Reuters had an interesting article about John Paulson’s very poor performance this year, with one of his main funds down 30% year to date. I have depth insight to add, which I will hopefully get to in a later post. However, in brief I think the article does an injustice to Paulson, and looks like a smear attack (i.e. Reuters blames him for having many marketers for his fund, who ever went into the hedge fund business for altruistic reasons?).
Even though Paulson might be wrong about Bank of America and is having an awful year, he still has has a great track record before he shorted subprime. In fact, I do not know any great investors who have not had bad years. The examples are too numerous to give, but Francis Chou, Robert Rodriguez, Mohnish Pabrai, and many others have all had some really bad years.
Paulson’s first fund had only one down year since its inception in 1994.
Here is John Paulson’s Advantage Fund track record from Guru Focus,(the track record alone even before his bets on the sub-prime meltdown, should speak for itself):
Performance of Advantage Fund
| Year | Return (%) | S&P500 (%) | Excess Gain (%) |
|---|---|---|---|
| 2010 | 11.68 | 15.1 | -3.4 |
| 2009 | 6.12 | 26.5 | -20.4 |
| 2008 | 6.28 | -37 | 43.3 |
| 2007 | 51.74 | 5.61 | 46.1 |
| 2006 | 16.81 | 15.79 | 1.0 |
| 5-Year Cumulative | 123.3 | 12.2 | 111.1 |
| 2005 | 3.94 | 4.91 | -1.0 |
| 2004 | 11.92 | 12 | -0.1 |
| 2003 | 22.69 | 28.7 | -6.0 |
| 2002 | 4.48 | -22.1 | 26.6 |
| 2001 | 5.04 | -11.9 | 16.9 |
| 10-Year Cumulative | 249.7 | 16.4 | 233.3 |
| 2000 | 22.42 | -9.1 | 31.5 |
| 1999 | 23.81 | 21 | 2.8 |
| 1998 | -4.91 | 28.6 | -33.5 |
| 1997 | 12.71 | 33.4 | -20.7 |
| 1996 | 38.13 | 23 | 15.1 |
| 15-Year Cumulative | 684.7 | 170.2 | 514.5 |
| 1995 | 18.57 | 37.6 | -19.0 |
| 1994 | 23.46 | 1.3 | 22.2 |
I am posting some articles that were very popular, about Paulson below. I hope to discuss in more detail the topics in the recent Reuters article and some previous issues I brought up in earlier articles hopefully in a post at a later date. It will be more clear why they are relevant when I finally get to the later article.
You are welcome to check out some previous articles I wrote about John Paulson which were pretty popular:
Fair Value of Bank of America: A Flaw in Paulson’s Calculation? November, 2009
John Paulson: Where Are You Getting Your Numbers For Bank Of America? October, 2010
Here is an article someone wrote challenging my previous two articles: Jacob Wolinsky: Where John Paulson May Be Getting His Numbers For Bank Of America, and my rebuttal below in the comments section.
An article I wrote about Paulson’s investment in Lehman debt: John Paulson Is No One Hit Wonder
Paulson’s investment (and big loss) in a possible Fraudulent company: John Paulson Gets Slaughtered with His Investment in Sino-Forest
Below are selected excerpts from the in-depth Reuters article, followed by a link to the full article:
The hedge fund manager became an overnight sensation in 2007 by betting big and early on the collapse of the U.S. housing market, and then doing much of the same on a surge in gold prices. But he is now emerging as one of this year’s big losers in the $2 trillion hedge fund industry.
His Paulson & Co. hedge fund firm, which managed $38 billion as recently as this past March, is down to about $35 billion as of the first week of August, and it shrinks a little bit more with every big drop in the U.S. stock market.
One of Paulson’s two main funds is now down more than 30 percent this year, the firm has reported to clients, compared to a much smaller 6.1 percent decline for the average hedge fund, according to Hedge Fund Research.
The problem for the 55-year-old manager: His equally daring bet that the U.S. economy and housing market would rebound strongly from the financial crisis — a big wager that looked prescient a year ago — isn’t panning out as planned.
……
Maybe no one single trade has come to symbolize Paulson’s bullishness on the U.S. economy more than Bank of America. By August 9, the troubled lender’s shares were down 43 percent this year, reducing the value of the 124 million shares Paulson owned as of March 31 by $784 million. Paulson is believed to have sold some of his Bank of America shares as the stock has plunged toward the $7 mark, but the firm has refused to comment on its current position. (link.reuters.com/gem23s)
The picture isn’t much prettier for Paulson’s large share holdings in Citigroup, Popular (formerly Banco Popular) and SunTrust Banks. The value of Paulson’s equity stake in those three banks, assuming the funds haven’t sold any shares since March 31, would have declined by more than $800 million over the past four months.
And then there is Sino-Forest, the troubled Chinese forestry company. Paulson absorbed a $500 million loss on the stock in June after allegations of accounting irregularities at the Hong Kong-based company surfaced earlier in the month. (link.reuters.com/hem23s)
…………
Paulson did much to open the doors. He made his funds – in most cases just the Advantage funds – available to wealthy customers of Wall Street brokerages and small investment advisory firms.
These distribution channels, or “platforms” in hedge-fund jargon, are a cheaper way for wealthy individual investors to access Paulson. The manager normally has a $10 million investment requirement. But for as little as $100,000, an investor with several million dollars in assets can put money into a Paulson fund through these brokerage firms.
An increasing number of hedge funds, like D.E. Shaw & Co., Israel Englander’s Millennium Management and Daniel Loeb’s Third Point, are available to wealthy clients of UBS, Morgan Stanley and Bank of America’s Merrill Lynch. But few funds are on as many of these platforms as Paulson.
Link to full article here-Special report: The perils of Paulson
