Swimming with the sharks – by Commodity Conversations

Last week’s weblog (Surfing with the Whales) jogged my memory of a dialog I had ten years in the past with Robert Kuok (or RK, as he’s identified) in Hong Kong. I included it in my e book, The Sugar Casino. Robert remains to be alive and nicely and, perhaps, even nonetheless buying and selling the sugar market. (Robert, in case you are studying this, I want you nicely.)

I believed my 2015 dialog with RK would possibly curiosity a few of my latest subscribers. So, right here goes:

Born in October 1923 in Johor Bahru, Malaysia, Robert Kuok has lengthy been a significant determine within the sugar trade and was nicknamed “The King of Sugar”. He has been an awfully profitable businessman, and, past sugar, he’s finest generally known as the founding father of the Shangri-La Hotel chain and the proprietor of the South China Morning Post. Like many profitable Asian businesspeople, he’s media-shy and infrequently offers interviews.

I met RK at his new workplaces. He welcomed me and apologised for his horrible chilly and cough. He had caught it on a latest journey to London, the place he had been visiting the newest addition to his lodge chain, the Shangri-La within the Shard Building. I began by attempting to clarify my e book challenge, however he appeared distracted by his phone.

“I see I have four messages, but I don’t know if they are important,” he mentioned. “Ah, yes, last night’s sugar market closed.”

“You are not still trading the sugar market?” I requested, astonished.

“I watch the market every day,” he replied. “I started in 1955, and this ‘topping up’ takes seconds; if I stop, I can never get back on it. I still trade the sugar market for my claret money so I can afford a 1989 Petrus. Otherwise, you would be mad to buy it. But if you are winning at the sugar casino, then why not carry on? And on the days I lose money, I look sadly at my wine and tell myself, “Tonight you don’t deserve it.’ I open the bottle and drink only one glass as a punishment for trading badly.”

I did a fast calculation in my head. RK started working within the Rice Department at Mitsubishi in 1942, the 12 months the Japanese Army occupied Singapore and Malaya. That meant he had been concerned within the commodity markets for 72 years and buying and selling sugar for 60 years; that should be a report. I shared my psychological calculation with him, and he smiled.

“Have the markets changed much since you first started?” I inquired.

“No,” he replied. “The main change has been the speed of information sharing and gathering, but you must adapt to that. So, my trading volume today is just one per cent of what it was. I used to trade 4,000 lots (200,000 tons) at once; now I trade 40 lots (2,000 tons). Today I am 40 lots long, but my trading covers the Petrus!” he mentioned with amusing.

“Let me tell you how I started,” he provided. “After the war, I joined my father’s business and worked for him for three years before he suddenly died. I continued the business after his death.

“When did you get your first big break?” I requested.

In the spring of 1963, I had a hunch and determined to fly to London. A Malaysian good friend, who travelled with me, had entry to an house on the Grosvenor House Hotel.

I requested RK whether or not he had been simply accepted into that world of English merchants.

Quite simply. The monkey in me meant that I might choose up accents simply – many individuals thought I spoke good English. I loved mixing with individuals. I’m utterly non-feudal. I don’t like social dos and don’ts. I can’t stand snobbery; I lived below colonialism and felt that was greater than sufficient. Someone as soon as mentioned that I’ve half a Chinese thoughts and half a British thoughts. That opens doorways. In enterprise, you need to succeed by means of intelligence, not gimmicks. If you depend on gimmicks, then you definately lose the essence of issues.

But in early autumn 1963, the sugar market fell sharply, and you almost went broke,” I prompted.

“I had enough cash, thank God, to meet margins. In the autumn of 1963, Hurricane Flora hit Cuba, and the market rallied; I was saved. August that year was very difficult. But somehow, I can always manage. I was 40 years old and at my best. Although it worried me, I never felt like jumping off a building. Still, the position was large for me — maybe 250,000 tons of sugar, part physical sugar and part futures – a huge position for me. Anyway, the market turned around. I took some profit and then more profit.”

“How did you know when to take profits?” I requested. “I find the biggest difficulty about trading is knowing when to take profits.”

“Not knowing when to take a profit is the Achilles’ heel for a trader. Take profits! Don’t wait. If you have a profit, you must take it. If you wait, it will be your downfall. Also, have the wisdom to realise that you can’t take it in one go, or you destroy the market for the balance. If you are a big trader, it can take 10, 20, or 30 days to unload, depending on how big your footprint is.

“If you are a big trader, you had better start, even if you are in minus territory, if the market is going up. You are long, and you have been suffering: a big minus, a small minus, and then a negligible minus. At that point, start liquidating. Even if you sell only 3%, you still have 97% to go. You must shed weight. Waiting to take profits is dangerous.

