5 Legendary Commodity Investors: Jim Rogers, George Soros, Eike Batista, Larry Hite, & Victor Sperandeo
Jared Cummans: There was a time when commodities trading was only for the most sophisticated of investors. Whether it’s gold, oil, agricultural products or just a commodity index-based ETF, the world of raw materials trading has expanded tremendously in the past 10 years and is now accessible to the everyday trader. In fact, in September 2012, The Financial Times wrote about the popularity of commodities investing in pension funds of schools and municipal retirement associations [for more commodity news and analysis subscribe to ourfree newsletter].
Below we outline five of the world’s most famous businessmen who made fortunes playing the commodity space, paving the way for future investors:
An Alabama native, Rogers began his entrepreneurial career early, collecting soda bottles at the ripe old age of five. He attended Yale and Oxford, earning degrees in history, philosophy, politics and economics. In the 1970s, with just $600 to his name, he teamed up with George Soros to create the Quantum Fund, which gained 4,200 percent gains in 10 years. By 1977, at the age of 35, Rogers finally earned his first $1 million in net worth. In the 1980s Rogers retired to have, what he called in a 2009 interview with Steve Forbes, “another life.”
After travelling the world on his motorcycle during the 1990s, Jim Rogers he founded the Rogers International Commodities Index in 1998. In 2007 he invested in the American dollar. His thought process, as he revealed in the Forbes interview, was that currency was being “debased.” He places a heavy investment focus on agriculture, supported by his findings that students aren’t studying to be farmers anymore. To Rogers, this fact spells profit because it will lead to falling supplies with increasing demand and prices. He thinks that commodities across the board are currently undervalued and is further expanding his focus, looking for hidden gems in Russia, possibly even including the ruble.
After surviving Nazi-occupied Hungary, in 1947, a 16-year-old George Soros left Hungary and studied at the London School of Economics. At the time, he also worked as a porter, salesman and waiter [see also Invest Like George Soros With This Commodity Stock].
Eventually making it to New York, Soros began working as a trader and analyst. He applied philosophical social theories to the market in an early version of behavioral finance, and used this to predict the materialization of financial bubbles. After helping develop an offshore fund in 1967, he joined Jim Rogers in creating the Quantum Fund in the 70s.
Soros has long felt that a capacity for deep thinking is necessary for investing successfully. He also favors retrenching when facing losses, rather than recouping. Investing hasn’t been all rosy for Soros; in 2008, he bought shares of Bear Stearns at $54 just before the JP Morgan merger, leaving his fund at a loss for the year.
In 2012, Soros added 884,000 shares of SPDR gold to Soros Fund Management after having sold much of his gold and silver holdings in May for a 65 percent gain. Also, like Rogers, Soros is a fan of agriculture, as evidenced by his $232 million stake in South American food and energy company Adecoagro (AGRO).
If there’s one thing that can be learned from investor Eike Batista, it’s to use the intrinsic insider knowledge one has of his birthplace and its resources when investing and speculating. Batista was educated in Brazil until the 12th grade, at which time he followed his father, who was creating offshore offices for Companhia Vale do Rio Doce, to Europe. In 1974 Batista studied metallurgy at a German university before dropping out.
When his parents stopped financially supporting him, Batista began selling insurance from door to door and found the independent lifestyle stressful. In 2010 he told interviewer Charlie Rose that this stress to support himself had been a great experience that made him tougher. At 23, he returned to Brazil to find a major gold rush occurring in the Amazon River basin. Seizing upon the opportunity, he started a trading company to buy and sell gold. After a year and a half Batista had turned a $6 million profit on the $16 million in gold traded through him. Since competition had then introduced itself, he decided to go in a different direction and, in 1983, bought and mechanized one of the pick-and-shovel operations. It was the first mechanized alluvial gold mine in the Amazon and ended up earning Batista $1 million per month [see also 10 Gold Miners That Pay a Dividend].
In the same 2010 interview with Rose, Batista predicted the presence of roughly 100 billion barrels of recoverable oil in his new Brazilian oil field find. Sadly, just six-months after pumping its first barrel, the field was not found to be as fertile as originally thought and Batista’s group, OGX, was forced to reduce its production target, resulting in $15 billion in paper losses. As Batista explained on Twitter, however, he hadn’t actualized any of the losses since the assets weren’t sold, although this shortage will likely have a ripple effect on his other plans to monetize the oil.
A passionate trader with a talent for inventing new ways to trade, Hite grew up in Brooklyn and had a sort of non-descript beginning. He wasn’t an athlete or a scholar and he tried a wide variety of jobs to find himself, including acting, screenwriting and working as a promoter for rock bands. All of these failed ventures were the hotbed of his training; he recognizes that the failures and setbacks they helped him experience were exactly what enabled him to later succeed.
In the 1970s, Hite became a broker and commodities trader. He founded Mint Investment Management in 1981 and created computerized statistical models for the company. Mint had annual returns of more than 30 percent from 1981-1994 and, just 10 years after opening, Mint was the largest commodity trading advisory in the world. Hite left in 2000, and in 2001 he worked on his trading models through Hite Capital Management, a family organization that had a 70 percent return in 2008 and had only one year of losses. In 2001, Hite returned to hedge funds as president of U.S. Division of ISAM (International Standard Asset Management) [see also The Ten Commandments of Commodity Investing].
One of Hite’s key moves is to build an assumption of loss into every deal so that he may plan accordingly. He realizes that the markets are not rational and follows trends while exploiting emotional responses.
Trader Vic, as he is known, says in his 1991 book, “Methods of a Wall Street Master,” that as a child he wanted to be a hero; not a super-power-endowed crusader, but a realistic hero. He notes that his dream would have been to be a Ty Cobb or gold medal Olympian. He goes on to say that eventually he learned to let this “quest for glory” go. Traders who’ve watched Sperandeo grow from a Wall Street quote boy in 1966 to an independent trader might think otherwise. Between 1971 and 1988, Hite never had a losing year in his personal account and during the same period, he grossed $10 million for all accounts managed (including his own).
Now president of Alpha Financial Technologies, Sperandeo is an expert in the energy and metals sectors. In a 2012 interview with HardAssets Investor, he said he watches what governments are and aren’t doing in order to form opinions about the overall economy and markets. One of his concerns about the current American administration’s activities is that they have created an overly regulated political environment. As a result, he thinks businesses are holding back, but says he would become bullish on commodities and equities if it seemed as though the current administration were going to lose its power. Sperandeo has been very critical of Fed Chairman Ben Bernanke and is a proponent of the gold standard.
In 1987, Sperandeo predicted the market crash, cementing his role as thought leader in the trading community. His belief in putting a life expectancy on the bullish and bearish moves of the market has revolutionized technical analysis.
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