Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
If You Don’t Understand Bonds, You Don’t Understand Investing - 25th Aug 19
Gold's Next Move - 25th Aug 19
Fresh Water Crisis Unfolding - 25th Aug 19
Newbie Guide to Currency Pairs in Forex Trading – Review - 25th Aug 19
When A 16-Year-Old Earns $3 Million, You Know It's Not A 'Silly Fad' - 24th Aug 19
The Central Bank Time Machine - 23rd Aug 19
Stock Market August Breakdown Prediction and Analysis - 23rd Aug 19
U.S. To “Drown The World” In Oil - 23rd Aug 19
Modern Monetary Theory Could Destroy America - 23rd Aug 19
Seven Key Words That Explain "Stupidly High" Bond Market Prices - 23rd Aug 19
Is the Fed Too Late Prevent A US Housing Bear Market? - 23rd Aug 19
Manchester Airport FREE Drop Off Area Service at JetParks 1 - Video - 23rd Aug 19
Gold Price Trend Validation - 22nd Aug 19
Economist Lays Out the Next Step to Wonderland for the Fed - 22nd Aug 19
GCSE Exam Results Day Shock! How to Get 9 A*'s Grade 9's in England and Maths - 22nd Aug 19
KEY WEEK FOR US MARKETS, GOLD, AND OIL - Audio Analysis - 22nd Aug 19
USD/JPY, USD/CHF, GBP/USD Currency Pairs to Watch Prior to FOMC Minutes and Jackson Hole - 22nd Aug 19
Fed Too Late To Prevent US Real Estate Market Crash? - 22nd Aug 19
Retail Sector Isn’t Dead. It’s Growing and Pays 6%+ Dividends - 22nd Aug 19
FREE Access EWI's Financial Market Forecasting Service - 22nd Aug 19
Benefits of Acrobits Softphone - 22nd Aug 19
How to Protect Your Site from Bots & Spam? - 21st Aug 19
Fed Too Late To Prevent A US Housing Market Crash? - 21st Aug 19
Gold and the Cracks in the U.S., Japan and Germany’s Economic Data - 21st Aug 19
The Gold Rush of 2019 - 21st Aug 19
How to Play Interest Rates in US Real Estate - 21st Aug 19
Stocks Likely to Breakout Instead of Gold - 21st Aug 19
Top 6 Tips to Attract Followers On SoundCloud - 21st Aug 19
Holiday Nightmares - Your Caravan is Missing! - 21st Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Crude Oil Investors Made 566% the Last Time This Happened

Commodities / Crude Oil Feb 05, 2009 - 03:16 AM GMT

By: Q1_Publishing


Best Financial Markets Analysis ArticleNo one really knew what to expect when Sid Bass took over the family oil business in 1968. Sid's father and uncle were wildcatters who struck it rich in the 1930's. The two built an oil company with 120 wells and a combined fortune of $50 million over the next three decades.

In 1968, the family fortune was handed over to Sid. Once at the helm, Sid hired Richard, one of his old college buddies, away from Goldman Sachs to help him invest the family's fortune.

They couldn't have gotten off to a worse start. The pair thought a more “aggressive” strategy was needed. Remember, this was 1968 and a bull market in stocks was alive and well. Naturally, an aggressive approach would have suited the two young investors.

Their first couple of years were plagued by bad investments. But the pair didn't give up. They sought out Warren Buffett for advice and also studied the bible of value investing, Benjamin Graham's Security Analysis.

The pair would go on to make billions over the next two decades. But the biggest profits of all could come from the next big move one of these men is making. Last time he saw this opportunity, he turned $300 million into $2 billion in 10 years. Now, he's making the same move.

All the Right Moves

As the two applied their refined value investing approach, they would come across some very lucrative investments. After successfully navigating the oil bull market of the 70's the pair was to take the Bass family fortune to new heights.

They bet big on Marathon Oil in 1981 (that was the last time the world was running out of oil). A bidding war erupted for Marathon between U.S. Steel and Mobil Oil. The two walked away with a $165 million profit from a $160 million investment.

The pair's next big win came from Texaco. At the time, Texaco was trying to takeover Getty Oil. The pair didn't like the deal at all and managed to sell their entire 10% stake in the company to Texaco's CEO for $450 million profit.

The pair's biggest win would come next. Embattled Disney was in a rut. Years of mismanagement placed the mighty entertainment company in some tough spots. Vultures were eyeing it up. Through a real estate transaction, the pair would cut a deal which would allow them to sell $400 million worth of real estate into a 25% stake in Disney. Over the next 10 years or so, the $400 million investment would grow to be worth $8 billion.