“What about taking losses?” I requested.

“Well,” RK replied with a sigh. “It is wonderful to take losses when you have profits under your belt. So, you need a bit of luck to build up some profits first. You must start on the right leg. And everything, including quantity, must be according to your size.

“In 1963, I took a big position,” he continued. “I was very confident. I felt that sugar was worth more than it was. But you know the sugar market. There is always overproduction. There is no point in hoarding sugar. There is always a bumper crop coming up.

“The early 1960s were wonderful for me in the sugar market. I was hunting in a lake just teeming with salmon trout. There were only three or five predators; these sharks could eat their fill. I would swim past them, and they weren’t even interested in me. Today you go to the same lake: there are giant crocodiles, giant sharks. There are not enough fish to feed these giant predators. You must think twice before swimming in the lake.”

“Some traders are arrogant,” I ventured. “They have big positions and have to convince themselves that they are right and therefore have to convince other people that they are right.”

“You must be humble because you are never always right. You don’t need to convince anyone. You can trade as a very humble man.”

“Is speculation and risk-taking an integral part of all life?” I requested.

“An emphatic yes!” RK replied. “When you get into your car and leave your home, you are taking a risk. In the modern world, there is no back-to-back trading where you can make a simple margin on a physical sugar transaction. Those days are long gone. Those opportunities, when they do come, are like golfing holes in one. I have been playing golf since 1947, and I have never scored a hole-in-one. So, where there is no back-to-back trading, it means you must lift a leg: you must sell before you buy or buy before you sell. You must take a risk. But you can still make good money trading.”

“Are you a businessman who started as a trader, or are you a trader who applied your trading skills to business?” I requested.

“I have been asking myself that question for the past 50 years. Let’s take soccer as a parallel. You can train someone to play football, but you never produce a Pele, a Ronaldo, or a Messi. You must have natural verve. We are not born equal. You either have that attribute in you, call it genius if you like, but of course, different degrees of genius, and then circumstance or fate gives you the playground to exercise your skills. If you are born in the wrong community and your parents force you into the armed forces, well then, how do you become a trader? But traders are born, not taught.”

“Footballers often have particular styles, as do traders,” I prompted. “What is your style?”

“When you play poker, the secret is never to let the other players guess your next move. I can adopt a contrarian approach, yet go with the flow. I even include superstition. In my early days, I would watch a fellow trader to see if he had a lucky glow on his forehead. If he did, I would spend more time with him that day.”

“Commodity trading is based on trust,” I mentioned. “You must start a relationship by offering trust. But what do you do when someone abuses that trust?”

“Well, that is just too bad. You must cut your losses; you have no other choice. If you want, you can keep that person as a friend, but do so at arm’s length, no more business dealings. But it is better just to cut the cord and part company. If you bear a grudge, you are just hurting yourself; you are not hurting the other person. It is like throwing good money after bad. Keep your wits, keep your humour, and if you are a good man, luck will come your way again. You will see another opportunity, and you will grasp it. I have always believed that.

“But business is about taking and not just giving. I came up in a hard school. In an arena where no holds are barred, you must win.”

“You have known a few dictators,” I ventured cautiously, not sure of his response. “Does absolute power corrupt?” I requested.

“There is some truth in that statement. But do not rely solely on the word “power”. Enormous greed corrupts the soul even additional. Anything extreme has robust, dangerous results. However, it’s an oversimplification to use this to each state of affairs. It is clearly true in case you use the phrase “corrupt” in its dictionary sense. But in case you imply “takes bribes” if you say “corrupt,” then it’s not essentially correct. Some political leaders I’ve identified have by no means taken a bribe. Yet they grew to become dictatorial, relentlessly pursuing their political enemies.

“One piece of advice: never hug the high and mighty; they can electrocute you. Keep them at arm’s length. And always follow moral practices, and nothing can stop you. If someone asks you for a bribe, you should say that neither you nor your company could do that. But stay very polite. Don’t stand on your high horse and preach morality at that moment. Just turn them down politely. If you get a chance later at a meal or something, you can pontificate a little, but not then – they are not in the mood to listen to moral truth.

“I have a simple motto in life: every single material thing I possess can be traded. It is for sale. The important questions are when, where, to whom, and at what price. The first three are more significant. If you like someone, the price becomes irrelevant.

“What is the thing that you are most proud of in your life?” I requested.

“I’ve never indulged in pride myself. I don’t understand that emotion. Truly, I don’t. I can see how some people delight in the thought that they created something. For me, it is always about work, a task that must be completed.”

If you have an interest in studying extra about RK’s life, I like to recommend Robert Kuok – A Memoir, by Andrew Tanzer

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