How One Salmon Trade in Norway Made Millions

Editor's note: It's not often you'll get a "fat pitch" in investing. That's why, according to our colleague Gabe Marshank, you need to be ready when it comes. In today's issue, Gabe explains how a once-in-a-lifetime trade from early in his career taught him some key investing lessons – and how you can apply them to your portfolio.

Some trades you forget by lunch. Others stick with you forever.

For me, one of those came early in my Wall Street career, when I was working for legendary hedge-fund manager Steve Cohen at his firm, SAC Capital.

I wasn't managing hundreds of millions of dollars for Steve yet – that came later. At the time, I didn't have a whole lot of experience under my belt.

What I did have was intuition... and it came in handy when I got a shot at a huge trade in – of all things – fish farms. As I'll explain, this once-in-a-lifetime trade taught me some investing lessons that I still use today...

A 'Fat Pitch' in the Fish-Farming Industry

The fish-farming industry is focused on salmon. And because salmon thrive in cold water, Norway is the perfect environment to raise them.

But in 2005, the global salmon-farming industry had fallen on hard times. Too many fish farms had opened, flooding the market. Prices plunged, bankruptcies piled up, and investors fled.

Amid the wreckage, something interesting was happening...

Norway's richest man, an oil and shipping tycoon by the name of John Fredriksen, was turning his attention to the salmon market. You see, Fredriksen had an incredible knack for investing at the bottom. He'd started his career trading oil in the Middle East, taking on bets others thought were too risky to touch.

And suddenly, Fredriksen bought a 48% stake in fish-farming company Pan Fish for about $124 million. It looked like this savvy investor was again trying to nail the bottom in a cyclical industry.

But soon, word got out that he was planning to use Pan Fish to acquire Marine Harvest, the largest player in the industry, for around $1.4 billion.

This was an ambitious, high-stakes move. And to pull it off, he needed serious capital.

On Friday, March 3, 2006, rumors of the buyout hit the market. Pan Fish shares jumped 20% on unusually high trading volume. But nothing was confirmed yet.

The following Monday, it became official: Pan Fish would buy Marine Harvest and raise $1 billion to fund the deal. To sweeten the offer, Fredriksen pledged to personally invest $100 million of his own money into the stock.

That got my attention.

The stock was immediately halted after the announcement that morning. The deal was going to happen that night, and the stock would reopen for trading the next day.

I had six hours to understand the entire salmon-farming industry, this new combined company, and – most important – whether the valuation made sense.

I was still new on the desk, but the deal appeared to check the boxes: a consolidating industry, a proven investor leading the charge, and an attractive price. I figured we could make 30% pretty fast. So, with all the confidence I could muster, I pitched the idea to Steve and recommended we invest $10 million.

He listened quietly. "I don't think it's a good idea," he told me. "I think it's a great idea."

I was stunned. Steve continued...

You're telling me that the guy who knows more about this industry than anyone – who's been successful over and over – is putting in $100 million of his own money? We should invest $50 million, not $10 million.

It was the first big trade I ever put on for Steve. It felt like a lot... because it was.

By the end of the trading session the next day, the stock was up 30%. We were sitting on tens of millions of dollars' worth of paper profits before most of my colleagues had eaten lunch.

It rallied another 15% by the end of the week. A few days later, we closed our position, happy to lock in a huge profit so quickly.

Investing Lessons From My Salmon Trade

That trade taught me two important lessons that I still apply today...

1. Invest alongside the pros (if you can).

When someone with a legendary track record is putting his own real money to work, pay attention. Fredriksen wasn't in it to make a quick buck. He was building a business, and I saw the opportunity to ride along.

This doesn't mean you should follow every billionaire investor you see on CNBC. But if someone with a long-term reputation is putting up their own capital – not just managing other people's money – it's worth investigating.

Look for skin in the game.

2. The "fat pitch" is worth waiting for.

In a 1974 interview with Forbes magazine, legendary investor Warren Buffett popularized this idea, saying...

All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it.

The idea is simple: You don't have to swing at every pitch.

Most investors don't lose money because they're dumb. They're just impatient. They chase and overtrade because they feel like they need to "do something."

Investing, like baseball, is a game of discipline, not action. You don't get penalized for patience. You can wait until valuation, timing, management, and catalysts all point in the same direction to put your money to work.

For me, the salmon trade was a fat pitch. I saw all the right signs – a distressed industry, a strategic insider, a clean balance sheet, and a misunderstood setup in the market. Those don't come along every day. When they do, you don't bunt... You swing as hard as you possibly can. That's how you make outsized returns.

Nearly 20 years later, I still think about the salmon trade... not just because of the profits, but because of how clean and simple the idea was.

It wasn't complicated. You didn't need an MBA to understand it. But when the moment came, it required conviction and the willingness to act.

That's what I'm trying to do with my brand-new newsletter, Market Maven. We're trying to find the next opportunity that can return 300% to 500% over the next three to five years.

That's not about predicting the next hot stock. It's about looking where others aren't... in the places Wall Street forgets about... like salmon companies in Norway.

Regards,

Gabe Marshank

Editor's note: Gabe oversaw multiple nine-figure wins at Steve Cohen's SAC Capital... David Einhorn's Greenlight Capital... and Leon Cooperman's Omega Advisors. Today, he's known as our company's "secret weapon." And on October 29, you can be among the first to see the details of a new stock recommendation with 25-fold potential upside... and access a one-time opportunity to get in on the ground floor of Gabe's new research.