If you read my blogs posts regularly, you’ll know that I have a thing for financial betting. Whether it’s placing a spread bet on a stock price or trying to profit from the volatility of the price of Bitcoin, there’s something about the unlimited potential of financial betting that appeals to me.
Much like the poker circuit, the financial world is full of stories of legends who placed trades which not only filled their pockets with untold wealth, but also rocked the world in the process. If you think a multimillion-dollar slot machine win is a big deal, wait until you read about five of the greatest financial bets of all time.
How Does Financial Betting Work?
Before we begin, let’s get clear about what financial betting is since some of you might be new to the concept. If you’re an old hand, you can skip this part.
Here’s the idea of betting on financials: You bet on the price of a stock, market, or an asset like gold or silver and try to predict whether it will rise or fall. Often, with the right trading account, you can borrow up to 100x your deposit to make a trade, so it’s possible to really capitalize when an opportunity arises.
You can bet on the price going up (long) or going down (short) and profit either way. To give a quick example, let’s say that I have been watching the markets, and I think the Federal Reserve is going to announce another round of quantitative easing. That means it is going to print tens of billions and pump it into the economy. I also know that the rich guys get the money first and that they tend to buy stocks. Therefore, I place a bet that the price of the Dow Jones Industrial Average stock index will rise after the announcement.
If I place a long bet and I’m right, I profit. There’s no limit to the upside. As long as the stock market keeps going in the direction I predicted, I make more money. It’s up to me to close the trade and call it a day before things turn the other way and I lose some (or all) of what I have made.
That’s a simple, crude explanation of financial betting. Now, let’s take a look at some of the greatest financial bets of all time.
Jesse Livermore Makes $100 Million in the 1929 Crash
Some people believe that profiting from disaster is immoral. Others believe that since it’s going to happen anyway, you might as well pocket some cash and donate some of it to help clean up the mess.
Jesse Livermore, a Massachusetts investor who grew up dirt poor, correctly predicted that the 1929 stock market crash was coming. He opened a short position on the entire stock market to try to profit from this.
Mr. Livermore bagged $100 million in 1929, which equates to over $1 billion today. I think it’s safe to say that he never asked for money again.
While it’s unlikely that you and I would ever have the capital to open a short position as big as this, we can do it on a miniature scale. How would you like to make $1 million the next time Wall Street lets their greed get the better of them and brings the whole show crashing down?
It’s entirely possible. Maybe read some more about Jesse Livermore to learn how he made one of the greatest financial bets of all time. He started with nothing, so it’s possible for anyone.
Jim Rogers Becomes the Commodities King in the ‘90s
Not all financial traders are stereotypical Wall Street types. Jim Rogers is an Alabama-raised trader who has a bowtie for every occasion.
Rogers is a commodities trader, meaning he deals in hard assets like oil, gold, silver, wheat, and other tangibles. He called the bottom of a long bear market in the ‘90s and made himself a fortune going “long” on the prices of commodities.
How much did he make? Nobody knows exactly, but since his net worth is now over $300 million, I think it’s safe to say he made a bundle.
Going long is the opposite of short selling into a crash. If you’re uncomfortable with profiting from financial calamity, this may be the way to trade for you. When a bull market comes, and prices rise, you can get rich while others prosper, too. Just make sure you close your financial bet before the market turns.
If you’d like to learn about trading commodities, I recommend reading “Hot Commodities” by Jim Rogers himself. He believes that commodities have a lot more room to grow, so it might not be too late to jump on this train and make some of the greatest financial bets of all time.
Jim Chanos Makes $500 Million Shorting Enron
It’s often said that the greatest financial bets are made by contrarians, those who bet against everybody else. This trade is a great example of when doing so paid off.
Jim Chanos was a Greek immigrant to Milwaukee and grew up in a family who operated a chain of dry-cleaning shops. Those early days observing a humble business must have taught him something because, in 1999, he viewed an Enron corporate document for the first time and went down a rabbit hole of research. He concluded that the company was in serious hot water and shorted it.
Two years later, in 2001, Enron collapsed. Chanos pocketed a cool $500 million for his efforts.
Still have a thing against short selling? I don’t, especially when it involves exposing and punishing crooks. Again, these numbers are way out of my league, but I have personally profited several thousand dollars from a $100 bet on a short sell. I opened it AFTER the bad news of the company had been announced.
If I can do it, anyone can. Short selling is often seen as wicked, profiting from people’s misfortune, but it’s an essential part of how any market functions.
George Soros Breaks the Bank of England
George Soros is a controversial character who draws scorn from certain political elements in society, but I’m not interested in all of that. I’m interested in how he made one of the greatest financial bets of all time: $1 billion in a single day by playing the currency markets.
To put this trade in layman’s terms, Soros used his experience as an economist and currency trader to recognize an opportunity to short the Pound sterling. He borrowed approximately $10 billion and shorted the pound, making an estimated $1 billion profit in a single day on September 16th 1992, aka Black Wednesday.
Now, Soros is a savant, and you and I don’t have access to anything like $10 billion. But we can still trade the currency markets from home. Currencies are traded in “pips” which are fractions after the decimal place. It’s possible to make a fortune if a major currency either increases or decreases in value against another by even half a percent.
Whatever you think of Soros, you have to admit, $1 billion in a day is impressive. Heck, I’d pat myself on the back if any gamble I took made 0.01% of that.
John Paulson Profits From the Big Short
Yes, The Big Short is the name of a movie, and yes, that movie is about this trade.
John Paulson was an obscure hedge fund manager who started his fund with just $2 million. JUST $2 MILLION? I heard you yell. Well, by Wall Street standards, that’s peanuts, and relative to what he ended up with, it really is a small amount.
Paulson saw the subprime mortgage crisis coming and bet heavily against the property market. Specifically, he bet against the toxic, fraudulent assets which banks had been issuing for years. These were backed by sub-prime mortgages and Paulson realized this would not end well.
While everyone thought he was crazy, Paulson held his ground, and in the end, he made almost $4 billion from this short trade. I told you the original $2 million was chump change!
In case you think Paulson made his money from people losing their homes, he did not. He bet against the banks, not the properties themselves. This goes down as one of the most profitable and greatest financial bets of all time. Paulson became an overnight legend as a result.
As the old financial trading adage goes: Be fearful when others are greedy, and greedy when others are fearful.
Financial betting is a completely different ballgame from playing casino games or betting on sports. For starters, you’re betting against other participants in the market. It’s a zero-sum game, and there’s no bookmaker or casino involved.
Contrary to what the above trades might make you think, you don’t need a lot of money to start betting on financials. I’ve opened short bets with $50, and you can do the same. If you’re looking for something new, mentally stimulating, and potentially profitable, give financial betting a try.
Someday, you could end up on the next list of the greatest financial bets of all time. One thing is for sure, none of the guys on this list could have predicted they’d be on it when they started betting on financials.
Ready to check out some financial betting sites? Good luck on becoming the next Wall Streeter!