SOCCER: Proinsias O'Mahonyon the unusual rise of John Henry from philosophical farmer to financial high roller

A 30,000-square-foot home, a 164-foot yacht, a personal fortune Forbes magazine estimates at $1.1 billion (€792 million) – John Henry, Liverpool’s prospective new owner, sounds like your typical Wall Street tycoon. The reality is a little different.

Henry studied philosophy, not finance, at college. While there, he co-published a guide on how to beat the odds at blackjack. His card-counting skills were spotted by casino staff in Las Vegas, who ejected him from the blackjack tables. “I can count multiple decks,” Henry says. “It’s not hard.”

Despite his obvious intelligence and sense of philosophical enquiry – Henry attributes some of his later investment success to insights gained from Eastern mystics – he eventually dropped out of college, his studies not helped by time spent performing in rock bands.

At the age of 25, Henry took over the family farm, growing soybeans, corn, cotton and rice. To protect against possible price declines, he taught himself hedging techniques. Hedging soon led to more speculative activity. In 1976, advised to hedge his soybean crop against a price decline, he instead bet that the price would rise. That bet netted $75,000, a windfall he later admitted was “pure luck”.

A family friend later recounted that while most farmers “want to talk about their tractors”, Henry’s conversation always revolved around “the market and prices”.

Armed with a mere hand calculator and historical market data sourced from public libraries, he began looking for a robust technical trading system.

The method, he decided, was trend following.

“We do not try to predict trends”, as one company marketing brochure reads, “instead we participate in trends we have identified.”

Such an approach seemed to work in the deflationary 1930s as well as the inflationary 1970s; in fact, it worked just as well in the 19th century, Henry believed.

The family farm was sold. In 1981, with a stake of just $16,000, he began his trading career. Success soon followed, and money swarmed to Henry’s funds.

In 1987, a year remembered for Black Monday, when US indices suffered their largest ever one-day decline (a fall of 22 per cent), Henry’s main fund soared by 252 per cent.

In the mid-1990s, Henry profited by betting against Japanese indices. On the other side of this trade was Nick Leeson, whose desperate counter-trend trading bankrupted Barings Bank.

“Leeson didn’t have the ability to take a loss”, Henry later reflected. Too many people “waited for the market to reflect their belief about the market”, dooming themselves in the process.

Eschewing all fundamental analysis and analyst opinion, Henry’s trading is utterly mathematical and dispassionate.

“We buy high and sell low,” he says, acknowledging that over 60 per cent of his bets turn out to be losers. Losses are promptly cut, however, while big returns are secured through the occasional gigantic winner.

His investment career hasn’t been plain sailing. Highly leveraged bets – as much as six times the fund’s assets can be placed on a single trade – means volatility and large swings are inevitable.

His funds tanked during the range-bound markets that prevailed prior to the global financial crisis.

Panicked investors withdrew their money and assets under management fell from over $3 billion in 2005 to under $300 million by 2008.

Henry’s strategies traditionally blossom in economic dislocations, however, and the carnage of 2008 proved no different – his Global Analytics fund rose by 91 per cent that year, even as US indices lost over a third of their value.

Most of his funds have substantially outperformed over the last number of years while his first fund, his Financial and Metals portfolio, has enjoyed a stunning annualised return of over 21 per cent over the last three decades.

Henry’s forays into the world of sport – he is involved in the Nascar motorsport series as well as owning the Boston Red Sox – have been famously successful. His use of sabermetrics – statistical analysis of baseball records that analyses why teams win and lose – helped uncover undervalued players and catalysed the revival of the Red Sox, who won the World Series title in 2004 for the first time since 1918.

Liverpool fans, without a league title since 1990, will be hoping that Henry can work similar magic on Merseyside.

Q&A: The lowdown

Why is there a crisis at Liverpool?

The board, led by independent chairman Martin Broughton, have accepted an offer of around €343 million for the club from New England Sports Ventures, owners of the Boston Red Sox baseball team. Liverpool's owners Tom Hicks and George Gillett are fiercely opposed to accepting the offer.

What has Hicks and Gillett's response been?

They have taken legal action to try to overturn the decision. They have also attempted to sack two members of the board, managing director Christian Purslow and commercial director Ian Ayre, and replace them with their own appointments.

Why are Hicks and Gillett so against the offer?

They believe the price of €343 million grossly under-values the club – and because they would each take a massive financial hit.

But €343 million seems like a lot of money – isn't that far more than they paid for the club in 2007?

Yes, they paid €251 million, funded entirely by bank loans, but since then the debt has swelled due to interest and other fees to €320 million, and they have invested €165 million into Kop Holdings via a company registered in the Cayman Islands, which was then lent to Liverpool.

What would Hicks and Gillett be left with if the €343 million buy-out goes ahead?

About €229 million would go towards paying off the Royal Bank of Scotland and Wachovia debts. RBS would be likely to leave about €34 million of the debt as a credit facility for the new owners. Only after all the other creditors are paid would any left-over cash go to the pair towards the €165 million loan they put in.

What about the penalty fees Hicks and Gillett have built up with RBS?

They total around €52 million but they would no doubt be subject to legal challenges too.

So what size of loss are Hicks and Gillett contemplating?

As much as €114 million.

What is the next step?

The lawyers have moved in with Hicks and Gillett trying to block the board's right to agree a takeover. If they sack the board, RBS would claim that would put the pair in breach of their refinancing agreement signed in April.

What if they succeed?

Even if they succeed then unless they have raised funds to pay off their debts by October 15th then RBS will assume control of the club, put Kop Holdings into administration and sell Liverpool themselves – mostly likely to New England Sports Ventures.

What message does this send about the ownership of clubs?

Taking on 100 per cent bank loans to finance a club takeover is asking for trouble.

Will this have any effect on the Glazer family's ownership of Manchester United?

United are far stronger commercially and have the money-making machine of Old Trafford. But woe betide them should United falter on-field.