John Paulson is the President and Portfolio Manager of Paulson & Co. Inc. Paulson was ranked by Absolute Return Magazine as the 3rd largest hedge fund in the world managing approximately $29bn in merger, event and distressed strategies. Mr. Paulson received his Masters of Business Administration with high distinction, as a Baker Scholar, from Harvard Business School in 1980. He graduated summa cum laude in Finance from New York University's College of Business and Public Administration in 1978. Prior to forming Paulson in 1994, John was a general partner of Gruss Partners and a managing director in mergers and acquisitions at Bear Stearns.
Investing Philosophy
John Paulson, a former mergers and acquisitions banker, established his firm as a merger arbitrage hedge fund manager, seeking to make money from situations when one public company announces plans to take over another. Merger arbitrage hedge funds primarily study equity markets, but they also research the market for credit default swaps, a form of insurance that starts paying out as soon as a credit security falls in value.
Over the past month, GuruFocus released its newly developed Interactive Charts. We are still improving the chart functions. Today the chart was featured by Barron’s Electronic Investor column. Here is the link to the Barron’s article. Read more...
I have been personally involved with several positions in U.S.-listed Chinese companies and have suffered quite badly from those positions. And recently the report published by Carlson Block targeted one of the biggest Canadian-listed Chinese companies in the forestry field — Sino-Forest (TRE). After the report was released, the stock, which opened at $18, immediately was brought to under $2.5. And one big hedge fund took a hit: Paulson and Co. of John Paulson, which had a holding of 34.7 million shares in Sino-Forest, might have encountered a loss of more than $500 million on that position. Read more...
It is very important before people make quick judgments that they understand one thing; this article is not a criticism of John Paulson. John Paulson is far smarter than me, and a much better investor, there is simply no comparison. However, John Paulson seems to be mistaken about Bank of America and recently admitted this. Mohnish Pabrai stated at the Value Investing Congress that you can learn a lot from great investors’ mistakes. This is what this article attempts to do. Read more...
In a short span of time, John Paulson catapulted to the status of one of the most successful investors in history. He made an unprecedented $3.7 billion in one year in 2007 foreseeing the subprime debacle and earned massive returns on several other bets in recent years. His ability to achieve such success while the majority of the investment world cratered has left many investors asking how he did it and what they could learn from him. In his 2010 investor letter, he broadly explained that his firm made billions by “anticipating market events before they are generally recognized.” Read more...
In a short span of time, John Paulson catapulted to the status of one of the most successful investors in history. He made an unprecedented $3.7 billion in one year in 2007 foreseeing the subprime debacle and earned massive returns on several other bets in recent years. His ability to achieve such success while the majority of the investment world cratered has left many investors asking how he did it and what they could learn from him. In his 2010 investor letter, he broadly explained that his firm made billions by “anticipating market events before they are generally recognized.”
Risk Arbitrage
Before the events that would make him legendary, Paulson was a successful hedge fund manager focusing on risk arbitrage. His arbitrage funds are his oldest, dating back to 1994, and their track record shows that they resisted economic downturns and returned above average rates over the long term (approximately 17% compared to 10% of the S&P 500). His first fund had only one down year since its inception in 1994. By the end of 2004, Paulson & Co. managed $2.9 billion.
In a 2003 interview with Hedge Fund News, he said that in risk arbitrage his method to outperform the merger arbitrage index was to minimize drawdowns from deals that break, by weighting portfolio to deals that could receive higher bids, by focusing on unique deal structures which offer the potential for higher returns and by occasionally shorting the weaker transactions.”
Subprime
The first banner year for Paulson occurred in 2007. As early as 2005, he began to recognize the trouble with the mortgage industry. Banks were offering mortgages – often at adjustable rates – with few restrictions or credit requirements; when the rates went up and people could no longer pay, they would have to refinance or default. The loans were based on the presumption that housing prices would continue to increase. Paulson told the Financial Crisis Committee in 2010 that when he recognized that home prices ceased going up, he began buying securities against low-graded loans likely to default.
Mortgage dealers told Paulson that the mortgages were safe because home prices had never declined on a national scale since the Great Depression. “Our opinion was [home prices] were overvalued and they were going to correct and that the quality of mortgages was very poor, and the losses would likely be substantial,” Paulson said. By June 2006, he set up a fund for credit default swaps – a form of insurance which would pay him if people could not pay their loans – to capitalize on the fallout.
