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Joined: 28 Dec 2005 Posts: 12651
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Posted: Wed Nov 18, 2009 6:05 am Post subject: John Paulson's Big Bet |
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Nobody on Wall Street gave these guys a chance, when they started betting against housing. In fact, Paulson was routinely laughed at. Because the banking infrastructure was making so much money off of housing in 2004 - 2006, there was no reason for so many people to imagine it would end.
They told him to sell when he was down in his trade and they told him to sell when he was up on the trade after New Century reported its first blown quarter in early 2007. Through it all, Paulson stuck to his guns because he foresaw even bigger profits ahead - and he was proved right.
In Paulson's case, every new bit of data which came to light and possibly contradicted his investment thesis was always scrutinized by him and his team to see if they had "missed something." He always stuck with the trade because he felt confident in the depth of research they had invested in understanding the problem/investment opportunity.
For Paulson, it all boiled down to one chart which Pellegrini produced showing the inflation-adjusted growth in housing prices over time divided by wage growth. The data clearly showed a rapid explosion upward away from the general trend starting in 2000. He assumed this trend would not continue indefinitely and revert (even overshoot). He was right.
When you see the perfect trade set-up in front of you, Soros advised to "go for the jugular." |
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