John Paulson is really interesting in that he really played the entire credit cycle. He shorted it and then turned long at the right time and has been profiting from the recovery.
Most of the other guys who shorted the bubble got the part after wrong. They expected these doomsday/cataclysmic scenarios which never arrived.
I think the underlying lesson is that as an investor, when you are thinking of big picture themes, you really have to keep an open mind and have a willingness to change positions. Soros demonstrated that with his career.
There are tons of one hit wonders in the investment world because they let their egos get the better of them.
There was an interesting article in the Boston Globe the other day about this:
There’s no great, complex explanation for why people who get one big thing right get most everything else wrong, argues Denrell. It’s simple: Those who correctly predict extreme events tend to have a greater tendency to make extreme predictions; and those who make extreme predictions tend to spend most of the time being wrong — on account of most of their predictions being, well, pretty extreme. There are few occurrences so out of the ordinary that someone, somewhere won’t have seen them coming, even if that person has seldom been right about anything else.
From what I've read, the Paulson portfolio is broken down into several individual funds that were mostly long plays on US economic recovery. For example, some of his top performing funds this year were: the Recovery Fund (+24%, up from successful long positions in US financial institutions/major companies), the Gold Fund (+35%, initiated in early-mid 2009), and the Merger Arbitrage Fund (+27%, up from disparities within various markets during mergers).
The position is not that interesting (as I understand it): He bet that the world was over-levered beyond reason. That was not a terribly uncommon thought in '05-'08 (anyone paying attention knew the math didn't add up). The interesting part is the enormous size of the bets he made, that he was able to make them, and that he got the timing right. Don't know that anyone will write that article, though...
High fees don't necessarily mean a bad deal. I think most people would be willing to give up a percentage of profit in exchange for an improved return (or perceived improvement) than they'd get otherwise. Isn't that similar to the VC world? Many start-up entrepreneurs give up a portion of their projects (and profits) for an improved chance at having the project perform better overall.
I'm really surprised to hear that he sees gold outperforming for the next five years. With so much appreciation in the last two-three years I wouldn't have thought it was a hedge against anything.
If one thinks the market is going to go down and wants to hedge seems another alternative is to go long the dollar like UUP instead of GLD, since the dollar is inversely correlated with the market. A higher dollar makes investing in US companies more expensive for foreign investors.
I doubt that YC has $15 billion in opportunities every year. They also focus on using their expertise and networks to help their startups, so having 1,000 YC startups wouldn't work.
Most of the other guys who shorted the bubble got the part after wrong. They expected these doomsday/cataclysmic scenarios which never arrived.
I think the underlying lesson is that as an investor, when you are thinking of big picture themes, you really have to keep an open mind and have a willingness to change positions. Soros demonstrated that with his career.
There are tons of one hit wonders in the investment world because they let their egos get the better of them.