'Greatest Trade': How You Can Make $20 Billion
- Thread starter Optionpro007
- Start date
How did you bet against housing ... did you short homebuilders, mortgage lenders ...? That was a sucker's play.
The genius of Paulson's (and others) trade is not that he shorted housing (any moron could have seen the bubble), but by the way he figured out how to do it - by buying CDS on mortgage backed securities. It was like buying an option whose premium was roughly zero. He was buying $1 billion in CDS for $10 million - that's a 100:1 payoff! He thus was able to define his downside while allowing nearly unlimited upside.
He and the others were more than just lucky. Paulson and some of the others started buying these CDS in 2005 and watched them fall in value for 12-18 months before they took off in 2007. In the meantime, they had every guy on the Street and most of their fund's investors in their ear telling them that they were crazy and sure to lose all of their money.
Don't kid yourself, you were more than just unlucky. Had you had the pluck, foresight, and stones that Paulson and the others had, you may have ended up in the book.
BTW, I've read the entire book and its mostly fantastic. A must read for anyone who fancies himself a global macro trader.
Those things work for smaller funds, once you are trading some real size.. different story, have to understand markets. I don't find any mystery in the real estate market btw. It's perfectly cyclical, always ends with a blowoff top and this time there was the subprime thingy that made it a bubble of epic proportions.. it bottoms with incredible pessimism and realtors acting as security guards for their offices.. then it starts up again...
Paulson's golden investors have to commit $10 million
Investors tempted to put money into star hedge fund manager John Paulson's new gold portfolio will have to commit at least $10 million and
leave the money locked up for at least one year, according to a prospectus.
In return, Paulson & Co, one of the world's biggest and most successful hedge fund firms, says it can deliver returns that top gold prices, at a time analysts are betting that rising demand will make the metal even pricier.
http://economictimes.indiatimes.com/Commit-10-mn-for-Paulsons-fund/articleshow/5253250.cms
Investors tempted to put money into star hedge fund manager John Paulson's new gold portfolio will have to commit at least $10 million and
leave the money locked up for at least one year, according to a prospectus.
In return, Paulson & Co, one of the world's biggest and most successful hedge fund firms, says it can deliver returns that top gold prices, at a time analysts are betting that rising demand will make the metal even pricier.
http://economictimes.indiatimes.com/Commit-10-mn-for-Paulsons-fund/articleshow/5253250.cms
PRICE IS REFLECTIVE OF MOST MOVES long before THE FUNDAMENTALS ARE INTRODUCED! THE LESSON HERE IS SIMPLE: YOU CAN READ A CHART AND FIND OUT WHICH DIRECTION MOST MOVES ARE MAKING BECAUSE IT IS ALREADY REFLECTED IN THE PRICE OF THE PARTICULAR INSTRUMENT YOU ARE TRADING. SECOND LESSON IS SIMPLE; TRADING, NOT INVESTING, WHICH INVOLVES BUYING AND HOLDING, IS THE ONLY WAY TO MAKE MONEY IN THE MARKETS. GET A GOOD CHARTING SOFTWARE PACKAGE AND INPUT THE CORRECT DATA TO FIND THOSE PLAYS YOU WANT TO TRADE AND QUIT RELYING ON OTHERS FOR YOUR TRADING, INVESTMENT KNOWLEDGE!!!!!!!!
I agree with Misthos
I have no problem with that at all. I would have myself had I not known what I know now about trend trading and watching the charts!!