Wall Street has made its name synonymous not only to the U.S. financial sector, but to the global one at large. Wall Street means cash, gold, stocks, fast cars and large yachts—in a word: “wealth.” Although not everyone who has ever walked through the golden gates of Wall Street has pockets overflowing with money, the traders who win public fame and acclaim are the ones that make extra-ordinary trades that fill not only their pockets, but entire vaults. At the end of the day, a trader can only be proven to be as successful as his best trade, and only very special few can claim a spot in the trading hall of fame. In this series we highlight 10 of the best-ever trades on Wall Street.
1. Jesse Livermore making million on stock market crashes
Jesse Livermore deserves first mention on our list not only as the earliest record-performer on Wall Street, but also for repeated performance with a second trade out far outdid his first one. In 1907, Livermore insightfully predicted the stock market crash, and foresight gave him a plan, rather than panic. Livermore shorted the market, which is to say he borrowed all the stocks he could right before the crash and sold them for big money; when the stock market crashed and stocks were worth mere pennies, he cheaply bought all the stocks he borrowed to return to his lenders, pocketing profits of $1 million on the transaction. And that wasn’t his greatest move! Just a little over twenty years later, Livermore again correctly predicted the next and much larger stock market crash of 1929. He followed the same game plan of shorting the entire market by selling borrowed stocks when prices were high and buying them back cheaply after the crash, except this time he made himself $100 million.
2. Paul Tudor Cashing In On Black Monday
The Monday in 1987 on which the U.S. stock market crashed in a percentage drop that exceeded all others in the history of Wall Street has gone down in history as Black Monday. The bleak name given to the day characterises the market sentiment that set in as investors and traders saw their entire fortunes disappearing right in front of their own eyes as if falling down a black hole. But for one man, the news of the crash were in fact positive. Paul Trudor predicted the crash before it happened and following in the steps of Jesse Livermore, he shortened the entire market risking an enormous capital on the speculation that the market would lose its footing. When Black Monday pushed the markets to rock bottom, Tudor closed his short positions by buying back devalued stocks, reportedly making $100 million on the very day the Dow Jones Industrial Average plunged 22 percent.
3. Andy Krieger made millions by shorting the Kiwi
Following the Black Monday crash, traders were closely monitoring exchange rates as all currencies began rising against the dollar. As investors rushed to take their money out of the U.S. dollars and looked for safer investment options, certain assets were bound to become overvalued on account of mass market movement fuelled by fear and characterised by rush decision making. A certain trader Andy Krieger targeted the New Zealand dollar, also known as Kiwi, for monitoring, for he considered that its sharp gains would not be sustained too long. Employing the then relatively new investment techniques offered by options, Krieger positioned himself against the kiwi in a move worth hundreds of millions of dollars. So great was his confidence in his prediction in face, that his sell orders, it has been said, actually exceeded the entire money supply of New Zealand! As the kiwi began its precipitous fall shortly thereafter, Krieger closed his short positions making millions of dollars for his company while the government of New Zealand, or so the story goes, made frantic calls to his bosses to get him out of the kiwi.
4. Stanley Druckenmiller bet on the German mark and made $1 billion
Great trades require a fine eye and a perceptive understanding of how world events can affect aspects of the economy, even they seem to belong to a separate sphere, such as politics. Stanley Druckenmiller worked as a trader for Quantum Fund under George Soros (whom we shall meet tomorrow) when he made his impressive bets on the German mark. In a time of high political unrest and uncertainty when German tried to pick up its post-World-War-II pieces and reunite itself investors (along with everyone else) worried about the future of the country as an economic entity. Stanley Druckenmiller, however, did not give in to widespread fear and had the perceptiveness to see that the general public had over-reacted to the situation. When the Berlin Wall fell, the difficulties of reunifying the split country and the different ideologies running between the two previously-opposed parties, sent the German currency, the mark, down a spiralling hole. Druckenmiller, however, considered market pessimism excessive and took a bet on the future appreciation of the currency which was later backed by Soros, his boss. Things did indeed improved in Germany and the investment brought a return of over 60% to the Quantum Fund yielding $1 billion dollars.
