The world’s greatest investors: Louis Bacon

Born in 1956 in Raleigh, North Carolina, Louis Bacon became interested in markets after captaining a sports fishing boat for broker Walter Frank. After his degree, he went on to do an MBA at Columbia. After a trainee programme at Bankers’ Trust, a US banking organisation, he took a variety of Wall Street jobs, before settling down at Shearson Lehman. There he rose to the rank of vice president, before setting up his own Remington Trading Partners, in 1987. Two years later he founded his hedge fund, Moore Capital Management, which he still runs today.

What is his strategy?

Bacon’s style is known as “global macro”, meaning he makes large bets on the direction of a wide range of assets, primarily bonds, currencies and commodities. Bacon focuses on changing macroeconomic conditions, attempting to anticipate the behaviour of central banks. Key to his approach is strict risk management: he closes losing trades after only a few days. Most of Moore Capital’s money is now managed by traders employed by the fund, but Bacon himself personally trades with several billion dollars.

Did this work?

Despite suffering a reversal in 1994 that caused investors to withdraw nearly 90% of their money, Moore Capital made returns of nearly 19% a year between 1989 and 2012 compared with just over 9% for the S&P 500 as a whole. Returns haven’t been as strong over the past five years, but the fund still manages $13.5bn worth of assets. Thanks to fees, which at one point reached 3% of assets and 25% of profits, Bacon’s personal fortune has been estimated at $1.7bn by Forbes magazine.

What were his biggest successes?

In 1987 Bacon made a huge amount of money taking short positions on global indices just before the October crash. He repeated the trick with Japanese stocks in 1990. The same year he bet oil prices would soar, which indeed they did after Iraq invaded Kuwait. Moore Capital made an 86% return in 1990. Bacon also sold a large number of the fund’s tech shares in March 2000, at the peak of the dotcom bubble.

What lessons are there for investors?

It is possible to make a fortune through short-term trading, but it involves a lot of risk and effort (Moore is a noted workaholic). Also, it is hard for funds that grow beyond a certain size to continue to make large returns, even if they have done well in the past. The best time to invest in a fund may be in its infancy, though it is hard to spot those that will be a success.