Greatest Trades Ever Made VS Most Scandalous Trades
People love to hear about the greatest successes and failures in about any industry. After all, those circumstances make for the best stories. The following is a collection of some of the greatest legitimate financial successes and some of the greatest illegal blunders. Each story has its own lessons to impart on a reader even if it is as simple as what not to do to make money in the markets.
Andy Krieger vs. the Kiwi
In 1987, the Black Monday crash ruined many a trader. Investors and traders rushed to get their money out of the USD and into safer currencies that had suffered less damage from the crash. This is where Andy Krieger, a 32-year-old currency trader at Bankers Trust saw opportunity. He was carefully monitoring the currencies that were rallying against the dollar, aware that there were bound to be opportunity to arise from some currencies that would become overvalued, creating a viable opportunity for arbitrage. Krieger’s currency of choice was the KIWI - New Zealand dollar.
Options at this time were relatively new and Krieger, using these new methods, took up massive short positions against the Kiwi (NZD). His orders were so big that the selling pressure, along with the shortage of currency in circulation, caused the Kiwi to drop sharply. Krieger made millions on these trades for his employers.
Stanley Druckenmiller vs. the Mark
Stanley Druckenmiller, while working for the Quantum Fund of George Soros, made millions through two long trades on the same currency.
The first trade, was placed when the Berlin Wall fell, where the German Mark dropped to a level he believed to be extremely low. Under the belief that the price would rise again in the future, Druckenmiller placed a buy order that eventually amounted to 2 Billion Marks. The trade resulted in millions of dollars of profit.
The second trade came whilst Druckenmiller’s boss, Soros, was taking on the GBP and the Bank of England. Druckenmiller essentially bet on the actions of Soros dropping the British pound against the Mark. He was right, and through a combination of buying British stocks and German Bonds, Druckenmiller managed to add a considerable additional value to his senior’s original trade against the GBP.
George Soros vs. the British Pound
Britain was a victim of the Bank of England’s stubbornness when it came to this particular trade with George Soros, as well as with the wider economic condition of the early 1990s. One of the conditions it placed on entering the European Exchange Rate Mechanism (ERM) was that it demanded a fixed rate to the pound of 2.7 Marks. Attempts to maintain this financial standard against a stronger German economy left the UK with high interest rates and inflation.
Many began to speculate as to how long the UK could fight market forces with this fixed exchange rate, and some, none more significant than Soros, began to take positions against the GBP. The UK eventually withdrew from the ERM and as such, the GBP fell sharply against the Mark to its natural position. Soros cashed in, making at least $1 billion from this one trade.
Most scandalous inside trades
Albert H. Wiggin - Market Crash Millionaire
It was no great secret to professionals or even to some areas of the public that Wall Street was rigged during the 1920's. Powerful investing pools regularly influenced market conditions. The market was notoriously full of smokescreens, keenly used by the powerful and manipulative to hide sell orders. It turns out that in October, 1929, the ‘big game’ itself was nothing more than yet another smokescreen and the market crashed hard.
Albert H. Wiggin, respected head of Chase National Bank, took advantage of this crash. Much like a sports coach betting on the other team, Wiggin shorted 40,000 shares of his own company, representing a serious conflict of interest. He used family corporations to hide these trades and eventually created a situation in which he had a vested interest in running his company into the ground. At the time, there were no rules against this and Wiggin made a legitimate $4 million from the shakeout of Chase stock that followed the crash.
Others inevitably tried their luck and this inevitably led to revisions of the Securities Act in 1934, dubbed the ‘Wiggins Act’ to firm up on insider trading.
Levine, Siegel, Boesky and Milken - The Precognition Rat Pack
This group of Charlatans became household names in the 1980s through a series of insider trades. Whilst Boesky was the real conductor of the scheme, it was Milken that received the most attention from the authorities, as he was the biggest target for the Securities and Exchange Commission.
The way this operation worked essentially, is that Boesky, being an arbitrageur in the 1980s, would pick out takeover targets, prior to an offer ever being made. When the offer did come, the firms stock would hike and Boesky would sell, displaying what, until proven to be fraud, looked like exceptional precognition. However, this was proven to be fraud and what Boesky was actually doing was paying Levine and Siegel for pre-takeover information.
The SEC eventually became suspicious of Boesky’s unprecedented success and following a tip off of a leak to Merrill Lynch, started to uncover hidden plot. They nabbed Levine who in turn gave up Boesky. Through observing Boesky, the SEC then caught Siegel and they then went after and caught Milken. Boesky and Milken both received record fines and prison sentences.
Martha Stewart – Extreme homemaking…in a cell
Martha Steward got her hand caught in the cookie jar in 2001, when displaying a remarkable ability to ‘guess’ an event that was about to take place between the Food and Drug Administration and company ImClone. She sold shares in ImClone that were hit hard by the FDA’s decision to reject a new drug produced by the company. Stewart sold when the shares were high, and the value fell dramatically over the coming months.
While Stewart claimed to have a pre-existing sell order with her broker, her story fell to pieces and she was eventually forced to resign as the CEO of her own company, fined $30,000 and sentenced to prison for insider trading.
R. Foster Winans - The Columnist
It is the outcome of this case of insider trading rather than the value that makes the example stand out. Winans was a columnist and writer of the "Heard on the Street" that profiled specific stock. The value of the stock Winans wrote about often reacted one way or another depending on his opinion offered. He thought he could take advantage of this reaction and would leak what he was going to write to particular brokers before publication giving that group an inside advantage. Winans was allegedly provided with some of the take gained from these brokers.
When caught by the SEC, they faced a unique dilemma. The information Winans has given was not material information as it was based on opinion rather than fact. In order to secure a conviction they had to charge on the grounds that the information Winans had essentially ‘sold’ belonged to his employers, the Wall Street Journal. Great trading minds bring us stories of great successes such as Soros breaking the Bank of England or Krieger's capitalizing on the Black Monday crash. Equally great minds put to nefarious purposes bring us stories more akin to the manipulations of the stock market in the 1920's. The fact of the matter is; grand wins are relatively few and far between. Fortunes are built on persistence and consistency in the same way water gradually erodes rock.