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John Paulson’s Largest Holding Is His Best Performing

September 30, 2011 | About:

Holly LaFon

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John Paulson once made headlines for astronomical returns. This year, he is garnering more attention for the poor performance of his funds – down 28% for the year through September 27 – and his biggest losers, financials and Sino-Forest. But his portfolio contains many other stocks. His best-performing stock so far this quarter is his largest: GLD SPDR Trust (GLD).

GLD SPDR Trust (GLD)

SPDR Gold Shares (GLD) is the largest physically backed gold exchange traded fund (ETF) in the world. In the last year, the price for a share of the fund increased almost 45%, and almost 18% over the last three months ended Aug. 31, 2011. The gold bull market dates to late 2007, but some date it even farther back to April 2001, when the dollar went into long-term secular decline. Before that, from 1980 to 1999, gold was in a down-turn that took it down to about $250 an ounce.

George Milling-Stanley, of the World Gold Council, told Resource Investor in 2008 that there were several reasons for the gold bull market of the previous 6-7 years and why he believed it was poised to continue even stronger: continuing decline of U.S. dollar, worries about inflation, the sub-prime mortgage crisis knocking the steam out of equities, and increasing geopolitical tensions.

Paulson seemed to agree with the essence of the declining dollar being good for gold argument. In his 2010 investor letter, he said, “We initiated Gold Share Classes for each fund on April 1, 2009, shortly after the Federal Reserve announced its initial $1.7 trillion in quantitative easing. We were concerned that the unprecedented printing of U.S. dollars could lead to future currency depreciation…”

Paulson initiated his GLD position in the first quarter of 2009 at 31,500,000 shares at an average price of $896 a share. The price has been driven up about 76% since then and has been highly profitable for Paulson’s firm. In 2010 his Paulson Gold Funds debuted with a 35% net return.

Gold ceased ascending toward late August, when it was setting historical records near $1,900 an ounce. Paulson’s largest holding is still up 8.26% over the last three months, but began its first big decline in over the last month. Gold prices fell 11% in September, its worst month in three years, mainly due to fears concerning the euro debt crisis. Paulson has been successful calling market trends in the past, and at this point if he believes gold is about to implode he can still exit relatively unscathed.

Paulson’s other best-performing stocks are: Southern Union Co. (SUG), down 1.1% YTD; Gold Fields Ltd. ADS (GFI), down 3.6% YTD; AngloGold Ashanti (AU), down 4.9% YTD; and Family Dollar Stores Inc. (FDO), down 6.13% YTD.


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