By February of 2007, before the credit crisis actually hit, his return soared to 66%. By the end of 2007, his firm had made $15 billion.
Shorting Financials (2008)
In early 2008, he even made money as financial institutions related to the mortgage backed securities collapsed. He did it primarily by shorting stocks in some of the world’s largest financial institutions, betting they would fail. He shorted Fannie Mae, Freddie Mac, Barclays (BCS), Royal Bank of Scotland (RBS) and Lloyds TSB (LYG). By November of 2008, his firm had $36 billion assets under management.
Financial Recovery (2009)
As he profited when the financial sector fell apart, so he profited as it began to recover in 2009. In a speech at a hedge-fund seminar in Tokyo, Paulson called distressed assets in the U.S. “the best opportunity in a lifetime.” He formed a new fund called the Paulson Recovery Fund in 2008, making investments, primarily in the financial sector, that would appreciate as the economy improved. He also deemed the consumer staples, pharmaceutical and health industries as attractive options.
In Paulson’s 2009 investor letter, he said the biggest challenge to performance was picking the right security and the right entry point. “Many investors have tried to buy at what they thought was the bottom but to date almost every investor that has bought financial equity securities has lost money,” he wrote.
Paulson & Co. followed approximately 70 banks in 2009, analyzing them based on need for further equity, core earnings forecasts, estimated losses and projected capital deficiency. They then projected earnings per share that would help them forecast future prices. The Paulson Recovery Fund had a return of 25.49% in 2009.
His best returns in 2009 came from his Credit Funds, which were up 28.45% through November, beating the industry average of 13.6%. He made most of the money in that fund through buying an assortment of cheap loans and bonds and selling them for a profit.
Gold (2010)
In 2009, Paulson increased his investment in the gold sector. He created the Paulson Gold Fund in April 2009, and five gold mining stocks comprise 14% of his firm’s portfolio. In the first quarter of 2009, he purchased 31,500,000 shares of SPDR Gold Trust (GLD) at $89.56 per share. As of April 2011, GLD stock has risen 63% to approximately $133 per share.
His second largest gold holding is AngloGold Ashanti (AU) which comprises 7.11% of his portfolio. As of Dec. 31, 2011, he owns 40,949,437 shares. He first purchased shares of AngloGold in the first quarter of 2009 at approximately $30, and the share value has risen 64.5% since then.
He is also buying into gold-related companies. Gabriel Resources (GBU), of which he owns over 19%, is the largest potential gold mine in Europe. Gabriel Resources is an “impaired” gold company in that it has been involved in a lengthy process to obtain environmental permits and expects that it will not be until 2014 that everything will be in place to actually begin mining. But the company’s problems sent its stock price down. Paulson first bought the stock at around $2 per share in the first quarter of 2009. As of April 2011, it has increased 233% to $7.22 per share.
Paulson’s gold funds debuted with an over 35% net return. Paulson & Co. attributed the return to their “exposure to production, development, exploration gold mining shares and the rising value of derivatives.”
Gold prices have risen over 131% in the last five years. In 2010 it leaped almost 30%, and his investment paid off even better than his subprime bet in 2007: He made $5 billion. However, in the first quarter of 2011, his gold funds have lost 1.26%.
Guru John Paulson, founder of Paulson & Company, knows the highs and the lows of the market. He is famed for generating up to 600% returns in the 2008 market crash, but recently, Paulson has seen his Gold Fund plummet faster than anyone’s worse nightmare. Paulson lost approximately $1 billion of his personal wealth on gold bets in April alone, according to Bloomberg. Reviewing his sell-outs in the last quarter, it looks like Paulson has dropped only one never-a-gain holding in the Barrick Gold Corporation (ABX) in the first quarter of 2013. More...
METALS & MINING, CONSUMER PACKAGED GOODS, INSURANCE – PROPERTY & CASUALTY, UTILITIES – INDEPENDENT POWER PRODUCERS, OIL & GAS – INTEGRATED, OIL & GAS – E&P, UTILITIES – INDEPENDENT POWER PRO
Paulson is known for extreme wins and losses – for instance, a $5 billion win during the housing crisis and an almost $1 billion loss in two days on gold last month. In the first quarter, the manager of the $18 billion hedge fund Paulson & Co. added some sizable new positions to his stock portfolio. More...
