Trading Legends

John W. Henry

screenshot_11John W. Henry is an astonishingly successful self-made man who started without formal association to Wall Street. He developed trend trading systems in the 1970s that literally made billions and has captured some of the great trends of our generation. For example, by all available evidence Henry was on the other side of the Barings Bank blowout. In that zero-sum game he won what Barings Bank lost. Today, Henry is retired from managing money for clients. With his billionaire status solid he now runs two professional sports teams including the Boston Red Sox. While Henry may have exited the client business after 30 years–hold your breath if you think his now retirement casts a negative light on trend following. Far from it. In fact, Henry is an inspiration to all would be trend followers.

If one theme summarizes Henrys philosophy, it is the knowledge that one cannot predict anything. Henry is a long-term follower. His philosophy is based on the premise that market prices, rather than market fundamentals, are the key aggregation of information needed to make investment decisions. He says, The markets are peoples expectations, and these expectations manifest themselves as price trends. We live in an uncertain world. One cannot predict the future of anything. In an uncertain world, identifying and following trends may be the only reasonable investment approach over the long term. Henry feels that a mechanical approach has more value since no scientific approach or solid testing can be applied to discretionary trading. Henry says that when he first researched the markets in the 1970s, he was looking for a methodology that would work through many market conditions. His research showed that long-term approaches work best over decades. There is an overwhelming desire to act in the face of adverse market moves. Usually it is termed avoiding volatility with the assumption that volatility is bad. However, I found avoiding volatility really inhibits the ability to stay with the long-term trend. The desire to have close stops to preserve open trade equity has tremendous costs over decades. Long-term systems do not avoid volatility, they patiently sit through it. This reduces the occurrence of being forced out of a position that is in the middle of a long-term major move.”

John Arnold

screenshot_3John 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

Jay Gould

screenshot_4Jay 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

Louis Bacon

screenshot_5Louis 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

screenshot_6Paul 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

screenshot_7Jim 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.

Richard Dennis

screenshot_8Nineteen eighty-six was a huge year for Richard Dennis. He made $80 million. That kind of money- making put him squarely at the center of Wall Street alongside George Soros, who was making $100 million, and then junk bond king Michael Milken of Drexel Burnham Lambert, who was pulling in $80 million.

Profits like those for Dennis came with heartburn. He was down $10 million in a single day that year before bouncing back, a roller-coaster ride that would have made mere mortals lose serious sleep. Yet Dennis cockily said that he slept like a baby during all that volatility.

His moneymaking style was about mammoth home runs and many smaller strikeouts. If there was a “secret,” he knew that you had to be able to accept losses both psychologically and physiologically. Still, 1986 was a long time ago, and memories dull when an old pro starts talking about the benefits of taking “losses.” During his heyday in the 1970s, 1980s, and mid-1990s, Dennis was described in a number of ways by those who knew of him. There was Dennis the legendary floor trader, Dennis the trading system’s trading guru, Dennis who started funds with investment bank Drexel Burnham, Dennis the philanthropist, Dennis the political activist, and Dennis the industry-leading money manager.3 He was a difficult man to stereotype, and he liked it that way.

Paul Rotter

screenshot_9Some consider Paul Rotter one of the best traders in the world.  If that is really true or not is anyone’s guess.  But there is certainly no doubt that he is one of the best.

He became known as “The Flipper” because of his unique trading style on the Eurex exchange that involved placing a huge order on the opposite side of the market that he really wanted to take.  Then when other traders tried to jump in to take a ride with the big position, he would withdraw the order and take the opposite side of the trade to suck in all the bad trades and scalp a few ticks. Rotter was despised by many traders who blamed him for their losses.

Bill Lipschutz

screenshot_12Born in New York, Bill has always excelled in mathematics and was a bright student overall. He earned a B.A. in Cornell College in Fine Arts and then a Masters degree in Finance back in 1982. Apart from academics, Bill enjoyed reading whatever he could find regarding the stock and Forex market. It is said that during his stay at Cornell, he invested $12000 in stocks, which he turned into $250,000 in only a couple of months, largely thanks to his extensive knowledge of the stock market business. However, he soon lost all his money to stocks due to the erratic nature of the business; after this loss he shifted to a more stable form of trading: the forex.

Today, Bill is a well known forex trader in the financial sector. He is known to have made over $300 million in a single year from trading on the forex market alone.

George Soros

screenshot_13A graduate of the LSE (London School of Economics), George has broken records in the financial sector. He made $1 billion dollars in just one day from a single transaction. This gained him a lot of press and he was branded as the man who “broke the Bank of England”, having shifted over $10 billion dollars worth of sterling out of Britain. He has written many books on investing, and is also a philanthropist, having donated over $7 billion in charity of personal savings over the course of his existence.

John R. Taylor, Jr.

screenshot_14A graduate of Princeton University, John started in the financial sector as a political analyst for Chemical Bank. Just one year into the job, he became the forex analyst for the bank which proved a wonderful opportunity for him to build a network in the foreign exchange world.

John is the proud owner of FX concepts, a currency managing firm, and operates it successfully to this day. He is also considered a pioneer of computer-aided forex trading systems, developing forex models for effective online trading.

Stanley Druckenmiller

screenshot_15Stanley started out as an oil analyst for the Pittsburgh National Bank. Having graduated from Bowdoin College, Stanley changed many jobs. First, he left PNB to create Duquesne Capital Management in the year 1981, and then he started to work for George Soros in 1988. Working with George Soros proved excellent for Stanley, because not only did he garner over 30% return in the Quantum Fund, he also contributed to the deal which earned both him and Soros over $1 billion; this was the deal which “broke the Bank of England”.

He returned to Duquesne in 2000 and now works full-time there; he has also started a non-profit organization dedicated to educating people of all ages.

Andrew Krieger

screenshot_16A graduate of the prestigious Wharton Business School at the University of Pennsylvania, Andrew grew to fame when he sold New Zealand currency called Kiwi in between the value of $600 million to about $1 billion which exceeded the money supply in circulation in actuality within New Zealand at that time. Andrew ended up garnering $300 million in revenue from this transaction alone in 1987 while working at the Bankers Trust.

Andrew moved on to work for Soros Management Fund in 1988, later switching to Northbridge Capital Management. He is also involved in philanthropic work, having donated over $350,000 for a relief fund for the 2004 tsunami victims

John Paulson

screenshot_18John Alfred Paulson is an American hedge fund manager and billionaire who heads Paulson & Co., a New York-based investment management firm he founded in 1994. He has been called “one of the most prominent names in high finance” and “a man who made one of the biggest fortunes in Wall Street history”. His prominence and fortune were made in 2007 when he earned “almost $4 billion” personally and was transformed “from an obscure mo..

John Key

screenshot_17John Phillip Key is the 38th Prime Minister of New Zealand, in office since 2008. He has led the New Zealand National Party since 2006. Born in Auckland before moving to Christchurch when he was a child, Key attended the University of Canterbury and graduated in 1981 with a bachelor of commerce. He began a career in the foreign exchange market in New Zealand before moving overseas to work for Merrill Lynch, in which he became head of global foreign exchange in 1995,…

To be continued

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