Darrell Jobman

Using futures and options, you can become very rich, very quickly and with easily identifiable risk, from a rather modest investment.  If you are like most traditional investors who have never looked beyond CDs or the stock market, that’s a pretty strong statement and you’re probably thinking, “Whoa!  If it sounds too good to be true…”

But, it IS possible to make big money quickly and to preserve the money you already have by incorporating futures and options into your investment thinking.

That is because of the power of leverage, a major attraction of futures and options compared to most other investment vehicles.  Used carefully, leverage is like using other people’s money – it is one of the secrets to wealth achieved by highly successful traders and professional money managers worldwide.  Let me give you some examples…

The Secret of Richard Dennis

Richard Dennis turned $1,600 into $200 million, then retired at age 39.  Dennis came into trading as a quiet, well-disciplined, organized person – far from the typical flamboyant image often associated with trading.  After borrowing $1,600 from his father to buy a seat on the MidAmerica Commodity Exchange, Dennis became a trading legend in the volatile 1970s – he was so influential, it is said, he could affect the price of soybeans just by walking onto the trading floor.

Moving from floor trader to upstairs trader to money manager, Dennis turned his initial $1,600 stake into a fortune estimated at $200 million before he “retired” from trading at the age of 39 in August 1988.  After a short absence, he resumed trading but has maintained a lower profile since his return.

“Learning to trade is a lot tougher than it looks,” Dennis said in a Futures magazine interview.  “All the rules sound simple, but doing it day-by-day is difficult.  The secret to trading, I think, is what you do with the wrong positions, not with the right ones.”

Aside from taking a few hundred dollars to millions of dollars, Dennis’ main legacy for traders is his “turtles” experiment.  Dennis contended that educated, intelligent people cold be taught to trade successfully by following a set of rules and emphasizing money management and persistence.  A partner, William Eckhardt, argued that trading was innate skill – and some people have it, others don’t.

In the mid-1980s they decided to put this issue to the test, and Dennis trained about 20 individuals in his strict trend-following, technical method.

Dennis’ view was vindicated: Many of his trainees – or “turtles,” as they became known – were highly successful and became well-known traders in their own right.  Today they manage millions of dollars, and some of them, such as Russell Sands, are passing along the turtle trading methodology to dozens of other traders.

The Secret of Paul Tudor Jones

Paul Tudor Jones went from cotton trader to manager of one of America’s hottest funds.  He was inspired by Dennis’ example and became one of the most successful traders of the1980s.  Starting as a floor clerk at the New York Cotton Exchange, he became a successful broker, then a trader, and finally, a widely known money manager with more than $300 million under his care.  His funds recorded triple-digit returns year after year and became so popular that people demanded to get into them long after he stopped accepting new money.

Jones’ family had some background in trading, but he learned most of his trading skills by standing at the side of veteran cotton trader and mentor Eli Tullis.

The Secret of George Soros

George Soros has so much money he’s been accused of deciding the economic fate of nations!  While you may not recognize the names of Dennis and Jones if you are new to futures trading, but George Soros is certainly one of the better-known figures in the investment world today, notably for his impact on currencies (specifically the British pound) a few years ago.

Soros used the leverage of futures and options to build and maintain his famous Quantum Fund, one of the earliest and most successful hedge funds in history.  Quantum was essentially a mutual fund that employed leverage and various hedging techniques to deliver superior returns to shareholders.

“We operate in many markets,” Soros wrote in his book, The Alchemy of Finance, in explaining his investment strategy for the Quantum Fund, “and we generally invest our equity in stocks and use our leverage to speculate in commodities.  Commodities in this context include stock index futures as well as bonds and currencies.  Stocks are generally much less liquid than commodities.  By investing less than our entire equity capital in relatively illiquid stocks, we avoid the danger of a catastrophic collapse in case of a margin call.”

Soros, of course, is one of the world’s most astute (and wealthiest) investors.  He obviously understands when and how to use leverage to his advantage while maintaining control of risk at the same time.  That comes through clearly in his book’s day-to-day notes during the “investment campaign” that built his funds into holdings so large that he could eventually help to shape economic and political history.

The Secret of Larry Williams

Larry Williams, known as the “Million-Dollar-A-Year” King, has been one of the most successful and best-known futures traders, analysts and writers in the United States in the last 25 years.  In addition to developing Williams’ %R and a number of other indicators and trading system concepts, Williams achieved trading legend status when he won the Robbins World Cup Trading Championship in 1987.  Trading more aggressively than he would normally, Williams took his $10,000 starting account to more than $2 million before giving up some of his gains to finish with $1.1 million – an astonishing performance no one else has ever come close to matching.

When you attend one of Williams’ seminars, you will hear him stress that there are two categories of traders; winners and losers.  You don’t have to be particularly brilliant or have an unbeatable system or work hard at analyzing markets to be a successful trader, he will tell you.  All you have to do is watch the winning group of traders and do what they do.

And who are the winning traders?  According to Williams, they are the companies that convert commodities into consumer products.  Kellogg, Pillsbury, Hershey and other commodity-based companies didn’t become huge by being wrong about the markets – at least not very often.  Because of their size and their requirements for huge amounts of physical commodities, they not only make the market, they are the market.

How do you know what these major players are doing?  Williams describes their actions in the marketplace as being like a herd of elephants walking on a muddy riverbank – the tracks are pretty easy to follow.  If you are picking a side to follow in the marketplace, the odds are with you if you stay on the side of the big boys, he stresses.

There are literally hundreds of savvy investors who have made millions of dollars by including futures and options in their total investment portfolios.  The traders mentioned here are only a few of them.

In addition to showing that it can be done – that you can get rich as a trader – these examples emphasize two other important points:

  1. You can learn to trade successfully.  Yes, it helps to have certain personal characteristics. And, yes, the element of timing, as well as market conditions, both contribute to trading success.  But you can learn techniques and strategies that can lead to profitable trading, just as the traders mentioned above have done.
  2. Trading success can be a means to accomplish what you believe is really important about life.  Many traders are not motivated by just adding dollars to a trading account but by the causes they support.

For example, Richard Dennis has been actively involved in political issues (liberal Democrat).  Paul Tudor Jones has provided scholarships for students from an inner-city school.  Larry Williams includes treasure hunting and a search for the real Mt Sinai among his interests.  George Soros is helping to develop capitalism in Eastern Europe, making such an impact that he’s credited by some with aiding the fall of communism!

What is your cause?  Maybe you aren’t thinking about setting up a foundation yet, but you no doubt have a dream.  No matter what it is, following the model provided by these “super traders” can help you achieve it.