The careers of the world’s most famous traders are colored by both triumph and tragedy, with some exploits achieving mythological status within the industry. The dramatic and varied stories of the most famous traders have made compelling material for books and movies.
Themes of boldness, adventurism and ambition run through the lives of the 10 most famous traders selected for this designation by Investopedia. Short selling securities is a tactic many of these individuals share.
The top 10 are listed below in chronological order of their birth dates. All but the first two are still alive. Most of the historical material is from Wikipedia.
Jesse Lauriston Livermore
Jesse Lauriston Livermore, an American who lived from 1877 to 1940, shorted the stock market crashes of both 1907 and 1929 and was worth $100 million at his peak.
He began his trading career at 14 by posting stock quotes for Paine Webber in Boston.
Livermore would write down calculations about future market prices and later check them for accuracy. He began to put money on the market by making a bet at a “bucket shop,” an establishment that took bets on stock prices but did not buy or sell the stock.
The bucket shops eventually banned him for winning too much money. He moved to New York City and began trading in legitimate markets. This led him to devise new rules to trade the market.
He created a working philosophy for trading securities that emphasizes increasing the size of one’s position as it moves in the right direction, then cutting losses quickly. He said his lack of adherence to his own rules was the reason for his losses after making his fortunes in 1907 and 1929.
In 1907, he noticed a lack of capital existed to buy stock. He predicted a sharp drop in prices with speculators forced to sell by margin calls and lack of credit. Without capital, there would be no buyers to absorb the sold stock, driving down prices. He took advantage of this situation and bought stocks at depressed values. After the crash, he was worth $3 million.
Livermore was worth $100 million in 1929 following a similar scenario to 1907.
It was never clear what happened to his fortune, but he lost it all by 1934. It is believed he turned prematurely bullish and bought stocks and commodities long before the market bottomed in the summer of 1932.
He committed suicide in 1940.
William Delbert Gann
William Delbert Gann, a finance trader who lived from 1878 to 1955, used market forecasting based on geometry, astrology and ancient mathematics. His technical tools included “Gann angles” and the “Square of 9.” He wrote a number of books.
Gann started trading when he was 24. He reportedly believed in the religious and scientific value of the Bible. He was also a Freemason, to which his knowledge of ancient mathematics is attributed. He also studied the ancient Egyptian and Greek cultures.
In his book, “The Basis Of My Forecasting Method,” published in 1935, Gann described the use of angles in the stock market.
Calculating a “Gann angle” is equivalent to determining the derivative of a certain line on a chart. Each geometric angle divides time and price proportionally.
Gann called the most important angle the 1×1 or the 45-degree angle, which represented one unit of price for one unit of time. By drawing a perfect square and then a diagonal line from one corner of the square to the other illustrates the angle, which moves up one point per day.
There is no consensus whether Gann made profits by his own speculation.
Born in Hungary in 1930, George Soros is the chairman of Soros Fund Management, one of the most successful hedge funds. He earned the moniker, “The Man Who Broke the Bank of England” in 1992 after short selling $10 billion worth of pounds, earning a $1 billion profit. In February 2017, his worth was estimated at $25.2 billion.
He began his career by working at merchant banks before launching his first hedge fund in 1969. He started his second hedge fund in 1970.
His studies of philosophy led him to apply Karl Popper’s General Theory of Reflexivity to capital markets. He claims this theory provides a clear view of the fundamental/market value of securities, asset bubbles and value discrepancies for use in swapping and shorting stocks.
Soros’ fund was later renamed the Quantum Fund based on Werner Heisenberg’s principle of quantum mechanics.
By 1981, the fund grew to $400 million when a 22% loss and substantial redemptions by some investors cut it in half.
In 2011, Soros said he had returned funds from outside investors’ money and invested funds from his $24.5 billion family fortune due to changes in U.S. Securities and Exchange Commission disclosure rules. The fund had at the time averaged over 20% per year compound returns.
In 2013, the Quantum Fund made $5.5 billion, the most successful hedge fund in history. Since its inception in 1973, the fund has generated $40 billion.
Soros built a large position in pounds sterling for months leading up to September 1992. He recognized the unfavorable position of the United Kingdom in the European Exchange Rate Mechanism. On September 16, 1992, his fund sold short more than $10 billion in pounds, profiting from the government’s reluctance to raise its interest rates or float its currency.
The U.K. withdrew from the European Exchange Rate Mechanism, which devalued the pound. Soros’s profit was estimated at over $1 billion.
