In defense of John Paulson...

[chaykapwr]

I was just readying a post on here where an ET trader concluded that because John Paulson and most big name hedge funds are down for the year they "dont care about returns" and are not even average investors. Well, I would just like to post this in defense of them.

Its one thing to exit out of 100 share microsoft or netflix trade when you see the market down 3-4% a day like back in August. But when you are like Paulson and have 117 million shares of Bank of America and over 30 million shares of Citigroup, it is kind of hard to just "exit".

Of course the argument could be made well he shouldnt have been so heavily invested in those stocks, well that might be true but the fact is with over 30 billion in assets in Paulson and Co. its kind of hard to find decent investments to plow money too. Its even harder to try and exit the market in early august and then try to REenter at the end of september. With 30 billion your choices are very limited. He will bounce back...if I was his investor I would not be concerned.

 

[tradingjournals]

What do you think happens to other funds who lose? Could they also not tell you "we could not get out"?

In fact what about a chimp managing a hedge fund? Could one also not use the same argument in the defense of the chimp?

 

[chaykapwr]

Well, by other funds what do you mean? I was talking the 5+ billion dollar funds...if you give me what size you are talking about then I could answer..I mean if a fund worth <100 million, then i would not by the argument that they could not exit. Its like what Warren Buffet said...If I only invested with one million or less I would be making 50% returns every year. Its all about relative size

 

[tradingjournals]

Quote from chaykapwr:

Its like what Warren Buffet said...If I only invested with one million or less I would be making 50% returns every year.

Give Buffet a paper account, and we will see what he will do. I am almost certain that he would not make that return, and would likely underperform the index. I would rather say that size, instead of a negative, is an edge for Buffet (he can make deals outside of the market at better terms).

 

[tradingjournals]

Quote from chaykapwr:

...If I only invested with one million or less I would be making 50% returns every year. Its all about relative size

I am almost sure if a stranger were to make for you 100% per year, you would not allow them to manage your money.

You would invest with Buffet/Paulson, not because of their return, but because of their fame, the imagined return that would go through your head, and the bragging right such as 'I am invested with Mr. Fame".

People like the sizzle, and not the steak, even if they should do the opposite.

 

[heech]

Paulson made his billions by making high risk, concentrated bets. And now, he's losing billions using a similar approach. Any investor that thought volatility only ran one direction is now better informed.

As far as whether he "doesn't care" about his investors... considering that his (and other employees) personal assets are something like 40-50% of the fund, of course he "cares" about doing better.

It's just a hard business that, quite often, humbles you. I have no idea if he will "recover"... but even if he doesn't, he has enough money to buy a small island and a cadre of Playboy Playmates to retire with. So, let's have a little perspective.

 

[formal gold]

I see down on Paulsons large town house from my bathroom window. His home is right next door to my apt building. He's certainly done well and the building stands out in a positive way.. sorry if off topic.

 

[newwurldmn]

Quote from tradingjournals:

Give Buffet a paper account, and we will see what he will do. I am almost certain that he would not make that return, and would likely underperform the index. I would rather say that size, instead of a negative, is an edge for Buffet (he can make deals outside of the market at better terms).

Well seeing that he has produced great returns with a real account that was billions in size I think you are wrong.

 

[chaykapwr]

Quote from formal gold:

I see down on Paulsons large town house from my bathroom window. His home is right next door to my apt building. He's certainly done well and the building stands out in a positive way.. sorry if off topic.

Whats funny is that when he was worth 5+ billion dollars, and found the house he wanted to buy he didnt make an offer on it, instead he waited for it to go into foreclosure, he was the only one at the auction because it was horrible raining weather...I love those type of stories. Here was a man worth more money than he knows what to do with and he still waited until it was the best deal possible

Thats like waiting for a pack of gum to go on sale