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The Wall Street Journal [subscription required] presents a fascinating study of Andrew J. Hall, a Citigroup Inc. (NYSE: C) trader who made $250 million in 2007 due to a successful bet beginning in 2003 that anticipated a change in the way the world valued oil. And his money and attitude have put him in some street fights with his Connecticut neighbors over his $100 million art collection.
What was Hall's trading insight? In 2003 he concluded that long-term and short-term energy prices would soon abandon their historical relationship with one another. For more than a decade, oil had ranged from $10 to $30 a barrel. But he concluded that demand growth -- driven by China and India -- would outstrip supply.
He bet on this trend by investing in the extremely long-term market in which traders buy and sell oil to be delivered years in the future. Back in 2003, oil for future delivery was as much as 20% cheaper than oil in the current -- or "spot" -- market. Hall told traders to bet that this relationship would reverse itself. He bet on this by buying all the oil futures he could for delivery three to five years out along with "call" options that gave him the right, but not the obligation, to buy oil at lower prices in the future. .
Around 2005, the discount for far-forward oil vanished and it began commanding a premium. That year, his tiny Phibro unit contributed $800 million in pretax revenue to Citigroup. Hall's pay totaled $125 million, around five times that of then CEO Charles Prince.
All this money has given Hall a chance to indulge in his passion for art collecting. In an effort to display a sculpture on his lawn in Southport, CT, he lost a four-year-battle with his neighbors. The battle was over "Etroits sont les Vaisseaux," or "Narrow Are the Vessels," an 80-foot-long concrete sculpture, on the lawn of his Greek Revival home. No problem. Hall replaced it with two, brightly painted, cartoon-like sculptures of cars by the artist Julian Opie.
Unfortunately for Citigroup shareholders, Phibro is too small a piece of the total pie to offset its problems. Hall should bolt and start his own fund. I hope he doesn't, though.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns Citigroup shares.
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Reader Comments (Page 1 of 1)
2-29-2008 @ 10:07AM
alan said...
This is just great. What the hell has this guy done other then help jack up the price of oil ? Has he taken one gallon out of the ground ? Has he improved refining? Has he discovered new fields ?
Just a smart speculator that has added zero real economic value except for his own pocket.