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It's Dangerous to Have Only a Few Investment Themes

April 17, 2013 | About:

The gold price dropped by nearly 30 percent over the recent weeks and closed at $1.382, far below the 1.400 mark. A great investor who has focused on gold stocks is John Paulson. According to several news sources, Paulson lost around $1 billion on the gold crash.

Paulson is a hedge fund manager and a billionaire with an estimated net worth of $11.2 billion.

His biggest position was the SPDR Gold Trust ETF (GLD). He held 21.7% of his latest portfolio in the ETF. The second biggest stake was Anglogold Ashanti Limited (AU) with a 5.4 percent share.

What you can learn from his investment strategy which is strongly focused on gold stocks, especially mining companies, is that you need a greater diversification to avoid big losses. You can push if your investment theme grows strongly and money flows come in. You make money so fast, and it feels really good that you might forget the risks. But every boom will have an end. Nothing grows to heaven without a correction.

If you make gains with your investments, a good rule to hedge your gains is to reduce your stake partly and invest the free money into new investment projects. I personally sell stocks with a gain of more than 100% if several triggers are fulfilled. The rest of my money is a product of trading and it’s no pain for me if the stake loses value.

Rating: 3.6/5 (5 votes)


Hasagos premium member - 4 years ago
There are various companies, which have produced many thousands of percent rates of return over time. Even a market index has done this over time. Aiming for just 100% I think is setting the bar quite low.

As for themes and diversifications – I think Paulson’s issue is that he was speculating that people would pay more and more for a piece of metal. And who knows, he may ultimately still be right. But, there is a fundamental difference between speculation and investment.

I think though given that he runs a hedge fund, he is sort of incentivized to speculate with his clients’ money, so we shouldn't be surprised about that.

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