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John Paulson: from an obscure manager into financial idol

Feb 28, 2017 09:49 PM

Dear Traders,

When we are speaking about the most prominent and self-made investors of our age, we definitely can not miss this man. Born in 1955 in New York City John Paulson have gone far on the success path and became one of the most inspirational Ameircan investors, hedge fund managers and philantropists. He is also favourited by publicity and often called as "one of the most prominent names in high finance" and "a man who made one of the biggest fortunes in Wall Street history".

Deliberately choosing finance as his future career, John Paulson enrolled in NYU and became a business student. In 1978 he graduated with honour in finance from New York University's College of Business and Public Administration. Afterwards, he decided to continue his education in Harvard Business School, which he successfully finished in 1980 with a MBA.

His career in finance started shortly after at Boston Consulting Group, where he provided companies with professional advice and thoughtful research. However, his main goal at that time was working on Wall Street and he had decided to achieve it by working at Odyssey partners and Bear Stearns. In 1994 he finally had a chance to found his own hedge fund Pauslon & Co. with $2 only. By 2003 his fund has grown to the phenomenal $300 million in assets.

Paulson's the most favourite drawcard is event-driven arbitrage strategy and let's see why exactly he prefers such style of investment. Quite often this system works by the following scenario: a trader waits and monitors the market for announcement from one company that it is going to buy another one. At that particular moment, a trader rushes to buy the target company's shares, shorting the acquirer's stock and profiting on the difference between two shares prices when the merger is closed.

He became truly famous for his successful bet on the subprime mortgage crisis. A couple of years before the crisis itself, John Paulson began to clearly understand that at that time housing was in a bubble. He began then taking short positions in securities sector, which as he predicted will be the most severely affected when the bubble bursts. Just before the collapse, he started to increse his positions and eventually his fund made more than $15 billion on one suprime bet.

Considering the amazing success story of John Paulson, there are really tons of lessons that we can learn from him, but one of his best trading pieces of advice can be this one: "“Many investors make the mistake of buying high and selling low while the exact opposite is the right strategy to outperform over the long term.”

Which stratedy do you prefer to trade with? Find out on Ayrex!

Sincerely yours,

Ayrex Team.