This tale is a variation of A Tale of Might. I call it a sweet tale because the person involved in this tale made a fortune trading sugar. He wasn’t a sugar trader in the traditional sense of someone that trades sugar on a commodities exchange. However, he understood sugar because he was in the business of buying it every day. I’ll call him the Sugar King because he was a Sugar King. To give him any other name would diminish the importance of his investment philosophy and would dilute from this tale.
One of the many lessons these tales teach is the wisdom of knowing your own limitations. This means that you should also recognize your strengths. The Sugar King knew both. The Sugar King was like so many people that come to this country with little money and education but a will to succeed. He did not have a high school degree, he was in his early 40’s when he became wealthy and he did it by speculating in the sugar market. He did it by putting all his eggs in one basket. He was the antithesis of someone that maintains a diversified portfolio.
I asked him how he did it and more importantly, what gave him the courage to risk his life’s savings. His response has stayed with me forever. He said, that before a person can in fact invest all their eggs in one basket they have to have their house paid off and be debt free. You have to have your bases covered. He then commented that should the investment fail, that you haven’t ruined your family’s situation because without debt, a person can work at minimum wage and still support a family. The Sugar King was definitely what we would call “Old School.” He then digressed and mentioned that every accountant he had ever met advised him to have the maximum mortgage possible on his residence because of the tax benefits. He strongly disagreed. His proof to the fallacy of their advice was old world logic. He said, “You don’t know any wealthy CPA’s do you?”
He strongly believed that debt clouded a person’s thinking and kept them from fulfilling their true economic potential because they were more afraid of losing money than making money. He had no need for modern finance and was happy to pay taxes because he believed that the more he paid the more he made. He was however, very cost conscious and ran his business with a detail on expenses.
So, how did he make his money? In the early 1970’s the price of sugar dropped to historical lows and because he had been buying sugar for years and knew the sugar market intimately, he showed me a hand made chart he kept on the price of sugar, he wondered if there was any way that he could freeze the price of sugar at these low levels so that he could have an eternal supply at these prices. He wasn’t aware that a person could trade sugar in the commodities market at the time. After asking many people if it was possible he found a way to do it and after investigation how the commodities market worked for sugar he jumped right in. He invested all of his money in sugar. He didn’t own any stocks or bonds at the time. It was a most unusual investment for a novice in the financial markets to say the least. What happened? He was able to invest approximately $400,000 in sugar futures contracts. Over the next 18 months he says that he converted his original sugar investment into a $20 million dollar profit.
I was in awe when he told me this story. The Sugar King didn’t see his actions as risky at all. I explained that he could have lost everything he invested if the price of sugar had continued to drop and he acknowledged that it was a possibility. But, he had a strong conviction from years in the industry to think the price had reached bottom and like he said, even if I’m wrong it’s not going to change how my family lives. He was of course correct.
Did the Sugar King continue to trade in sugar after he got a taste of the money that he could make? No. He knew that it was a once or perhaps twice in a lifetime speculative opportunity and that the window of opportunity had closed. He understood that he was in the sugar business not the sugar speculation business. He took his profits and invested it in his company’s growth and soon was one of the largest and most successful sugar businesses of its kind. He did say that almost a decade later, the price of sugar went down to extraordinary low levels once again and that he made a quick $10 million. After the $10 million dollar profit his children insisted that he move from his tiny house to something a little larger. He did and as always for a man that understood speculation, wrote a check for his new house.