis, thorough knowledge, and above all, they require grit.

Listed below are some of the greatest traders who have made history, by making some of the greatest trades in the world through their diligence, and their feats still stand unmatched:

Jesse Livermore – The Man Who Shorted the Market Collapse in 1929 and made $100 million

jesse livermore quote

Jesse Livermore is regarded as the most famous short seller in US stock market history. He began shorting stock purely on gut instinct just before the San Francisco earthquake hit. Although there was no way he could have predicted the earthquake, the trade did make him $250,000, which led to him consistently short selling stocks in the market. Shortly after, in 1907, he went on to make millions when he shorted the market collapse.

However, it wasn’t until 1929 that he made it into the big leagues. It was when he shorted the whole stock market and made a cool $100 million in the process. Imagine that! He is deemed as the pioneer of short sell trading and was the inspiration for the book, Reminiscences of a Stock Operator, which is a fictional account of a trader.

Paul Tudor James – The Man who Made $100 million by accurately Predicting Black Monday in 1987 and Shorting the Entire Stock Market

paul tudor jones quote

Utilizing the analysis from technical reports, various evaluations, and the historical information of S&P, Paul Tudor Jones accurately predicted that the market will collapse in 1987, and followed through by short selling his stock in huge quantities. And as he predicted, the Dow dropped by 22%, which made him an estimated $100 million.

Subsequently, PBS made a documentary about Paul Tudor Jones, which was named Trader, and just after its release, Jones went out and bought all the copies so that no one else could see the documentary. He was concerned it could reveal his trading secrets.

Andy Krieger – The Man who shorted the Kiwi in the 1980’s and Ended Up Making $300 million

Back in 1987, when the market crashed on Black Monday, a majority of the investors discarded the US dollar and began to look for other currencies. 32 at the time, Krieger was a currency trader working for Banker’s Trust. He analyzed that the New Zealand dollar, which is also known as the Kiwi, was ridiculously overvalued. Using financial trading instruments which were new at the time, he shorted his position against the Kiwi, which was worth millions of dollars. His short sell order exceeded the entire New Zealand supply at the time.

And just like he had anticipated, the Kiwi fluctuated between a 3 to 5% loss, which made his company $300 million. Krieger himself ended up making $3 million from the trade.

George Soros – The Man who Made $1 billion by Shorting the British Pound

george soros quote

Back in the 1990’s, when the British economy was doing very well, the legendary George Soros proceeded to short the pound, and he borrowed massive amounts to accomplish this harrowing feat. Soros shorted the pound when the currency was traded on a fixed rate of exchange.

After Soros made the bet, the government of Britain realized it could end up losing billions if they consistently and artificially piled up the pound. Soon after, they moved away from the European Rate Mechanism, which resulted in a massive plummet of the pound’s value. This made Soros $1 billion, giving him the status: brilliant billionaire investor.

So, what do you think now? Some of the major traders and investors of today have been inspired by these great men who took trading to an entirely new level.

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