The Most Successiful Commodity Trades of All Time2015-06-24
Warren Buffett, Jesse Livermore and Peter Lynch are household names around the world, but equity traders aren’t the only ones that have amassed fortunes. George Soros is well known for his billion-dollar bet on the devaluation of the British pound, John Arnold made billions trading natural gas, Jay Gould cornered the gold market, and Louis Bacon predicted the Gulf War. In this article, we’ll take a look at these and other famous commodity traders who amassed fortunes trading these hard assets [for more commodity news and analysis subscribe to our free newsletter].
John Arnold: The King of Natural Gas
John D. Arnold began his career at Enron in 1995, earning the company a reported $750 million in 2001 alone. After Enron’s collapse, Arnold founded Centaurus Energy in 2002 with $8 million of his own money and three employees. The hedge fund became famous thanks to a single, timely natural gas trade that returned billions in profit.
In 2005, a different hedge fund, Amaranth Advisors LLC, had bet billions on natural gas, anticipating prolonged shortages following Hurricane Katrina. Unfortunately, prices failed to move and the fund was soon sitting on $6.5 billion in losses. At the same time, Arnold had made around $1 billion betting the opposite, generating 317% in returns in 2006 for investors.
After prices had bottomed out towards the end of 2006, Arnold bought up Amaranth Advisors’ losing position in natural gas in a trade that rapidly turned around between 2006 and 2008. Then, in 2008, he foresaw the looming collapse in natural gas prices and nearly doubled his money again by taking a short position in the commodity [see also 10 Ways to Invest in Fracking].
Jay Gould: Cornering the Gold Market
Jay Gould was an American railroad developer and speculator whose success made him the ninth richest American in history. Beginning in 1879, he gained control of four western railroads, including the Union Pacific and the Missouri Pacific Railroad. These holdings were soon expanded to include some 15% of the country’s total railroad tracks by 1882.
Before becoming very wealthy from the railroad industry, Gould devised a commodities scheme that he hoped would make him millions of dollars. The plan was to corner the gold market (the gold standard was still in effect at the time) in order to increase the price of wheat, thereby increasing freight business on his railroads.
Gould began buying gold in August of 1869 in an attempt to drive prices higher and succeeded in raising them some 30% by September. Unfortunately, the government caught on to what was happening, sold $4 million worth of gold, and prices plummeted within minutes, but not before Gould made out with an estimated $10-$11 million in profit [see also What Can 1 Ounce Of Gold Buy?].
Louis Bacon: The Best Global Macro Trader
Louis Bacon began his financial career as a runner on the New York Cotton Exchange, but soon worked his way up to become Senior Vice President of Futures Trading at Shearson Lehman Brothers. In 1986, he founded Remington Trading Partners and made a name for himself by avoiding the market crash of that era and then profiting from the subsequent rebound.
In 1990, Bacon created More Capital Management LLC and Moore Global Investments using $25,000 that he inherited from his family. The latter fund became famous after returning 86% during its first year, thanks to a decision to short the Japanese Nikkei just before the market collapsed and purchase oil contracts ahead of Saddam Hussein’s invasion of Kuwait.
By 2010, Bacon was worth an estimated $1.6 billion, with Moore Global Investment Fund worth an estimated $7.4 billion. He bases most of the fund’s decisions on global trends in inflation, economic growth, central bank policy, and national politics.
Paul Tudor Jones: The Tough Trader
Paul Tudor Jones started working on the trading floors as a clerk in 1976 before slowly working his way up to become a broker for E.F. Hutton. After growing bored in these positions, Jones’ cousin encouraged him to talk with commodity broker Eli Tullis, who subsequently hired him to trade cotton futures on the New York Cotton Exchange, where he earned a tough-guy reputation.
In 1980, Jones founded the Tudor Investment Corporation, which was focused on global equity, venture capital, debt, currency and commodity markets. While he got his start in commodities, Jones became famous for predicting Black Monday in 1987, when he reportedly tripled his firm’s money thanks to some very large short positions in the market.
Tudor Investment Corporation has since evolved into a leading asset management firm focused on a wide array of asset classes. Jones himself has been ranked number 330 on the list of the world’s wealthiest individuals.
Jim Rogers: Well Rounded Commodities Trader
Jim Rogers is perhaps best known as the co-founder of the Quantum Fund with legendary currency trader George Soros. During its first 10 years, the fund gained 4,200% compared to just 47% for the S&P 500. The Quantum Fund became famous in 1992 when the pair bet the entire fund on a short sale of the British pound, forcing the Bank of England to devalue the currency.
In 1998, Rogers started his own commodity index fund that rose 165% by 2007 with $200 million invested. During that same year, he wrote a book, entitled Hot Commodities: How Anyone Can Invest Profitably in the World’s Best Market, discussing his investment strategies and how to capitalize on the commodities market.
While the commodities market has since cooled off, Rogers continues to be a regular guest on financial news programs, including Fox Business News and CNBC. He continues to believe that agriculture will become the next major commodity to see a dramatic rise, betting heavily on the sector during the latter part of 2012.
Disclosure: No positions at time of writing.