I recently came across the International Business Times' list of the 10 greatest trades of all time. And what I saw surprised me. You see, I thought I'd find Warren Buffett's buying of Geico or Coca-Cola -- or some of Peter Lynch's 10-bagger stocks like Fannie Mae or Taco Bell.
Both investors failed to make the cut.
The trades that did make the list, in hindsight, make sense because of how uniquely contrarian they were. And I think they could provide a key piece of advice that -- if you're like most investors -- you'd do well to implement today.
After I share these top trades with you, I'll share with you a unique solution for putting the lessons they offer into practice today.
IBT's 10 greatest trades of all time
| Number | Trade | Tactic |
|---|---|---|
| 1 | John Paulson's bet against subprime mortgages | Short |
| 2 | Jesse Livermore's call on the Crash of 1929 | Short |
| 3 | John Templeton's foray into Japan | Long |
| 4 | George Soros' breaking the Bank of England | Short |
| 5 | Paul Tudor-Jones' shorting of Black Monday | Short |
| 6 | Andrew Hall's $100 oil prediction | Long |
| 7 | David Tepper's 2009 bet on financials | Long |
| 8 | Jim Chanos' prescient shorts | Short |
| 9 | Jim Rogers' early call on commodities in the 1990s | Long |
| 10 | Louis Bacon's geopolitical play on Saddam Hussein's invasion of Kuwait | Long & Short |
Source: International Business Times.
Surprised? Five and a half of the most lucrative trades were bearish shorting plays. Only four and a half were long-only strategies -- though those typically took longer to pan out than the short calls. And most of the longs were concentrated sector bets.
Now I don't think this makes the case that shorting stocks, commodities, or sectors are on par with going long. After all, "shorting" and "hedging" can be risky strategies if you aren't fully aware of the risks involved.
But I do think this chart speaks to the fact that, if you're not using a variety of both bullish and bearish tactics in your portfolio, you're missing out on lucrative profits when the market dips, stays flat, or one sector takes off.
After all, these ten trades alone netted these men billions of dollars.
And it's something you can easily replicate yourself
With the exception of Paulson's shorting of subprime mortgages through credit default swaps and perhaps Soros' shorting of pound sterling, nearly all of these moves could have been made by an individual investor like you.
In fact, a colleague of mine here at the Fool, Jeff Fischer, is making similarly diverse bets using a mixture of stocks, options, and ETFs, by going both long and short. And he's been quite successful -- turning $1 million into over $1.4 million in just over two years.
He went long GrafTech International (NYSE: GTI) at the end of 2008, then again in 2009. It's the largest manufacturer of graphite electrodes, which are used to heat steel used for infrastructure and other construction by companies like Arcelor Mittal (NYSE: MT). Its technology also produces other metals and chemicals for big-tech names like Apple and MEMC Electronic Materials.
He's up 130% as management continued to execute in the midst of an industry downturn.
Jeff makes concentrated sectors bets as well. He recently bought shares of WisdomTree Emerging Markets Small-Cap Dividend ETF (NYSE: DGS). His thesis on this ETF is threefold: small caps outperform large caps by an average 2.1% per year, companies that pay dividends outperform those that don't, and emerging markets have outperformed U.S. stocks by 9% annually in recent years. Together, these three truisms should work in his favor -- and let the fund pocket 2.7% in dividends annually.
Lastly, Jeff dabbles in both bullish and bearish options strategies. One of his recent bold bets was to write naked calls on iPath S&P 500 Short-Term Futures (NYSE: VXX). He noticed how poorly this ETN tracks the VIX index, and thought investors could profit nicely from this lag. This investment couldn't have been more prescient -- he's up over 90% in less than two months!
If these investments sound interesting, and you'd like to learn more about his strategy for generating absolute returns in up, down, and flat markets by going long and short stocks, options, and ETFs, here's some good news: we're opening Motley Fool Pro to new members for the first time this year.
If you'd like to learn more about Jeff's approach, track record, and how to join, simply click here and tell us how to get in touch with you.
