How to Lose $10 Billion

Daniel Drew,  12/3/2014


It has not been a good several months for Harold Hamm.

The billionaire oil investor owned $20 billion of Continental Resources in August. Now, those shares are worth $10 billion, thanks to the steep decline in oil prices. What is ironic about this is that Hamm is going through a divorce, and he owes his wife $1 billion. Before the divorce proceedings, it was feared he might lose half of his wealth to his wife. Now he has lost half of it to the market.

The boom/bust pattern in Continental stock has happened before. In 2008, it went from $10 to $40 and all the way back down - all within 1 year. The current price of $40 just happens to be the top level of 2008. Some might call this a support level. But support levels have a nasty habit of turning into trap doors. Buy at your own risk.

Another amusing part of this story is that CNBC ran a piece yesterday called The Highly Effective Habits of Superinvestors. Simon Smiles, the chief investment officer for ultra high net worth clients at UBS, said, "A lot of their wealth is often in a small number of assets or even in one asset." Two thirds of them are "self-made." Well if they can make themselves in spectacular fashion, they can also self-destruct themselves on a grand scale. But you never hear anyone describing someone as "self-destroyed."

For every "self-made" person, there are 100 self-destroyed people. Being self-made is an illusion created by someone who went all in multiple times and compounded their luck. But the problem with luck is that it runs out eventually. You can say "double or nothing" for a surprisingly long amount of time, but eventually, this martingale betting style will hit you like a brick wall.

Sure, Hamm has $10 billion left, but losing $10 billion in 3 months doesn't exactly sound like evidence of skill. You would think professionals would be better than that. Guess what? They're not.

Best of luck to Mr. Hamm in 2015.