In the financial market, it is often said that you should go big or go home. With higher risk comes the promise of higher rewards and some players didn’t hesitate to up the ante when the situation called for it, reaping huge returns on their correct market calls. Here are some of the riskiest traders that paid off.
Soros’ GBP Short
At the top of the list is the legendary pound short trade of George Soros, popularly known as “The Man Who Broke the Bank of England” and made $1 billion in the process. Soros recognized the unfavorable position of the UK economy leading to its inclusion in the European Exchange Rate Mechanism so he decided to build a huge short position even if it meant borrowing large sums of money and putting his entire firm, Quantum Fund, at risk.
Corzine and European Bonds
MF Global CEO John Corzine was known for his $6 billion dollar proprietary bet on European bonds in 2010 just when markets were anxious that countries in the region were on the brink of default. At that time, European bonds were extremely cheap, enticing Corzine to place a huge position that could’ve wiped out their firm five times over had it gone bad.
This particular trade was met with concerns from the firm’s top executives and board members, but Corzine argued that the larger countries in the EU would not let its fellow nations default. In a span of a few months, the trade grew from $1.5 billion to $6.3 billion.
Templeton’s Penny Stocks
Considered one of the pioneers in trading, Sir John Templeton became known for investing $10,000 in shares of 104 companies trading for less than a dollar on the New York Stock Exchange. This position was pretty risky because it also included 34 companies that officially declared bankruptcy. However, within four years, this investment grew to $40,000 and gained enormous profits when the US economy picked up after World War II.
Livermore’s Market Crash Trade
Jesse Livermore is also considered a Wall Street legend, making his famous stock market crash trade in the 1920s. Prior to this, he had also correctly predicted the stock market crash back in 1907 in which he made $3 million. His 1929 market crash trade made him worth $100 million, which means that he must’ve put a lot of money on the line to catch those returns.
Lippman and the Housing Bubble
Similar to Livermore’s greatest trades, Greg Lippman’s riskiest and most profitable positions were also based on market crashes. In particular, he bet that the US subprime housing market was on the brink of collapse and made a whopping $1.5 billion in a single position.
His story was documented in Michael Lewis’ The Big Short and Greg Zuckerman’s The Greatest Trade Ever. His colleagues even dubbed him “Bubble Boy” for correctly predicting that the housing bubble was about to burst.
Paulson’s Bet Against the Housing Market
Investor John Paulson also made huge returns on the US housing market crash in 2007. But unlike Lippman who had could trade his firm’s funds, Paulson had to scrape together $147 million from friends and family just to place a huge bet against the housing market. This was a really risky decision since he put other people’s money on the line, but it turned out to be a huge winner when he made $15 billion on his positions.
He was then ranked in Forbes’ list of billionaires, describing him as “the hedge fund titan who pulled off the greatest trade ever.” However, he made a wrong call a few years later when he inaccurately predicted that the US economy was on the road to recovery, losing billions and being called a big blunder by many.
Soros and the Asian Financial Crisis
Another risky trade from George Soros was his short position on the Thai baht leading up to the Asian financial crisis in the 90s. While this was a smaller position compared to his pound short, this was still seen as a huge risk because it led to Asian government officials accusing him of using his wealth to hurt the markets and punish certain economies. Some even blamed him for causing the crisis itself!
Jim Chanos and Enron
In the 90s, Enron was one of the strongest US companies and it was unthinkable that anyone would short its stock. However, when Jim Chanos’ firm analyzed the financial statements of the company and conducted an investigation that lasted nearly two years, they concluded that Enron was in bad shape.
With that, Chanos’ firm initiated a short position on Enron stock in 2000 before the stock plummeted and hit rock bottom when the company filed for bankruptcy in December 2001.
Paul Tudor Jones and Black Monday
If George Soros had his Black Wednesday trade in 1992, Paul Tudor Jones had his Black Monday position in 1987. At that time, he made an estimated $100 million when he predicted that the S&P would crash and went on to put massive short positions on stocks even though the trend seemed to be heading higher then.
Picking tops and bottoms is considered a very risky approach to trading because it would require a lot of guts to go against a market trend, but in some cases it does pay out a lot.
Jim Rogers and Commodities
In the 90s, commodities were in a prolonged bear market and hardly anyone thought of going long. It was around this time that Jim Rogers decided to take advantage of these cheap prices to buy, based on his use of the Rogers International Commodities Index.
As it turns out, he was spot on in calling the very bottom of the market before commodities went on to rally for more than a decade. Similar to Paul Tudor Jones’ spotting of a market top in equities, this risky approach of picking a market bottom or as they say, catching a falling knife, paid out really well for Jim Rogers also.
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