James Rogers, Jr.
James Rogers, Jr., born 1942, is the chairman of Rogers Holdings. He co-founded the Quantum Fund along with George Soros in the early 1970s. He is known for his correct bullish calls on commodities in the 1990s.
In 1964, Rogers joined a Wall Street firm where he learned about stocks and bonds. In 1998, he founded the Rogers International Commodity Index. In 2007, the index and three sub-indices were linked to exchange traded notes under the banner, Elements. The notes track the total return of the indices as a way to invest in the index.
In February 2011, he started a new index fund focusing on leading companies in metals, agriculture, mining, and energy sectors as well as those in the alternative energy space.
Richard J. Dennis
Richard J. Dennis, born in 1949, became successful as a Chicago-based commodities trader. He reportedly built a $200 million fortune in 10 years from his speculating. With partner William Eckhardt, he co-created the mythical Turtle Trading experiment.
He began as an order runner on the Chicago Mercantile Exchange trading floor at 17.
To circumvent a rule requiring traders to be at least 21 years of age at the MidAmerica Commodity Exchange, he worked as his own runner, hiring his father to trade in his stead in the pit.
He profited as he bought successively new weekly and monthly highs in the inflationary markets of the 1970s, a time of global crop failures.
Dennis held positions for longer periods than most traders, riding out short-term fluctuations.
When a futures trading fund he managed suffered major losses (estimated around $10 million) in the U.S. stock market crash of 1987, he quit trading for several years.
He managed funds for a period in the mid and late 1990s, but closed these operations following losses in the summer of 2000.
Paul Tudor Jones II
Paul Tudor Jones II was born in 1954 and is the founder of Tudor Investment Corporation, a leading hedge fund. He gained notoriety after making around $100 million from shorting stocks in the 1987 stock market crash.
His cousin, William Dunavant, Jr., CEO of one of the world’s largest cotton merchants, introduced him to a commodity broker who hired him and mentored him trading cotton futures.
The Tudor Group investment strategies include growth equity, discretionary global macro, quantitative global macro (managed futures), quantitative equity market neutral and discretionary equity long/short.
Predicting Black Friday 1987 allowed him to triple his money during the event due to his large short positions.
While the hedge fund industry standard is 2% per annum of assets under management and 20% of the profits, Tudor Investment Corporation charges 4% per annum of assets under management and 23% of the profits.
Forbes Magazine in 2013 listed him as one of the 40 highest-earning hedge fund managers.
John Paulson, born 1955, runs the hedge fund Paulson & Co. He made $4 billion in 2007 using credit default swaps to sell short the U.S. subprime mortgage lending market.
Paulson started his career at Boston Consulting Group in 1980 researching and advising companies. He worked at Odyssey Partners, Bear Stearns and eventually Gruss Partners LP, where he was a partner. He founded his own hedge fund in 1994 with $2 million and one employee. By 2003, the firm had $300 million in assets.
The firm specializes in “event-driven” investments — i.e., in mergers, acquisitions, spin-offs, proxy contests, etc. Such events involve merger arbitrage, described as waiting when one company announces it’s buying another, buying the target company’s shares, shorting the acquirer’s stock, and then earning the differential between the two share prices when the merger closes.
In 2010, he set another hedge fund record making nearly $5 billion in a single year.
In 2011, he made losing investments in Bank of America, Citigroup and the China-Canada listed company, Sino-Forest Corporation.
Steven Cohen, born 1956, started SAC Capital Advisors, a hedge fund focused primarily on equities.
After school at Wharton, Cohen took a Wall Street job as a junior options arbitrage trader at Gruntal & Co. in 1978.
His first day on the job, he made an $8,000 profit. He would eventually make the company around $100,000 a day.
In 1992, Cohen launched SAC Capital Partners with $20 million of his own money. By 2009, the firm managed $14 billion in equity.
On November 20, 2012, Cohen was implicated in an alleged insider trading scandal involving an ex-SAC manager.
Cohen was not directly named in the 2012 indictment.
A civil case against Cohen was settled in January 2016. The agreement prohibits him from managing outside money until 2018.
The hedge fund itself pleaded guilty to similar criminal charges in a $1.8 billion November settlement that required it to stop handling investments for outsiders.
David Tepper, born in 1957, is the founder of the successful hedge fund Appaloosa Management. He is a specialist in distressed debt investing.
For the 2012 tax year, Institutional Investor’s Alpha ranked Tepper first, for earning $2.2 billion. In 2016, he earned $1.2 billion, making him the world’s fourth highest earning hedge fund manager.
