John Arnold was raised in Dallas, earned a degree from Vanderbilt University in 3 years, and eventually became a trader at Enron in 1995. This alone was impressive, as getting a job at Enron in 1995 was no simple task. Back then the firm only recruited about four economics majors from Vanderbilt each year.
Arnold then rose the ranks of Enron quickly, moving from Crude Oil to Natural Gas, and later became the head of natural gas derivatives trading. At the age of 26, he eventuallygenerated approximately $750 Million for the company through their Internet based trading network (receiving the biggest bonus ever received of $8 Million).
His success at Enron can be attributed to buying gas contracts in one region and selling them in another (gas prices would diverge since gas couldn’t easily travel between states).
Also furthering his success was the passing of the Commodity Futures Modernization Act, ultimately simplifying large quantities of commodities to be exchanged online. Despite Arnold’s knowledge and good fortune he was not a frequent trader, making only about one or two enormous trades per year. Like other notable investors, Arnold remained patient in his decisions.
After Enron collapsed, Arnold luckily retained his reputation (Enron’s failure was not tied directly to the actions of traders). Strapped with experience and immense capital (his bonus), Arnold seized the opportunity to start his own firm called Centaurus Advisors. The Houston based hedge fund, starting with only three employees trading out of a single room with a kitchen, specialized in trading energy products. The firm now handles $3 billion in management, has a staff of seventy people including a full time meteorologist, and has never returned less than 50% in seven years of business.
Arnold did this by understanding the fundamentals of the gas market, and focusing on virtual trading or swaps trades. Arnold likes to invest when he thinks the market is “biased”. In his own words, Arnold’s strategy is very Buffett-esque, stating “I try to buy things whenever they’re trading below what [our] analysis shows to be fair value and sell things whenever our analysis shows that the forward curve is higher than our analysis of fair value.” Another innovative strategy Arnold capitalized on was becoming a middleman, by investing in natural gas storage facilities (lots of supply and less demand resulted in low gas prices, thus gas players needed a place to store gas while waiting for prices to rise up again). Because, Arnold owns gigantic gas storage facilities, he can bet on the future needs of the marketplace, being on the opposite side of speculation.
Arnold’s current net worth is recorded to be approximately $4 billion, and he has donated about $700 million to charter schools ran but The Kipp Academy. Additionally, Arnold and his wife have joined Bill Gates and Warren Buffett in “The Giving Pledge,” a movement by the world’s wealthiest to give away their fortunes to charitable organizations by the end of their lives, or after their deaths.
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