Investing to Wealth

Greg Zuckerman of the WSJ has written a book on how hedge fund manager John Paulson made $20 billion in the housing collapse ("The Greatest Trade Ever"). 

Here, he condenses Paulson's thinking into 8 secrets to success. 

Nothing revolutionary, sadly:

• Don't follow the crowd.  When everyone else is buying something (housing, mortgage-backed securities), start looking the other way.

•  Have an exit strategy.  Bubbles burst because everyone exits at the same time.

• Focus on the debt markets.  They're better at predicting the future than the stock market.

• Take the time to figure out how fancy new investment products like CDSs work.  Paulson made his bet using credit default swaps.

• Buy insurance.  Out of the money puts on the housing market were cheap...and almost no one bought them.

• Remember the past.  Some of the big winners in the housing crash were those dismissed as out-of-touch dinosaurs...because they'd seen it all before.

• Remember that no trade lasts forever so don't fall in love with your investment.  After making his $20 billion, Paulson reversed course and went long banks at the bottom.

• Timing is everything and luck helps.  Investors had been carried out on stretchers for years by betting against the housing market.  

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See Also:

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• John Paulson Buys Huge Stake In Citi, While Dumping Goldman Sachs