For years, John Paulson of Paulson & Co. was the superlative investor. In 2012 his new buys had the highest average gain, 652.47% over six months, and the highest average return, 364.4% over 12 months, according to the GuruFocus Score Board of Gurus. The phenomenal hedge fund founder is very well-known for his returns on gold and for betting against mortgages in 2008, returning up to 600%. But last month, when gold dropped to its lowest point in 33 years, Paulson’s Gold Fund watched as the $500 million glow dimmed by 27%. According to Bloomberg, Paulson & Company’s assets have decreased more than 50% from $38 billion in 2011. The GuruFocus update shows the Paulson portfolio with 86 stocks and a total value of $16.26 billion as of May 1, 2013. Paulson’s top three holdings show that Paulson is still stubborn for gold, but Sprint Inc. (S) is the real bright spot: More...
ETF, GOLD, METALS & MINING, COMMUNICATION SERVICES
John Paulson made the “greatest trade ever” against the subprime mess, netting $15 billion of profits for his firm and sealing his spot as top hedge fund manager. Impeccable timing is everything. Any hedge fund managers may have the best investment idea, but it may not be able to pull off the trades as markets can remain irrational a lot longer than you and I can remain solvent. More...
For the past few months, Life Technologies Corporation (LIFE), the global biotechnology company that makes DNA-sequencing equipment, laboratory instruments and lab testing products, is still in discussions with potential buyers. The company has over 50,0000 products and 5,000 patents used in cellular testing and research, forensics, food and water safety, animal health, clinical testing and numerous other applications in research science, applied science, and medical science. In its gene-sequencing sector, Life Technologies Corp. competes with Illumina Inc. (ILMN). Both California-based companies use technology that can “blueprint” a human being’s DNA for medical purposes in the emerging field of molecular diagnostics. More...
DNA SEQUENCING, BIOTECHNOLOGY, MOLECULAR DIAGNOSTICS
Since 2009, legendary hedge fund Guru John Paulson, founder of Paulson & Company, has been investing in the gold sector, adding gold mining and bullion-related companies. In 2010, he launched the Paulson Gold Fund, his best-performing fund that year, increasing 35% net. Paulson & Company attributed that year’s high return to its “exposure to production, development, exploration gold mining shares and the rising value of derivatives.” As the price of gold was peaking at $1424 in December 2010, Paulson’s investment made $5 billion. It wasn’t until the first quarter of 2011 the Gold Fund began to lose, down 1.26%. Currently, with gold prices falling for five months, Paulson’s $900 million Gold Fund is down 26% this year, based on the longest gold slump in 16 years, according to Bloomberg. More...
Guru John Paulson, founder of Paulson & Co., is the legendary hedge fund investor well-remembered for generating returns of up to 600% by betting against mortgages in the 2008 market crash. In his portfolio weighted towards EFTs, healthcare, communication services and basic materials, Paulson & Co. list 86 stocks with a total value of $16.27 billion as of Dec. 31, 2012. On March 7, 2013, Paulson reduced his position as the largest shareholder of CNO Financial Group Inc. (CNO) by 22.13%. After the trade he owns 16,751,527 shares, with a current price of $11.58, and a change from average up 4%. The current CNO share price is $11.52. More...
Billionaire John Paulson is MetroPCS Communication's (PCS) largest shareholder, owning almost 10% of the company's outstanding shares. However, in a statement last week, he announced that his hedge fund Paulson & Co. will oppose MetroPCS' planned merger with Deutsche Telekom AG’s T-Mobile business. More...
For most value investors, an out-of-favor industry is a bargain bin containing potential hidden gems. This mentality is what sent Bruce Berkowitz swashbuckling into financials on the tail of the financial crisis, and prompted Donald Yacktman to buy good “old tech” companies in 2011 when the market considered them a lost cause, for example. More...
