In 2007, Paulson had made a bet on the U.S. housing market’s collapse. He acquired credit default swaps that were his bets on a collapse of mortgage backed securities for subprime mortgages. When the crisis has arrived, Paulson made over $4 billion. This trade was one of the best trades in history.

Below we present some of the best John Paulson quotes as well as our commentary.

 
“I still think buying a home is the best investment any individual can make.”

                                 and

“If you rent, the rent goes up every year. But if you buy a 30-year mortgage, the cost is fixed.”

Despite being a great speculator, Paulson believes in diversification through real estate and other asset classes. Many individuals are not sure whether they want to be investors or traders. It is possible to be both, but strategies differ. If you want to invest and trade in the stock market, it doesn’t need to be mutually exclusive. It’s a good idea, though, to have two separate accounts.


“In these times of great uncertainty for paper-based currency, I feel more secure in holding gold.”

Here’s another way to diversify: gold. Some speculators now buy cryptocurrencies as their faith in fiat money diminishes. But, at this point, these are speculative bets. On the other hand, gold and silver have been considered to be like money for centuries. Another way to diversify from paper-money is to buy hard assets such as real estate, commodities (producers, ETFs, etc.). What’s interesting here is that derivatives trader like Paulson still believes in traditional investments.
 

“No strategy is correct all the time.”

If you’ve had a successful trading strategy that stopped working, adjust it or change it completely. A strategy may only work in certain markets or even become obsolete. Nowadays, it’s hard to make money buying when moving averages cross or when prices bounce off support lines. These strategies are known to most traders and so are hard to make money with. Always test, monitor, and adopt your strategies. There are many free demo accounts where you can test new strategies from free and without risk of capital.
 

“Our goal is not to outperform all of the time. That’s not possible. We want to outperform over time.”

It is not possible to win all the time. Even the greatest traders are incorrect as much as 30% of the time. What counts is your performance over time. For that, you not only need awesome trading skills but also great account and risk management abilities.



“We believe the size is almost irrelevant to investment success.”

Don’t worry if you start small. If you make smaller trades, you still can make good money if you’re selective. When it comes to really big trades, these actually have a disadvantage. Since they’re so big, they can disrupt the market by moving execution price higher (when buying) or lower (when selling). Holders of small accounts don’t have such problems unless they trade in very illiquid markets.

Note, however, that the big players know that traders place stop orders near resistance and support lines. So they may seek to manipulate the market by having a price fall and activate sell stops (so they can buy at lower price). Many amateur traders complain that they were right about direction of the trend, but were stopped out too soon. Placing right stop orders is definitely a challenge.


In summary:

  • Even if you’re a trader, getting some real estate makes sense
  • Think about further diversifying with precious metals
  • You can’t be correct all the time
  • A winning strategy can turn into a losing one
  • It’s okay to start with a small account if your risk is managed well


 

Related articles on this site:

​Paulson, a fan of real estate, made quick billions on a housing collapse

Great Traders: What John Paulson Has to Say


John A. Paulson was born in Queens, New York, in 1955. After working for well-known Wall Street firms, he launched his own hedge fund, Paulson & Co, in 1994. He started with only a couple million dollars, but grew it to $300 million by 2003. However, his finest moments were yet to come.