Learning from the Greatest Trades Ever

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Jesse Livermore died long before John Paulson was born.

But these investment savants are united by a common impulse to short assets they thought would fall heavily in value.

Livermore reaped millions of dollars from shorting stocks ahead of the Panics of 1907 and the market crash of 1929. And Paulson made billions of dollars in 2007 betting that the bid-up subprime-housing industry was too good to be true.

Part-time trader Vincent Veneziani discussed these trades and others in his new book, The Greatest Trades of All Time: Top Traders Making Big Profits from the Crash of 1929 to Today. (Wiley.)

The book, which arose out of an article that the 25-year-old Veneziani wrote for Business Insider in 2009, discusses the reputation-making trades of other investment pros including George Soros, John Templeton, Jim Chanos, and Paul Tudor Jones II.

He also attempts, with varying degrees of success, to discuss what investors today can learn from these investment giants and their biggest trades.

This is the first book by a young writer and it shows. Much of the prose is workman-like and lacks the detail and even excitement one would expect from a book covering the greatest trades ever. One only wonders what veteran nonfiction writers like Ron Chernow or Michael Lewis could do with such a meaty topic.

Still, Veneziani, who currently is content manager for Markets Media, a financial publisher, is to be credited for tackling a subject that should be of interest to anyone who has ever placed a bigger-than-average wager on a security.

Barrons.com recently talked to Veneziani about some of the lessons he's learned from communing with the best minds in investment history.

Q: First off, what kind of trading do you do?

A: I basically trade on the side with family money. I started with stocks, then got into stock options, equity futures, and exchange-traded funds."

Q: You use the word "trading" rather than "investing." Are you a day trader?

A: I would rather not be pigeonholed. Sometimes I will hold stuff for several months.

Q: Of all the trades you've looked at for the book, what's the greatest in your mind?

A: It is so hard to pick one but I'm impressed with how John Paulson bet correctly on the decline of the economy and the housing market and then when prices where down, he basically bought both bank stocks and gold. Until recently, that was a very good trade. The idea of riding something all the way to the bottom and making a boatload of money, but then riding it back up to a good extent.

Q: You attempt in the book to kind of distill lessons that will benefit everyday investors. But all the examples in the book are of men who have researched investments for a living. Should part-time investors lbe risking large chunks of their capital on a single risky idea?

A: Absolutely not. It's just not prudent to do anything like that. I think that they will look at some of the ideas there in the book and say well, you know now is not the time but maybe in the future if a similar opportunity arises, here is how I can do it and maybe this will help me.

Q: You offer up easy alternatives for investors to short housing, such as shorting a home builders exchanged-fund trade.

A: I don't see a problem with that as long as they understand what they are getting into. It is important that somebody examines the underlying basket of stocks or the underlying index and what it is composed of, and makes sure that they can understand the risks involved and then realize what their potential loss could be.

Q: Your chapter on John Templeton, who famously bought stocks during the late 1930s when most Depression-era investors were still shunning them, is interesting. He is famous for buying at times when most investors are deeply pessimistic about markets, whether in the U.S. or abroad. Do you think Templeton would be looking at the troubled stock market of today as an opportunity?

A: I don't think today's market really holds the ingredients for that kind of investment and trade. There is volatility coming back to the market, which is good for some traders. But with the Dow [at 10,700] that's not low enough. You have got to be able to wait. I think that is one of the more important parts of Templeton when you go and you do that kind of trade where you are buying at the bottom.

Q: How has learning from these traders affected the way you yourself buy and sell stocks?

It's taught me to be patient and wait for the right price and not try to be something I'm not. I'm not J. Kyle Bass. I don't know how to create exotic derivatives to make trades happen. If we both think Greece will default, I will try to find a Greek bank that I can short or buy some puts.

A: Thanks for your time.