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Trading Up To History: The Greatest Trades In History

Even the most conservative investors have daydreamed about nailing a high-risk, high-reward investment. Although stories of billion-dollar successes are rare, new and experienced investors can learn plenty from those who have scored big on the markets. Discover three of the best financial trades in history and what you can learn from them.

1. Jesse Livermore Shorts the Great Crash

Even before making his most famous investment, Jesse Livermore scored on two excellent short positions: one against the 1907 market crash and one against the price of wheat. He struck gold, however, when he shorted the Wall Street collapse of 1929, netting $100 million. Many other famous trades occurred this way, such as the Paul Tudor Jones short position in the Black Monday prediction and John Paulson’s and Dr. Michael Burry’s respective shorts for anticipating changes to the U.S. housing market.

The takeaway here is that investors need to have as comprehensive of an understanding of the internal and external factors that may affect their stock as possible. This point is true for other types of investments as well. For example, binary trades involve a concept roughly the same as shorting: knowing whether an asset price will be lower or higher past a certain date. Although these traders aren’t dealing with borrowed shares, they do share an important secret to success: carefully researching all factors that will affect the investment and being realistic about the likely outcomes.

2. Louis Bacon Bets on the Invasion of Kuwait in 1990

Louis Bacon, another successful hedge fund manager, predicted that Saddam Hussein’s aggression would prompt U.S. intervention and a quick defeat of Iraqi forces, ultimately affecting the oil market. This prediction came true. Both long and short investments led to an impressive return of 86 percent that year and future positive returns for over a decade.

This action was a major macro decision on Bacon’s part. The success of such investments depends on carefully evaluating underlying economic data and understanding which info is indicative of a market trend worth betting on and which should be ignored. Remember: External factors may cause some unexpected changes, but you stand to make some solid gains if you can foresee fluctuations that others do not.

3. George Soros Predicts the Pound

George Soros shorted the British pound in the 1990s. He generated over $1 billion when Great Britain later adjusted its system and dropped the European Exchange Rate Mechanism.

Several other investors have made similar successes in currency-based investments. For example, Andy Krieger bet against the New Zealand dollar in the late 1980s, and Stanley Druckenmiller secured $1 billion in the 1990s after successfully predicting that the German mark would increase in value. These examples reiterate why in-depth research and a thorough understanding of all factors that may affect a given market or commodity is important.

Achieve Long-Term Success as an Investor

Any investor would cherish an incredible outcome like the ones mentioned above. Unfortunately, a far more common story is that people make decisions without fully understanding the risks involved. Remember to do your research, exercise due diligence, and be realistic about the returns you can expect based on market averages.

Image via Flickr by AndreasPoike

 

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