After earning his MS in 1982, he took a position in the treasury department of Republic Steel in Ohio.
In 1984, he was recruited to Keystone Mutual Funds in Boston, and in 1985, Goldman Sachs recruited him for its high yield group. Within six months, Tepper became the head trader on the high-yield desk, focusing on bankruptcies and special situations.
He started Appaloosa Management in 1993.
In 2001, he generated a 61% return focusing on distressed bonds.
In 2005, he began focusing on Standard & Poor’s 500 stocks. He makes significant gains investing in companies such as Mirant, Conseco, Marconi and MCI.
In 2009, his hedge-fund earned about $7 billion by buying distressed financial stocks and then profiting from the recovery of those stocks.
Nicholas Leeson, born in 1967, is a rogue trader who caused the collapse of Barings Bank. He served four years in a Singapore jail, but later bounced back to become CEO of Galway United, a football club.
Following school, his first job was as a clerk with a private bank, Coutts. He then moved to Morgan Stanley in 1987 for two years, then to Barings.
In 1992, he became general manager of a new futures markets operation in the Singapore International Monetary Exchange.
Barings Bank allowed Leeson to remain chief trader while also being responsible for settling his trades, jobs usually done by different people. This made it easier for him to hide his losses from his superiors.
At the end of 1992, the account’s losses surpassed £2 million, which expanded to £208 million by the end of 1994.
The beginning of the end occurred on 16 January 1995, when he placed a short straddle in the Tokyo and Singapore stock exchanges, betting the Japanese stock market would not move overnight. But an earthquake hit early in the morning on January 17, sending Asian markets into a tailspin.
Leeson fled Singapore in February. Losses reached $1.4 billion, twice the bank’s available trading capital. Following a failed bailout attempt, Barings was declared insolvent in February.
Leeson was arrested in Frankfurt and extradited to Singapore.
He pleaded guilty to two counts of deceiving bank auditors and of cheating the Singapore exchange, including forging documents.
Fidelity Investments is Mining Cryptocurrency
Fidelity Investments is a multi-billion dollar brokerage that just so happens to be mining cryptocurrency. In fact, it has been at it for three years, using its own computers to harvest bitcoin and Ethereum.
CEO Abby Johnson recently told Fortune that its U.S.-based mining operation is “making a lot of money.” This comes despite running a relatively modest operation.
Hadley Stern, Senior VP of Fidelity Labs, described his company’s venture as an “experiment.”
The real reason we began mining, and still do, is to learn how the network works, how consensus works, how difficulty levels work,” he said in reference to the mining process.
The key to profitability has been the dramatic rise in cryptocurrency over the past year. Bitcoin and Ethereum are the world’s No. 1 and 2 cryptocurrencies by market capitalization, and no-one else comes close.
Well Ahead of the Pack
The fact that Fidelity has been at this for three years speaks volumes about the company. Other, much bigger players are still dipping their toes in the market, but are unsure about how to proceed. Goldman Sachs is reportedly on the fence about starting a cryptocurrency trading operation, while J.P. Morgan has already begun handling customer orders for bitcoin-based instruments.
Fidelity is doing a lot more than just mining tokens. Earlier this year, it reached an agreement with Coinbase to let customers view cryptocurrency prices alongside other assets on their Fidelity homepage.
Coinbase is the world’s most funded cryptocurrency exchange with more than 7.4 million users.
The cryptocurrency market ended the week on a firm note, with bitcoin (BTC/USD) reaching a session high of $4,425.00. At press time, the index was up 1.6% at $4,368.
Ether is also trading higher against the dollar, with the ETH/USD rallying more than 3% to $305.
Ripple (XRP) lost momentum on Friday, but still managed a weekly gain of 21%.
Chinese Government Eyeing Fresh Bitcoin Legislation?
The Chinese government could roll out fresh cryptocurrency regulation in the coming months permitting licensed brokers to operate, based on recent information from Xinhua.
The state-owned news publication recently revealed that the government is mostly concerned with stamping out illegal activity involving bitcoin and other cryptos. Government authorities could be planning to regulate the market by creating a licensing program with strict Know Your Customer (KYC) and Anti-Money Laundering (AML) systems.
The Case for AML
The need for KYC/AML protocols has long been raised by cryptocurrency proponents, especially in reference to initial coin offerings (ICOs). In response, the blockchain community has come together to create the Simple Agreement for Future Tokens (SAFT). The SAFT is both an instrument and open-source framework for token sales that vets accredited investors.
