4 of the Greatest Contrarian Plays of All Time
1) Who: Saudi Prince Alwaleed bin Talal bin Abdulaziz Alsaud.
Play: Citi Bank.
In the late 1980s and early 1990s, Citibank was going under.
At $11.13 on Oct. 29, 1990, the stock was down more than 50% from its highest closing price in the previous 52 weeks. Every investor thought Citicorp was finished. A bank that had earned $1.9 billion in 1988, was now posting a loss of $885 million for the 1991 third quarter.
Enter Saudi prince Alwaleed. At Citicorp’s most dismal times, he invested $590 million of his own money (in February 1991, at $11.00 a share).
The economy rebounded, interest rates fell and earnings improved.
By October 1992, Citicorps stock was at $16.75, making the prince a return of 52% already. A year later the price was at $36.25, returning the prince 230% of what he invested.
By 1997, his return was 983.20%. It’s good to be the, uh, prince!
Alwaleed says he has one basic rule when he’s contemplating an investment: "Anything that’s worth $4 billion and costs $1 billion, buy it."
When asked why he was willing to make such a big bet on a bank most thought was finished, the prince gave an answer that should have any contrarian nodding in agreement: "In the last 19 months I watched the stock go from 35 to 10.75. It was very tempting, almost half its book value. The franchise of Citicorp’s internationally is unmatched by any other bank in the world."
2) Who: Jesse Livermore.
Play: Shorting Stock Market both in 1907 and 1929.
Jesse Livermore predicted the stock market crash of 1907.
He sold short as many publicly traded companies as he could get his hands on, and made $3 million in one single day. That’s the equivalent of $61 million today.
Twenty-two years later, he again predicted a market crash. In 1929, when everyone else in the world lost almost all of their investment and the United States was thrown into the depression, Jesse Livermore again sold short and made $100 million.
Adjusted to today’s dollars, Jesse Livermore made $3 billion in one day.
3) Who: George Soros
Play: British Pound
In one of the greatest contrarian investments of all time, George Soros went short the British pound and earned $1 billion in one single day: Black Wednesday.
In 1992, George Soros borrowed billions in British pounds and converted them to German marks. The Bank of England was stubbornly refusing to either raise its interest rates to levels comparable to those of other European countries or to float its currency. At a certain point, the Bank could not refuse anymore and was forced to devaluate the Pound Sterling. George Soros then repaid what he borrowed at the new, much lower value, and earned $1 billion.
He was dubbed "The man who broke the bank of England" for his play, which actually forced the British banking system to enact major reforms.
4) Who: John Templeton
Play: Buying US stocks
At the end of the Great Depression, most American companies were either bankrupt or non-existent. No one had either the money or the nerve to invest. As a consequence US stocks were severely undervalued.
John Templeton realized this. He also knew that since Europe was on the brink of war, the United States would somehow get pulled in: either into the actual battle or simply by supplying European Allies with military supplies, as it had done in World War One. He realized that this would spur the American economy and lift it out of the Depression.
When everyone else was busy hoarding their cash under their mattresses, John Templeton convinced his boss to loan him $10,000. He invested that money in 104 US stocks all that were selling for less than $1 in 1940, at the outbreak of the war. 34 of the companies he invested in were bankrupt.
Then he sat back and waited. Sure enough, four years later his $10,000 was already worth $40,000. He registered a profit on all but four of his stocks and in the end made five times his money.
The WD Research Staff