Decades ago, Thomas Petterfy lost half of his capital on the stock market. Lucas Jackson/Reuters
Interactive Brokers founder Thomas Peterffy revealed the worst trade of his career in a recent interview.
The billionaire said it’s easier to find a stock to short than a compelling stock to buy.
Peterffy has never read an investment book because he doesn’t believe there are any big secrets to learn.
This is a machine translation of an article from our US colleagues at Business Insider. It was automatically translated and checked by an editor.
The billionaire founder of brokerage firm Interactive Brokers has revealed his most devastating trade, revealed a major benefit of betting on falling prices and explained why he has never read a book about investing.
Thomas Peterffy’s net worth is estimated at: to $27 billion, the equivalent of 24.7 billion euros. The bulk of that is his nearly 75 percent stake in his electronic brokerage firm. Now Peterffy told me Forbes from a painful deal with DuPont in the late 1970s.
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At that time, he bet on the chemical giant and one day bought 300 bullish call options that were a few days before expiration at a short of 18 dollars per contract (around 16.50 euros today). “I was a small man who only invested his own savings,” he said. “It was the biggest trade I had made up to that point.”
As a young man, Peterffy lost half of his fortune
A short time later, someone else entered the trading floor and wanted to buy 500 of these options. “I was so blown away by my sudden, very short-term profit in five minutes that I gave him 500 call options at $31 [heute etwa 28 Euro; Anm. d. Red.] sold,” Peterffy remembers. “I made a huge amount of money, but the only problem was that I sold 200 more than I had.”
Immediately after the man left, trading in the stock stopped and it was revealed that DuPont had reported stellar earnings and was conducting a stock split. Peterffy was forced to buy back the 200 options at $450 each – almost 15 times the price he had asked for them. “Obviously that was about $80,000 [heute etwa 73.000 Euro; Anm. d. Red.], half of my capital that I had traded for 10 years,” said Peterffy. “That was a huge blow. That was the worst deal I’ve ever had in my life.”
Peterffy told Forbes that his key takeaway was to never sell cheap options and to always be aware of the risk of people having inside information.
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Invest correctly: “a lot of effort and analysis”
The Interactive Brokers chairman also recalled his first big bet, which he made in the late 1990s after touring the office of a rival market maker called Knight Trading Group. “I spent half the day there and was so convinced that it was a really bad company that I shorted a lot of shares,” he told the magazine. Shares plunged about 80 percent over the next three months. According to Peterffy’s own statements, this brought in a tidy profit of around 30 million dollars (around 27.4 million euros today).
Peterffy told Forbes that finding compelling stocks to bet on takes a lot of effort and in-depth analysis. In contrast, spotting a good short position can be as simple as seeing a stock skyrocket and then “you look under the hood and realize there’s not much there,” he said.
The experienced entrepreneur, who warned last summer of a fall in share prices and a certain recession, emphasized that investing is not a mysterious art. Rather, it is based on logic and facts. “I don’t think there are any great secrets to investing and there’s not much you can learn from others.”
“You know, I’ve never read a book about investing,” Peterffy continued. “For people who write investment books, you have to ask yourself: Why should they do that? If they really knew something, they would keep it to themselves.”
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Read the original article Business Insider.
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