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”).
It can be thought out as 8 great tips:
- 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.
Kyith is the Owner and Sole Writer behind Investment Moats. Readers tune in to Investment Moats to learn and build stronger, firmer wealth foundations, how to have a Passive investment strategy, know more about investing in REITs and the nuts and bolts of Active Investing.
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Kyith worked as an IT operations engineer from 2004 to 2019. Currently, he works as a Senior Solutions Specialist in Fee-only Wealth Advisory firm Providend. All opinions on Investment Moats are his own and does not represent the views of Providend.
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