The best trades in history... two big bets on oil
Andrew Hall was born in 1951 and grew up in the London suburb of Feltham. He won a place at Hampton Grammar School then went on to study chemistry at Oxford. After he graduated with a masters in 1973 he joined oil major BP, working his way up to become vice president of North American trading, with a brief career break during which he studied for an MBA at French business school INSEAD. He left BP in 1982 to join commodities trading firm Phibro. In 1991, he joined the board of directors of Salomon, Phibro’s parent company, then became Phibro’s chief executive a year later.
What was the investment?
In 2003, the oil price was sitting at around $25 a barrel. That was well below the peak it reached in the early 1980s (after adjusting for inflation). It had been trading around that level for more than a decade and most people were bearish on commodities, which were seen as a financial backwater. But Hall believed that demand for energy created by the fast-growing Chinese economy would drive up prices. As a result, he convinced Phibro to start buying oil futures (betting that prices would rise).
What happened?
Over the next five years, oil prices did indeed rise, creating big profits for Phibro (and its parent company, which was now investment bank Citi). In summer 2008, prices surged beyond $100. When they hit $140 a barrel, Hall instructed Phibro to sell all its positions, just as the financial crisis was erupting into public view. The ensuing recession saw oil prices plunge to around $30. Hall then instructed Phibro to start buying again, enjoying more profits when oil bounced back to $80 as the global economy started to recover.
Lessons for investors
While Hall was in charge, Phibro made huge profits for Citi (including nearly $1bn in 2005 alone). However, the global financial crisis and bad bets on subprime mortgages meant that Citi had to receive $45bn in bailout money from the US taxpayer. While this had nothing to with Hall, he was due to receive a bonus of $100m for accumulated profits during the boom years. While his bonus was eventually paid, the outcry forced Citi to sell Phibro to Occidental Petroleum in 2010. Hall went on to have mixed success as a hedge fund manager. He retired in 2017, just before the market rebounded, which shows that even great investors don’t always get their timing right.