How you could make $20 Billion in previous two years

Mon Nov 16, 2009, 11:35 am | Leave Comment

Over at http://online.wsj.com, Gregory Zuckerman has an article titled “‘Greatest Trade’: How You Can Make $20 Billion”.

Even as the financial system collapsed last year, and millions of investors lost billions of dollars, one unlikely investor was racking up historic profits: John Paulson, a hedge-fund manager in New York.

His firm made $20 billion between 2007 and early 2009 by betting against the housing market and big financial companies. Mr. Paulson’s personal cut would amount to nearly $4 billion, or more than $10 million a day.

How did he do it?

Believing that a housing-market collapse was coming, Mr. Paulson spent over $1 billion in 2006 to buy insurance on what he then saw as risky mortgage investments. When the housing market cracked and the mortgages tumbled, the value of Mr. Paulson’s insurance soared. One of his funds rose more than 500% that year. Then in 2008, he shorted financial shares, or wagered that they would fall in price, profiting again when these companies collapsed.

Can you follow Mr. Paulson’s strategy to make millions if not billions?

Mr. Zuckerman thinks so and has given many points how to do just that. Some points maybe applicable to you and others not. You be the judge.

The author then gives eight investing lessons of Mr. Paulson’s $20 billion gamble, the greatest trade in financial history. But the crust of his lessons can be summed up in:

• Have an exit strategy – and cash to cushion any tumble.
• Debt markets can do a better job predicting problems than stock markets.
• Educate yourself about the range of exchange-traded funds (ETF) being introduced, some of which can play a valuable role in a portfolio.
• Don’t underestimate the value of a safety net, such as put options.
• A historical perspective can be a valuable tool.
• Even the greatest trade doesn’t last forever.
• Don’t risk too much in any one trade, even one that seems like a sure thing.

Read the full article “‘Greatest Trade’: How You Can Make $20 Billion“.

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