John Paulson's 8 Secrets To Investing Success

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Greg Zuckerman of the WSJ has written a book on how hedge fund manager John Paulson made $20 billion in the housing collapse (“The Greatest Trade Ever”). 

Here, he condenses Paulson’s thinking into 8 secrets to success. 

Nothing revolutionary, sadly:

  • Don’t follow the crowd.  When everyone else is buying something (housing, mortgage-backed securities), start looking the other way.
  •  Have an exit strategy.  Bubbles burst because everyone exits at the same time.
  • Focus on the debt markets.  They’re better at predicting the future than the stock market.
  • Take the time to figure out how fancy new investment products like CDSs work.  Paulson made his bet using credit default swaps.
  • Buy insurance.  Out of the money puts on the housing market were cheap…and almost no one bought them.
  • Remember the past.  Some of the big winners in the housing crash were those dismissed as out-of-touch dinosaurs…because they’d seen it all before.
  • Remember that no trade lasts forever so don’t fall in love with your investment.  After making his $20 billion, Paulson reversed course and went long banks at the bottom.
  • Timing is everything and luck helps.  Investors had been carried out on stretchers for years by betting against the housing market.  

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