There are many worthwhile candidates on Wall Street for the Greatest Trade of All Time. There’s Jesse Livermore’s bet that the stock market would fall in 1929. He pocketed something like $100 million in profit, akin to $1.5 billion today. There is George Soros’ 1992 bet that the British pound would fall against a basket of other currencies. When it did, the Hungarian-American investor made $1 billion. Then, of course, there is John Paulson’s extraordinary bet in the years leading up to, and through, the 2008 financial crisis that the market for mortgage-related securities would collapse. He made a profit on the order of $20 billion for his hedge fund investors and himself, as chronicled in Wall Street Journal reporter Greg Zuckerman’s bestselling book, The Greatest Trade Ever.
Then there is what Bill Ackman did in March 2020. In the space of three weeks, as the Covid-19 pandemic was engulfing the globe, Ackman turned a $27 million premium paid to buy credit default swaps into a profit of $2.6 billion. He then reinvested a chunk of that windfall in the long positions he wanted to protect by buying the insurance in the first place. In the ensuing dramatic stock market recovery, Ackman made another $1 billion. In short, Ackman’s $27 million bet has netted him and his investors $3.6 billion. The trade might not rank up there with Paulson’s on an absolute basis—$3.6 billion is not $20 billion, after all. But on an internal rate-of-return basis, which accounts for the time value of money and is one of the most important measures of performance in finance, what Ackman did earlier this year may well rank as the Greatest Trade of All Time. No one had ever made 100 times his money in 10 days. And the scale was big enough to matter.
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