John Paulson, founder of Paulson & Co., increased his stake in MetroPCS Communications Inc. (PCS) by 14.15% at the average price of $9.80 on Feb. 28, 2013, according to GuruFocus Real Time Picks. Paulson, the largest shareholder of MetroPCS Communications with a 9.9% stake, argued that its share price is depressed because investors are wary of the proposed merger between the company and highly levered T-Mobile, which he is fighting. More...
As gold rallied again in the fourth quarter, several Gurus who had tremendous holdings in the metal began unloading, namely macroeconomic trader George Soros and Lone Pine’s Steve Mandel. John Paulson chose to maintain his position. Both Soros and Paulson have read economic signs and traded at just the right times to reap profits and avoid losses on gold in the past, adding significance to their recent decisions. More...
John Paulson’s investing philosophy is based on making sector bets according to his interpretation of the macroeconomic picture. The strategy paid off well when he made $3.7 billion in 2007 shorting the subprime mortgage market and another $5 billion in 2010 primarily by betting on gold. Times have been less spectacular since then, with his funds losing 36% in 2011 by being too early in financials and returning 1% in 2012. More...
John Paulson of Paulson & Co. had a 29% quarter-over-quarter turnover in his $16.3 billion portfolio in the fourth quarter, as he bought 26 new stocks, for a total of 86. As a macro investor, Paulson gave his thesis on the 2013 market on CNBC in January. In summary, he believes the housing market recovery will lead the U.S. economic recovery, is seeing positive turnaround in the U.S. energy market, is bullish on credit cards, auto loans and mortgages and less bullish on credit, and believes gold will do well in the next three to five years. More...
Post Holdings Inc. (POST) has origins dating back to 1895 with the first batch of Postum, a cereal beverage, processed in a barn in Battle Creek, Michigan. This led to the introduction of Grape-Nuts being introduced in 1897. In 1929, the company changed its name to General Foods and acquired over a dozen companies and had 60 products over the years. In 1985, the company was acquired by Phillip Morris (PM) which later merged General Foods with Kraft Foods. Kraft sold Post to Ralcorp Holdings Inc. (RAH) in 2008 for $2.8 billion including debt of $950 million. Its brands found on breakfast tables throughout the country are Grape Nuts, Honey Bunches of Oats, Fruity Pebbles, Sugar Crisp, Raisin Bran and Honey Combs. More...
Guru John Paulson joined former U.S. Secretary of the Treasury, Bob Rubin and Washington Post Columnist, Sebastian Mallaby on Tuesday, Jan. 22 at the Manhattan nonprofit community and cultural center, 92nd Street Y, to speak on how to get Washington and U.S. economy moving again. Titled “2013 and Beyond,” Paulson gave a presentation disclosing his outlook for this year. Below is a summary, according to CNBC, of Paulson’s main points during the presentation. More...
Check out a very rare video of well-known investor and billionaire John Paulson. Paulson is giving a speech here at a 2012 foreign policy association luncheon and discusses his views on the Canadian Economy. More...
JOHN PAULSON, BILLIONAIRE INVESTOR, VALUE INVESTOR, VALUE INVESTING, CANADA ECONOMY, FOREIGN POLICY ASSOCIATION LUNCHEON
Paulson’s pessimistic outlook for the European Union and the euro currency cost him in 2012. The founder of hedge fund Paulson & Co. is attributing this year’s losses, which have placed it among the most underperforming hedge funds, primarily to a wrongway forecast that the situation in Europe would worsen and the euro collapse, and positioning his fund accordingly, according to Bloomberg. More...
Investors in John Paulson's firm are getting impatient as the fund is down for a second year in a row. Last year the fund was down 53%. This year the fund is down 19% as Paulson's main fund is down 13%. Paulson will struggle to meet his high water mark as the S&P is up 14%. More...
John Paulson has gone from history-making returns in the subprime-mortgage market, to record losses in 2011, to being down 14% in his Advantage Plus Fund since the start of this year through September, according to Bloomberg. The investor, who has been bullish on gold for several years, has four stocks currently trading at 52-week low stock prices, three of which are gold miners, according to his GuruFolio available for download here. More...
After losing 50% in his Advantage Plus Fund last year primarily by overestimating the rate of the U.S. economy’s recovery, John Paulson was down 10% in the first half of 2012. It has been a drastic change from the 591% returns in the subprime crisis that propelled him to the spotlight in 2007. More...
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