My top pick financial speculators

Speculation is what drives every market. And successful speculators are those players that contribute the most to reducing "the discrepancy between the participants' perceptions and the actual state of affairs" (*).

In the history of financial markets there are many famous and notorious speculators. Most are professional investors. Others aren't. From all that I have read and seen over the years, if I were to choose my top picks I would go for Nicholas Roditi - a professional investor that once worked for George Soros - and Nicolas Darvas - a professional ballet dancer that during the 1950's also ventured in the stock markets. Different investment philosophies, although similar in many ways.

During the 1990's, George Soros was at his prime. Not only was he leading the charge, but he was also mentoring other fellow speculators. Among these were Stanley Druckenmiller who co-managed the Quantum fund together with Soros, and Nick Roditi who was responsible for the Quota fund. A low profile and press-shy individual, Roditi managed the Quota fund from his London office in complete isolation from the rest of the team. His investment technique ran contrary to the conventional approach of a diversified portfolio. In fact, his investments were characterized by highly concentrated positions, as opposed to diversification, and at times he would move back entirely to cash if there were no significant investment opportunities for him to chase. He would remain mostly in cash for as long as necessary. As new opportunities arised he would then jump back in and leverage his investments to several times his capital base through derivative instruments in equity and foreign exchange markets. Roditi's approach allowed him to score huge gains for his investors. But is also meant extreme volatility levels and a few personal burnouts. After leaving Soros Management in 2000, Nick Roditi settled at managing his own personal wealth and to the present day has further distanced himself from the spotlights.

My other role model is Nicolas Darvas who made a fortune back in the 1950's trading stocks while performing professional ballet shows around the world. His book, "How I made two million dollars in the stock market", still remains a best seller - more than 40 years after having been published for the first time. Nick Darvas first started trading the market when one day a Canadian show promoter paid him in stocks rather than in cash as usual. The company's name was Brilund - a mining company that traded on the Toronto stock exchange. From that day on Darvas became hooked on trading. At the beginning, he would lose at trading the bulk of every dollar he was earning as one of North America's top paid ballet dancers. Eventually, he developed a trading system based on weekly highs, lows, opens and closes registered in the stocks he followed in the US while travelling and performing worldwide. He got his information by subscribing the Barron's weekly magazine and receiving the relevant data by telex wherever he was. Despite his ultimate success, Darvas was extremely susceptible to outside opinions. So in order to protect himself from misleading investment advice he strictly prohibited his brokers from calling him. Whenever he saw the opportunity he would telex his broker with the order, trading individual stocks through margin accounts which allowed him to leverage his investments several times his capital base.

Although Roditi and Darvas based their investments on different inputs, they had much in common. Both operated highly concentrated portfolios. They also rested 100% in cash during prolonged periods of time - against conventional wisdom. Last but not least, both remained isolated from Wall Street. Roditi sought refugee at a family owned plantation in Rhodesia. And Darvas, besides prohibiting broker telephone calls, committed his investment analysis and decision making to non US trading hours. As he wrote it in his book "I was doing what I liked best. I was working while Wall Street slept" (**).

At the end of the day, both were quite successful - at all levels.

(*) "Soros on Soros", George Soros, Jonh Wiley & Son, 1995, page 66.

(**) "How I Made $2,000,000 In the Stock Market", Nicolas Darvas, Lyle Stuart, 1986, page 129.