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Trader Made Billions on Subprime

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JScott

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From the WSJ, last week:

http://online.wsj.com/article/SB120036645057290423.html


"On Wall Street, the losers in the collapse of the housing market are legion. The biggest winner looks to be John Paulson, a little-known hedge fund manager who smelled trouble two years ago.

Funds he runs were up $15 billion in 2007 on a spectacularly successful bet against the housing market. Mr. Paulson has reaped an estimated $3 billion to $4 billion for himself -- believed to be the largest one-year payday in Wall Street history...."
 

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MJ DeMarco

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Holy shit!
 

Jorge

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Exactly! This guy is amazing! Even Soros wanted to meet him!

Nice post, rep++
 

Pinnacle

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I was talking about John Paulson a month ago (at the time I forgot his first name). He's in the Forbes 400 and even in the synopsis on the first page of the section. In my thread about shorting subprime I mentioned him briefly. He started the investment about 2 years ago, but really started to see his ultimate gains last summer. That's what made me wonder whether there was any wealth left to be made by shorting MBS's and other mortgage-related investments.
 

CarrieW

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Thats Awesome!!!!!

Man! He is one impressive man! what I would give to be a fly on the wall near him!
 

WheelsRCool

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Aug 12, 2007
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WOW! One question though, it says about how he was stressed-out, and running five miles to work it off...my question is, why was he stressed? Is he personally responsible for those investments if they don't pan out or something? Like where he could have gone to jail if they were wrong or something, or been financially ruined? How does that work?
 

PEERless

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...why was he stressed? Is he personally responsible for those investments if they don't pan out or something? Like where he could have gone to jail if they were wrong or something, or been financially ruined? How does that work?
I'd be stressed too. I would also be pretty damned relaxed after depositing a check worthy of Dr. Evil. "THREE BILLION DOLLARS!"
 

WheelsRCool

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That must be such an irony, on the one hand he probably wants to jump up and down and do backflips over making so much money, on the other hand he knows while he is succeeding, others are in total stress.

But I mean was he stressed because he was personally liable for all the money in those investments...?
 

Autospun

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Jan 14, 2008
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He is personally liable to such an extent that he would have lost investors hence losing money. Look at his 07 take home pay and note the opposite would have been true. Thank God he didn't panic sell.
 

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JScott

JScott

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WOW! One question though, it says about how he was stressed-out, and running five miles to work it off...my question is, why was he stressed? Is he personally responsible for those investments if they don't pan out or something? Like where he could have gone to jail if they were wrong or something, or been financially ruined? How does that work?
He was stressed because he had a lot of his *own* money tied up in the fund...
 

WheelsRCool

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I see...I am reading Hedgehogging right now, sounds like a stressful life.

IMO, I would think it would be less stressful if one can amass a large net worth through say growing and selling a business, then start up the fund so that if you bomb out, you still have money.

Since he was worth $100 million and took home $4 billion, would he have been in-debt $3.9 billion if things went sour...? Or would all the investors have taken back their money and he would just be worth $0...?
 

bpk1

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Jan 13, 2008
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He isn't personally resposible for the funds provided by investors. As said he probably had quite a bit of his personal money tied up in the fund, whch was the cause of a good amount of the stress. His $3 to $4 Billion dollar payout would be the management and performance fees he earned. If his firm were to fail, the possibility of him starting another hedge fund would be nill. This is because the necessary accredited investors wouldn't be willing to give him funding.
 

bpk1

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Oh, and by no means am I saying that being in his position, or any other hedge fund managers, isn't stressful.
 

WheelsRCool

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If his hedge fund was to fail, and he say had enough money to start his own hedge fund again and started performing well again, would he be able to attract other investors then?
 

RealOG

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Lot of money, but I guess I am not THAT surprised. Someone is always betting on the "Don't Pass Line".

Seems like the media really focuses on the winners of gambles like JP took and do not take kindly to the losers. If the housing market continued to skyrocket and he lost his shirt, dont think the media would talk about him the same way - he would be branded an idiot. Kinda like the coach the pulls the "Fumble Rooskie", you're either a genius or a fool.

What I find most impressive is his resolve, especially when everyone was telling him to sell and he held on.
 

WheelsRCool

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I don't think it was a gamble, I think it was he was smart enough to understand the economics of the situation from reading the data. He took a calculated risk.

Captain Capitalism, a blogger I read who is an economist, had been saying for months beforehand if I remember correctly, that the housing market was in a bubble that was going to crash.

So I guess this guy also was able to see through analyzing all the data that this was going to happen.
 
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JScott

JScott

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It's worth noting that some very smart investors (including former Fed Chairman Alan Greenspan) had a lot of money in this fund...
 

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bpk1

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Wheels if it were to have gone downhill, ofcourse he could start another fund, with or without his money. But it wouldn't have been nearly as easy to raise the capital that really is needed to be successful, unless he personally had a few million to risk, in personal funds.
 

WheelsRCool

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Hey just wondering your opinions on this, but the articles on this mention how his friendship with the one other guy who used this same tactic to make a lot of money as well, was hurt, b/c he said he wanted no one else copying this strategy.

The thing that gets me is, if you know of a particular way to make a LOT of money in the market, and a friend wants to copy this same method, why should this hurt the friendship?

If I know a way to make some serious cash through a particular strategy and tell some folks and tell them to keep it secret, but a few want to try it, well by all means go ahead and try IMO. Keeping a secret is one thing, I can understand that, but you shouldn't ask your friends to avoid making a fortune for themselves just so you can make it all for yourself.
 

bpk1

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Jan 13, 2008
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That's all a matter of personal opinions. If I could continue to profit while my friend(s) were implying my strategy I would have no problem with it, but if it robbed me of my profiting, I wouldn't be to happy about it.
 

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