1/So today's thread is going to be a compilation of some of the most legendary trades ever made in history.

You may or may not be aware of all of them- so grab a cup of coffee and let's get right in!

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2/I guess we get started with the most legendary trade of all time. George Soros breaking the Bank of England.

At the time the ERM (Exchange Rate Mechanism) existed that forced the exchange rate between the Pound and the Deutsche mark to stay within a band.
3/When Britain joined the ERM, they had to keep the exchange rate within 2.78 DM to 3.13 DM per pound.

In 1992, the UK economy was in recession. The market realized that there were problems as the Pound was on the lower end of the band.
4/To add to this, Helmut Schlesinger, then the President of the Bundesbank said the GBP could come under pressure and was likely to be devalued.

All this did was destroy the market sentiments and made it entirely bearish.
5/As I understand it (I could be wrong) the Bundesbank was focused on inflation, so they had high rates. Meanwhile the BoE had high rates just to maintain the ERM.

The UK economy was in recession, so it needed low rates, not high ones.
6/However low rates would have forced the pound below its trading band.

On the fateful morning of September 16, 1992, Soros and Co stepped up their short position from $1.5B to $10B.

They sold pounds to everyone willing to buy.
7/A 200 bps rate hike from 10% to 12% by the BoE announced at noon was useless- people kept selling pounds.

The BoE depleted its reserves fighting speculators in the market, and eventually that evening the Pound dropped out of the ERM and floated freely.
8/Soros made $1.5B. Honorary mentions include Bruce Kovner who made $300m and Tudor Jones who made $250m.

β€œMarkets can influence the events that they anticipate" -George Soros
9/The next trade is Paul Tudor Jones calling the crash of 1987. This one is pretty exciting so fasten your seat belts.

In 1987, Paul Tudor Jones performed a study where he laid that year's price action over that of the 1929 bust.
10/He found out that the correlation between 1987 and 1929 were very very close.

He and his team spent hours analyzing graphs, sales data, and all sorts of other data to identify this trade.
11/Two weeks before October 1987, the Tudor Group started to aggressively short the market- taking this position while the rest of Wall Street were oblivious to a possible bust.
12/The 1987 crash is believed to have been caused by "portfolio insurance". This led to forced selling after a certain point.

This turned out to be a problem when the week before Black Monday, the market fell 9% and triggered all the insurance models.
13/On the Friday before Black Monday, after market close, George Soros went into Stan Druckenmiller's office with Paul Tudor Jones' study.

Druckenmiller (who was very very long), realized that the market was going to collapse.
14/On Black Monday, the market didn't collapse in the first few minutes of trading. So Druckenmiller switched his position from long to short as quickly as he could.

He ended up making a profit from Black Monday! Meanwhile Soros lost his shirt...
15/Going back, the hero of this story was Paul Tudor Jones who made a mind boggling $100m from this trade.

There is an infamous documentary about this that surfaces from time to time.

Important to note that portfolio insurance wasn't the only cause- merely an important one.
16/The next trade is going to be Andy Krieger and the Kiwi Dollar.

This one isn't necessarily as well known. Krieger was a currency trader at Bankers Trust, an NY based bank that was later to become a part of Deutsche Bank.
17/Typically, traders could take $20-$25m positions on currencies. But Krieger would take positions of $200-250m: 10x the average trader.

What's more, Krieger's success led his capital limit to be lifted to $700m!
18/The NZD was a relatively new currency, and since September 1986 the NZD was rallying against the USD.

In mid-1987, the NZD gained momentum, and was up >40% at it's peak on Oct 8 1987.
19/Krieger proceeded to correctly identify that the NZD was overvalued. Remember his $700m limit?

He took it a step further and used 400 to 1 leverage, and his short position on the Kiwi dollar was greater than the money supply of New Zealand. You know where this is headed!
20/The finance minister of New Zealand is said to have yelled at Krieger’s bosses to β€œget the fuck off our currency, you little fucker!”.

Krieger made a $300m profit on this one trade, and then went on to work for George Soros.
21/The last story is of the legendary David Tepper and his bet on banks during the GFC.

As we all know, bank stocks suffered quite terribly during the Great Financial Crisis, and a lot of them had collapsed from their mid 2000s highs.
22/While everyone hated banks, Tepper was very bullish on banks.

Tepper read the government's Financial Stability Plan, a whitepaper, and realized that the banks would be saved.

Most people believed the US govt would nationalize the banks. Not Tepper!
23/Mr. Tepper says his average cost for shares of Citigroup was 79 cents; for Bank of America it was $3.72.

They also bought $1B of AIG commercial mortgage securities at 9c on the dollar, along with other distressed debt.
24/All in all, Tepper's fund netted a cool $7B from this trade. Tepper personally made a gain of about $4B.

To understand how big this number is, if Tepper worked 24 hours a day, for the 365 days that year, he made $457k/hour 🀯
25/I'm not making any comment on the morality of these trades- that's for you to decide.

Trades that should be included but weren't- @Jkylebass and John Paulson's credit default swaps, Andy Hall and oil and Stan Druckenmiller and the Mark come to mind.
26/If you read to the end- thank you so much for reading! Means a lot to me that you read it.

If you enjoyed the thread I request you please share it and drop a follow for more!

Feel free to reach out with feedback, any ideas for threads, etc! Once again, thank you!

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24 Apr
1/Back to the threads! Today we will look at Hyman Minsky's ideas on financial economics, business cycles and more!

He's the guy known for the concept of a "Minsky moment"!

Let's dig in!
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2/Who was Hyman Minsky anyway? And why should we care about him?

Minsky was a financial economist who has done some spectacular work on credit cycles, lending, etc. He was a professor of economics at Washington University in St. Louis.
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Here's a list of all the different threads I've written over my career with FinTwit.

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21 Mar
1/All right folks! It's time for another thread! I've historically written quite a bit about the different investment strategies of certain investors.

Today's thread is going to be on the influence of human behavior on investing.

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2/Investing as a whole is a behavioral venture, and everyone tells us to control our emotions.

The one thing we could arbitrage historically was information, but thanks to the internet, the only thing that we can now arbitrage, as @jposhaughnessy points out is human behavior.
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13 Mar
1/The "Lessons from Soros" thread blew up, so here's another one!

One of the greatest investors of our time is @michaeljburry and you probably know him as the guy who was featured in The Big Short.

Who was he and what can we learn from him?
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He produced returns of 490% from Nov 2000 to June 2008 (~25% annually) compared to (cumulative) -6.5% for the S&P over the same period.
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3 Mar
1/Time for a thread to document the ways of another great investor- Julian Robertson.

He is considered by many to be one of the greatest investors of all time. He is someone who was one of the biggest stars of the investment world.

A thread:
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27 Feb
1/George Soros is one of my favorite investors, and I've wanted to compile a thread of Re-Soros-es by George Soros and his ideas.

Here's what we can learn from one of the greatest investors- a thread:
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1. We try to understand the world, as well as change it to benefit ourselves
2. Our act of understanding is part of the reality we try to comprehend so trying to understand changes reality
3. Thus, we can never gain a full...
3/...understanding of reality and the implications of this idea are huge.

Firstly it means nobody can possess perfect knowledge, making all our decisions imperfect.

As our understanding already causes reality to change, which makes our initial understanding was wrong.
Read 33 tweets

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