Hi there,
Over the past few months, I’ve been struggling to write this newsletter.
To be more consistent, I’ve been reflecting on which parts of my writing give me joy and which ones sap me of energy.
As I introspected, I realised, I love reading stories from the past.
The past gives us clues about the future but reading the current news without joining the dots from the past, without understanding the ‘why’ of the situation feels like an incomplete story.
On the other hand, timeless stories act like a richly woven tapestry. Tugging on various threads leads to a better understanding of what is happening and why.
Hence, I am pivoting with the way I write this newsletter to focus more on stories from the world of finance, economics, and business. But they won’t necessarily fit into the current news cycle.
I hope you will join me on this exciting journey,
This week we are diving into a story about an individual who ruled over the cocoa trade earning the moniker “Chocfinger” fashioned after a James Bond villain.
So, who is Chocfinger?
Born into a military family, Anthony Ward, the man who would one day be known as ‘Chocfinger’, grew up attending one of UK’s elite private boarding schools, Marlborough College.
Fresh out of school he started working immediately. Starting off as a trainee at Sime Darby where he sampled tea. In 1980, he came across cocoa trading when he joined E.F. Hutton.
The world of commodities trading was cutthroat, traders were dime a dozen vying for a limited set of clients. Chocfinger with his upbringing and love of good food and wine managed to charm his clients over business dinners.
Climbing the ladder swiftly, Anthony took charge of the cocoa and coffee trading business of Phibro, the renowned commodities branch of Salomon Smith Barney.
In 1998, he started his own venture and co-founded Armajaro Trading which specialized in - you’ve guessed it right - cocoa and coffee trading.
What was his investing approach?
Anthony Ward’s investing philosophy was deeply rooted in fundamental research. He meticulously studied the market and even rivals praised him as the ultimate analyst who values thorough research.
To ensure accurate data, his firm set up their own weather stations on the west coast of Africa to monitor the growth of cocoa crops. Employees were sent annually to Ivory Coast, the world's largest cocoa producer, to count cocoa pods, gaining an edge over competitors.
What were the results of this approach?
He put his money where his analysis led him, sometimes he made big wins, and sometimes he faced substantial losses.
In 2002, he believed the harvest would be poor as the cocoa trees in the Ivory Coast were old and overused and the country was immersed in a civil war. Mr Ward decided to buy and take delivery of 148,000 tonnes of cocoa,
In the commodities trading world, this move was rare. Taking physical delivery of goods means that the trader now has the responsibility to ensure that the beans don’t spoil, pay storage fees, and finance the purchase of goods.
Such bold moves demonstrated that Anthony Ward was not simply a speculator but rather a calculated risk taker.
He was proven right, he bought low and sold high as prices surged 60% that year.
In 2010, he spotted another buying opportunity; a string of bad crops in west Africa had constrained supply but global cocoa demand was on the rise.
His trading arm Armajaro Trading took physical delivery of 240,100 tonnes, valued at $1.14 billion. This gave him control over 7% of the world’s cocoa supply while pushing up prices to their highest level in 33 years.
This was the move that earnt him nickname ‘Chocfinger’ derived from the James Bond villain, Goldfinger.
Just to understand the scale, Wikipedia says an average adult human weighs 60kg, so 240,100 tons is heavier than the weight of 4 million people. That quantity of beans would be enough to feed everybody in the world three bars each of Cadbury’s Dairy Milk.
This string of consistent wins established him and his firm as one of the leaders and most astute in the cocoa trade.
But disaster struck in 2016, Chocfinger’s fund CC+ fund posted its first loss.
Chocfinger predicted bad weather which would destroy the crops in Ivory Coast and Ghana. CC+ bet on pricing shooting up, but instead they plummeted leading to substantial losses for the fund.
The unexpected drop in prices was attributed to weak factory data coming from China, raising fears of lower demand from the world’s top consumer of raw materials. Leading to misplaced selling by computer-driven funds reacting to the Chinese data. The Chinese data had very little direct relevance to the cocoa market.
Chocfinger pointed the finger at the rise of computer-driven funds and high-frequency trading, blaming them for forcing him and other notable commodities traders to close their hedge funds.
He felt that his fundamental investing style, where factors of demand and supply determine the price of the commodity and future prices, was losing its relevance.
His prediction of bad weather did come to pass, and it drove the cocoa prices higher- but Chocfinger’s fund had already faced substantial losses.
In 2017, after a decade of trading and reaping profits, he closed the fund.
Marking the end of an era.
This intriguing story has deepened my understanding of the movements in the cocoa market more than I could have imagined.
I hope you found this tale as engaging as I did and that it made for an interesting read.
I found this story initially in the book How to Speak Money by John Lanchester, do give this book a read- it simplifies the jargon we use to explain money related concepts. It’s filled with interesting stories like this.
If you want to understand more about the commodity markets read my article- What do wars and food prices have in common?
I hope you enjoyed this edition of Filtered Kapi.
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Leave a comment if something struck a chord with you.
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