After that, the pair split up. Sid Bass continued to run the Bass family money and Richard Rainwater would go on to create a $3 billion fortune. (Rainwater is one of the investors on the short list of Prosperity Dispatch's under the radar investor legends, like John Calamos or Jeremy Grantham)

Playing it Right

Rainwater has been called the “best kept secret in finance.” With the track record he has, it's no surprise. After Bass and Rainwater split, Rainwater would go on to have quite a few more very, very public wins.

Rainwater made hundreds of millions of dollars in numerous real estate deals. The biggest one was the Columbia/HCA Healthcare Corporation deal which formed the largest chain of hospitals in the country.

In 1999, Rainwater's fortune was estimated at $1.2 billion. Not bad, but it wasn't much compared to his next big move.

In 1997, Rainwater was picking up on what would be his biggest win of all. Oil was trading for less than $20 a barrel and it was one of the most hated investments in the world. The tech bubble was still in the relatively early stages and the Asian Tigers were where the hot money was going.

Oil? Who wanted oil back then?

Rainwater did. And he wanted a lot of it. Rainwater put $300 million into oil. He bought $200 million worth of oil futures contracts. He took the remaining $100 million and put it into oil stocks.

It would take a while to pay off, but it was worth the wait. Rainwater turned $300 million into $2 billion when oil prices started really moving up in the first part of 2008.

Get While the Getting is Good

I realize Rainwater wasn't the only investor betting big on oil back in the late 90's. Boone Pickens also started his energy-centric hedge fund in 1997 as well. And there are a lot of investors who got in early on oil.

There is, however, one big difference between Rainwater and many other investors who rode the oil wave to 9 and 10 figure fortunes – he sold. He didn't just take some profits though, he sold out…completely.

In May of 2008 when oil passed $120 a barrel and gasoline was $4 at the pump, Rainwater dumped it all. The hot money was flowing into the sector, a bubble had formed, and Rainwater took action. As a result, avoided riding oil stocks right back down and banked about $1.7 billion in profits. That's good for a 566% return in about 10 years.

Not bad at all. And it's just one more successful move in a very long line of them. Before we look at what he's buying now, I want to warn you Rainwater isn't perfect. No investor is.

Back in 2007 he invested $100 million into Thornburg Mortgage, a mortgage REIT. Since then, Thornburg has imploded and its shares now fetch 9 cents each.

When asked about his failed investment in now bankrupt Thornburg, Rainwater said, “Oil I understand. Interest rates…?”

Playing Capitalism

Now Rainwater is back in what he “understands” and where he has been most successful. He's buying oil again.

In October Rainwater said, “I think we'll have a run on raw materials of all kinds because we've taught people all around the world how to play capitalism…when you look at the U.S. making up 4.5% of the population and using 25% of the resource base, that can't go on. You can't extrapolate that out around the globe without there being price pressures on the upside.”

Although we've been quite negative on oil in the short-term ( OPEC ineffectiveness , etc.), it's tough to see a world where oil is under $40 for more than a year or two. And you've got to stop and think for a moment when Rainwater makes a big move.

I wouldn't recommend going “all in” on anything right now though, including oil. As we've seen, Rainwater has been a bit early when it comes to oil. He started in 1997 when oil was at $20 a barrel and had to suffer through oil dropping to $10 a barrel over the next couple of years. And last May, he got out a bit too early, but I give him a lot of credit for getting out.

I'm a buyer when oil prices dip under $40. I've been an even bigger buyer when oil dropped below $35. I'm hoping – and patiently waiting – for oil to drop below $30 a barrel. That'll be the time to really load up.

Until then, nibbling is the best move to make when it comes to oil and wait for a genuine opportunity to move into oil in a big way. Remember, the last time Rainwater bet on oil he turned $300 million into $2 billion in about 10 years. Now he's doing it all over again.

A rebound in oil is inevitable. Playing it right is the difference between doubling and quadrupling your money from this point. Right now, patience is still the right way to play oil.

Good investing,

Andrew Mickey
Chief Investment Strategist, Q1 Publishing

Q1 Publishing is committed to providing investors with well-researched, level-headed, no-nonsense, analysis and investment advice that will allow you to secure enduring wealth and independence.

© 2009 Copyright Q1 Publishing - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Q1 Publishing Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules