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Barron Rothschild has many famous quotes to his name. There is one, however, which underpins his success more accurately than the rest.
“Buy when there is blood in the streets, even if the blood is your own”
Of course, what Rothschild was referring to, was the opportunities which arise amidst a crisis.
This blog will outline five investors who profited handsomely from the 2008 Financial Crisis. This blog stands to act as an encouragement for others to see the opportunity which currently presents itself as a result of COVID-19.
First on our list of legendary investors is Carl Icahn. Icahn built his name on the back of investing in distressed securities and assets during downturns. His expertise lies in the purchasing of companies but most particularly gambling firms. Icahn has acquired three Las Vegas gaming properties during financial hardships and sold them at a hefty profit when industry conditions improved.
Ichan sold three properties in 2007, just prior to the 2008 crash for $1.3 billion – many times his original investment. He began negotiations again during the credit crisis and was able to secure the bankrupt Fontainebleau property in Vegas for approximately $155 million, or about 4% of the estimated cost to build the property Icahn ended up selling the unfinished property for nearly $600 million in 2017 to two investment firms, making nearly four times his original investment.
Simons’ hedge fund, Renaissance Technologies, employs an army of computers to exploit market inefficiencies. When markets went fell in 2008, the computers jumped in and did their work. Renaissance’s main fund, Medallion, was up 80% in 2008. Simons pulled down a cool $2.5 billion for himself. Unfortunately, the computers got no bonuses.
Warren Buffett published an article in The New York Times in October 2008 declaring he and his firm Berkshire Hathaway would be purchasing large amounts of American stocks during the equity downfall caused by the credit crisis.
Buffett’s quote ‘be fearful when others are greedy and greedy when others are fearful’ shares striking similarities with that of Rothschild’s. Warren Buffett purchased significant portions of Goldman Sachs, General Electric, Swiss Re and Dow Chemical – all of these companies had one main thing in common – required capital to get them through a volatile period. Buffet’s injection of capital at this opportune time served him and Berkshire Hathaway returning billions in profit, but also helped steer these and other American firms through an extremely difficult period.
One man made such a seemingly bold and audacious move in 2008, they made a film about him. That man is John Paulson. The hedge fund extraordinaire who found himself laughed at in many investment banks when he proposed a multi-billion dollar bet against the US housing market.
It’s one thing purchasing cheap stocks amidst a crisis as Buffett did, but it’s a completely different kettle of fish betting against one of the strongest markets in the world prior to a crisis. Dubbed ‘the greatest ever trade’ John Paulson successfully predicted the collapse of the US housing market. Held up sub-prime mortgages and collateralised debt obligations Paulson correctly foresaw an imminent collapse. His fund made an unthinkable $15bn in just one year thanks to his efforts.
History tells us the best time to invest is when markets are low. Looking back at every previous equity market crash, we see a subsequent recovery, those who were able to invest during the troughs in the market were often the ones who came out on top.
The diagram below shows the MSCI World Price Index over the past 30 years. We have circled the most opportune purchasing moments during that period.
The green arrow shows where markets currently have fallen to. Now is an excellent time to speak with a financial advisor about ways to invest. As history shows us, these opportunities do not come around often.
Jamie Dimon CEO of JP Morgan also used fear to his advantage during the credit crisis. During the eye-of-the-storm in 2008, Dimon used JP Morgan’s substantial assets in his favour by aquriing Bear Stearns and Washington Mutual. Both firms were in financial ruin – brought on in part – by huge bets against the US housing market which they gladly accepted. Dimon and JP Morgan bought Bear Stearns for approximately 15% of it’s value from early March 2008. Since its lows in March 2009, shares of JP Morgan have almost tripled and have made shareholders and its CEO quite wealthy.