5. George Soros shorted the British pound and made $1 billion
The United Kingdom was thriving in the 1990’s and the British Pound was a rather strong position among the major currencies, holding its legacy of once-great empire alive. The grandeur of the pound, however, was tarnishing but the British government, unwilling to admit the loss of its royal status, the British government continuously propped the value of the Pound Sterling, refusing to let the currency float against competitors, while at the same time refusing to raise interest rates. Soros saw the unfeasibility of the position the U.K. was pursuing and dared to take a short position against the British currency worth billions of dollars. Unable to maintain the artificial value of its currency, the U.K. finally withdrew from the European Exchange Rate Mechanism, a move that caused the Pound to plummet the very same day making Soros a whooping $1.1 billion in a trade that quite literally broke the bank of England.
6. Jim Rogers went long on commodities when they were cheap in the late 90s
Back in the 1990’s commodities were very cheap and investors took no particular interest in them as a smart investment vehicle. The art of trading, however, lies not in following the mass trends, but in having an eye for unique opportunities that are just beginning to break on the horizon. Despite market aversion towards commodities, Jim Rogers a future in investing in material assets and correctly predicted that market sentiment would turn positive on them, creating a bull-run in the market. Whether he had predicted that the bull-run would be the length of a marathon rather than a quick sprint is hard to say, bur the long position he took is still paying off. The Rogers Index International Commodity Index that he created, in fact, has been consistently returning profits of over 200 percent since 1998.
7. John Templeton against the Dot-Com bubble
When John Templeton bought $100 worth of stocks of every company trading under $1 on the New York and American stock exchanges in 1939, his move was considered rather unorthodox. When the investment returned quadruple profits he became the king of diversification in Wall Street. Just a few years before he passed away, Templeton put his strategy to use one last time, earning himself millions of dollars in weeks. Spotting the precariousness of the then-booming dot-com industry, Templeton shorted a widely varied basket of internet stocks just before the post-IPO six-month lock-up expiry. When the expiry times hit the newly created tech CEOs and founders were looking to cash out on their investment, but Templeton had already beat them and the burst of the bubble in a bet that earned him $80 million in just weeks.
8. Andrew Hall went really, really long on oil and made enough to warrant a very hefty bonus
Andrew Hall began to suspect early in 2003 that quickly-growing global oil demand, especially from emerging economies such as India and China, would outstrip supply and foresaw a great opportunity for buying oil that would bring returns years down the road. Hall had already developed a style of buying and holding a position, rather than making quick trades on the market, so when he put an enormous buy on oil and sat back on it, nobody saw anything extraordinary. Hall’s wager that oil would exceed $100 a barrel in 5 years elicited ridicule by other investors and news of his mega-trade that would leave him penniless should his prediction prove wrong inspired shock—he couldn’t possibly win such a position. When in 2008 oil prices skyrocketed passed the $100 mark Hall ripped the rewards of his gutsy bet. His Citigroup employers filled their pockets with back-gold profit while Hall himself reportedly earned a $100-million bonus for his work.
9. John Paulson played the real-estate bubble just before the financial crisis burst it
The housing bubble caught almost everyone by surprise and when it burst in 2007 it left investors everywhere scampering to make up loses. Almost everyone, that is. John Paulson had not only predicted the advance of the housing bubble but also got its timing right, which is a pretty remarkable feat in prediction accuracy. While the financial giants were still pouring money into subprime mortgages thinking, apparently, that real estate would forever stay on tis upwards trajectory, Paulson, who was relatively unknown then, heavily bet against them in a deal that made his hedge fund $15 billion and earned the him a reported $3-4 billion in fees. Not a bad day to be trading under his firm at all!
10. David Tepper made billions by going long on banks after the financial crisis
When the financial crisis hit the U.S. banking system it left the world staggering around trying to recover and regain a sense of financial balance. Everybody could see that a storm was brewing but nobody expected banks, and big banks especially, to be in so poor a state as to bring the entire global financial system to the verge of collapse. One man, however, namely David Tepper, kept his cool in all of this and bet against the much-feared nationalisation of bank, foreseeing the huge bailouts that the U.S. government offered to the top institutions. So high was his confidence in a banking sector recovery that he bought the enormous amounts of severely depressed bank stocks that everybody else was dropping like hot potatoes. Stocks of big banks such as Citigroup and Bank of America flew into Tepper’s portfolio effortlessly. By the end of the year Bank of America had quadrupled its value and Citigroup had trebled. The trade brought in$7 billion net profit into Trepper’s hedge fund, the $4milllion of which went straight to the man himself.