SAFT activity is quickly gaining traction, with the likes of Gizer recently issuing a presale of its ICO through SAFTLaunch.
SAFT was officially created by Protocol Labs in close collaboration with AngelList and Cooley.
China’s Stance Looms Large for Cryptocurrency Market
Although digital assets have recovered from the China-induced flash crash of September, favorable regulations on the mainland could mean big business for bitcoin exchanges. Prior to the ban on ICOs and bitcoin brokers, Chinese investors were responsible for a quarter of all BTC trades.
According to Xinhua, China is likely to pursue a licensing program similar to Japan, a country that recently approved 11 cryptocurrency exchanges. CnLedger, a leading source of cryptocurrency news in China, recently had this to say:
“Xinhua News, official press agency of CN: Virtual currencies have become the top choices of underground economies. We shall adopt ‘0-tolerance policies’ towards crimes hidden underneath and take measures such as record-keeping, licensing, AML processes, real-name, limiting large transactions.”
Is China’s cryptocurrency ban temporary? It certainly looks that way. Regulators must already know that the ban hasn’t stopped mainland investors from buying cryptocurrencies next door in Hong Kong or Singapore. A saner approach to an all-out blanket ban is a tighter regulatory framework that will stamp out money laundering and other underground activities.
«Featured image from Shutterstock.»
Tim Draper Has Made Over $110 Million Since 2014 With his Bitcoin Investment
Tim Draper, the billionaire technology investor and prominent venture capitalist who has invested in some of the most successful technology startups in the likes of Coinbase, Patreon, SpaceX, Tesla, Box, FourSquare, has profited over $110 million from his investment in bitcoin less than three years ago.
In 2014, Draper participated in the auction of 144,336 bitcoins by the US government and the US Justice Department, which were seized during the investigation into Silk Road, a dark web marketplace. Draper was granted the permission to purchase a batch of 30,000 at around $600 from the US government.
Upon securing 30,000 bitcoins, Draper told Fox Business:
“[I’m] very excited about bitcoin and what it can do for the world. Bitcoin is as big a transformation to the finance and commerce industry as the internet was for information and communications. If bitcoin were here in 2008, it would be a stability source for our world economy. Everybody should go out there and buy a bitcoin. Every investor who’s a fiduciary should at least be partially involved in bitcoin because it’s a hedge against all the other currencies. There’s a whole ecosystem being built that’s going to make commerce much easier with much less friction and safer.”
Today, Draper’s 30,000 bitcoins are worth $129.9 million. Considering that Draper had spent $19 million purchasing the batch of 30,000 bitcoins in 2014, Draper has recorded a profit of over $110 million in less than three years.
While Draper held onto his investment in bitcoin, the US Justice Department was quick all of the 144,336 bitcoins seized during the Silk Road operation. According to various sources, the US government sold the majority of its 144,336 bitcoins at a price of $336, at $48 million. If the US government had sold its bitcoins in 2017, it would have generated an additional profit of around $573 million, as 144,336 bitcoins at today’s bitcoin price of $4,330 are worth $624.9 million.
Since 2014, in addition to purchasing tens of thousands of bitcoins, Draper has funded some of the most successful bitcoin companies in the cryptocurrency market including Coinbase and Korbit. Earlier this year, Coinbase secured a $100 million investment at a $1.6 billion valuation, while Korbit was acquired by the parent company of a $10 billion gaming company in Nexon at a $140 million valuation.
Furthermore, Draper has not sold his stake in Coinbase and earlier this year, Brian Armstrong, the CEO of Coinbase, revealed that Coinbase is still at an early stage in terms of developing and scaling. Armstrong noted that it will evolve into the safest and most trusted exchange in the global market.
“Digital currencies are having their ‘Netscape’ moment. The pace of innovation has been accelerating and we are now seeing exciting projects and companies being built on top of digital currencies. We’re beginning to transition into phase three of our secret master plan. Our goal is to be the safest, most trusted and compliant, and easiest to use. Not the first to market with new assets. Especially at scale, it takes time to ensure any new asset we add is well tested and secure,” said Armstrong.
Coinbase is also one of the two exchanges in the US market apart from Gemini that is targeting institutional and retail investors by providing sufficient liquidity. As Coinbase and its flagship cryptocurrency trading platform GDAX continue evolve, Draper will position himself at the forefront of cryptocurrency innovation and disruption.
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