Five Risky Bets that Paid Off
Follow @sarah_childressMay 22, 2012, 9:43 pm ET
Tonight’s film tells the story of a big bet by MF Global CEO Jon Corzine. While markets were anxious that a number of European countries would default, Corzine made a large proprietary bet that European government bonds were selling cheap and would go up in value. The $6 billion wager was “big enough to wipe out the firm five times over if it went bad,” according to The New York Times.
“The basic reasons people do takes these risks is that they believe that they’re right,” said Richard Sylla, professor of economics and financial history at New York University’s Stern School of Business.
And as Six Billion Dollar Bet shows, Jon Corzine had an appetite for risk. “Jon Corzine has always been a gambling man,” explains financial journalist William Cohan in the film. “This is what he does. Why do scorpions sting? Because that’s what they do.”
We’ve compiled a list of five risky bets that could have made history as financial failures. Instead, these investors — from a small-town Tennessean to a Hungarian money whiz — got it right, and went on to make millions, even billions of dollars.
Sir John Templeton grew up in small-town Tennessee, not on Wall Street, and started his career in finance in 1938. A year later, when war broke out in Europe and most investors began selling, Templeton decided to buy. He borrowed $10,000 to buy shares in 104 companies trading for less than $1 on the New York Stock Exchange, including 34 that had already declared bankruptcy, according to his official biography. Within four years that investment was worth about $40,000, the foundation of what would become a multi-million-dollar fortune. He died in 2008 at age 95, five years after he predicted the housing crash and declared the stock market “broken.”
THE MAN WITH A METHOD
Considered one of Wall Street’s greatest traders, Jesse Livermore, whose worth would ultimately be estimated at more than $100 million, shorted the stock market in the 1920s, waiting for what he assumed would be an inevitable collapse. He was already wealthy, a speculator less interested in a company’s fundamentals than whether he could profit from investing in or against it. “Everything Jesse Livermore touched turned to gold, it seemed,” said Robert Sobel, a historian interviewed for AMERICAN EXPERIENCE’s The Crash. “All he had to do was to press a button and a stock would go up ten points.” When the market crashed on Oct. 29, 1929, he came home and, according to his daughter-in-law, told his wife he’d made more money that day than he’d ever made before.
THE STERLING SPECULATOR
In what’s become a kind of financial legend, Hungarian-American investor George Soros risked $10 billion shorting the British pound in 1992. The mess started, according to an account from More Money Than God, Sebastian Mallaby’s history of hedge funds, when the president of the German central bank at the time made a public remark that signaled he felt the British pound should be devalued, or that it was worth less than the current selling price. Once Soros heard this, he reportedly told his chief portfolio manager, “Go for the jugular.” Soros and his firm, Quantum Fund, sold as much sterling as they could that afternoon, driving down the price of the currency. The next day, other investors piled on. The Bank of England bought up one billion pounds to keep the price stable, and even raised interest rates, according to The New York Times, to no avail. The pound was devalued. Soros made $1 billion and was dubbed “the man that broke the Bank of England.”
THE COMPANY HERO
A trader at Deutsche Bank, Greg Lippmann was one of the few who, like Paulson, thought the subprime housing market was likely to collapse. As told in Michael Lewis’ The Big Short and Greg Zuckerman’s The Greatest Trade Ever, Lippman’s bet that the housing bubble would pop led his colleagues to dub him “Bubble Boy.” But when it did, Lippmann made $1.5 billion, which he later told a Senate committee [PDF] was what he believed to be the largest profit ever obtained from a single position in Deutsche Bank history. Lippmann has since left the bank to found his own hedge fund, LibreMax Capital. “I don’t feel guilty,” Lippman responded to his critics via The New York Observer. “Look, if more people had viewed the world the way I did, the catastrophe would have been smaller. It’s not my fault.”
THE SUBPRIME STAR
During financial disasters, there are usually at least a handful of investors who profit from others’ losses. This most recent crash was no different. Investor John Paulson, who wasn’t considered a major player on Wall Street, scraped together a $147 million fund from friends and family, and bet against the housing market just before the crash in 2007, according to The Wall Street Journal. His firm made $15 billion. Paulson, 56, currently ranks at #61 on Forbes‘ list of billionaires, which hailed him as “The hedge-fund titan who pulled off the greatest trade ever.” But in 2011, the market turned on Paulson, who lost billions betting that the U.S. economy would recover. He was knocked by Time magazine for making one of the “Top 10 business blunders” of the year, and has been struggling to turn around the losses since.
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