Hedge fund genius out-earns J.K. Rowling, Oprah and Tiger combined
Filed under: Goldman Sachs , Citigroup

The Paulson who's been most in the news over the last few years has been former Treasury Secretary Hank. But the Paulson who has made the most money during that time is a fellow you've probably never heard of -- another Harvard Business School graduate in the hedge fund industry -- John. Through his Paulson & Co., John Paulson pulled in a $4 billion pay check in 2007 -- that's more than J.K. Rowling, Oprah Winfrey and Tiger Woods combined.
How did he pull it off? The Wall Street Journal reports that it was Paulson's share of Paulson & Co.'s $20 billion profit from betting on a drop in the subprime mortgage market. He spent $1 billion in 2006 to buy insurance on what he then saw as risky mortgage investments. This was not a surprise to everyone back then -- that December, I had suggested betting against subprime mortgage lender NovaStar Financial (NOVS), and its stock has since fallen more than 99% from $116 to $0.99.
But Paulson's bet really paid off for him. When the housing market collapsed and the mortgages fell, Paulson's insurance policies soared in value. One of his funds rose more than 500% that year. Then, in 2008, he won again by betting against the stock prices of financial firms -- and he made big bank again when their shares imploded, according to the Journal.
What is Paulson doing now? He has sold $328 million worth of stock in Goldman Sachs Group (GS) and invested $1.45 billion in Citigroup (C). With $306 billion in government cash and obligations on its books, Citi is probably not going to collapse into bankruptcy. I don't know why Paulson placed this bet, but it sure is a big one.
It's also a bet you can follow easily. We'll also know in the next few years whether lightning strikes again for John Paulson on his Citi gamble. Come to think of it, there's probably only a little luck involved in his investment success.
Peter Cohan is a management consultant, Babson professor and author of nine books, including Capital Rising (due in June 2010). Follow him on Twitter. He owns Citi shares, but has no financial interest in the other securities mentioned.



























Reader Comments (Page 1 of 8)
11-16-2009 @ 2:31PM
George said...
Where did he place these "bets"? With AIG? In that case, the taxpayers gave him his windfall. Can someone please tell what benefit to society these "geniuses" provide? It seems to me that no matter how you slice it, in the end the money comes out of "mainstreet" one way or the other. This has nothing to do with investing and everything to do with gambling, which I naively thought was illlegal.
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11-17-2009 @ 1:31PM
Jeanne said...
Anyone can buy hedge funds. It's totally legal. He made an educated guess that NINJA would fail. A lot of people thought they probably would. They were mostly called Republicans and voted against the laws that enabled them. Obama, Chris Dodd and their likes are the ones who created the problem by forcing the banks give loans to people who were extremely poor risks.
11-17-2009 @ 2:02PM
Jack said...
Here's a revelation; If any one of us could have pulled it off, we would have. Props to the guy for doing something I am not capable of making happen!
11-17-2009 @ 2:12PM
mykeyre said...
Another wonder boy, shifting assets at our expense! Money isnt everything! Read about the German Billionaire.(link below)
http://hubpages.com/_2mgo4w268rcpx/hub/Billionaire-commits-suicide-Adolf-Merkel-Is-it-worth-all-that
11-17-2009 @ 2:16PM
David said...
So basically this bastard preys on the misery of everyone else. It should be illegal to short stocks. These vultures need to have their balls cut iff.
11-17-2009 @ 2:45PM
annonymous said...
It seems to me that anyone that would by insurance for something like that is... you might consider, is one who might have been the cause of it and that would be another reason why he has not been known....until now.....hmmmmm
11-17-2009 @ 2:56PM
KEVIN said...
This is why we have the terrorism unrest world wide and heading our direction posthaste.
11-17-2009 @ 3:24PM
WILL said...
LOOKS LIKE JEALOUSY IS RAISING IT'S UGLY HEAD AGAIN
11-16-2009 @ 3:25PM
Ralph said...
I HOPE THIS PIG OF A VULTURE
CHOKES ON A CHICKEN BONE
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11-17-2009 @ 4:33PM
Sadie said...
sounds like envy to me.
11-17-2009 @ 3:32PM
Guy said...
What's wrong with you people? This guy didn't do anything wrong, illegal or immoral. He simply did what many investors have the opportunity of doing, but on a much larger scale. Good for him. Not EVERYONE loses money in a bad economy (thank goodness for the rest of us).
11-16-2009 @ 3:58PM
Davey Crocket said...
I am sure this guy is just real lucky and did not have any insight into the derviatives bubble that burst in 2008? I am sure we can find the AIG losses on his side of the balance sheet. More glorious Wall Street Hocus Pocus Wizard of OZ Broadway Musical that our kids are protecting as they strap up their boots and get shipped over seas to fight in that "Theater".
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11-17-2009 @ 1:15PM
Barry Sullivan said...
You hit the nail on the head-- sorry about the Alamo. This sort of activity does not redound to the benefit of the many, but is at the expense of the many. I'm no socialist, but let's force people to play by the rules, sensible rules.
11-17-2009 @ 3:25PM
Soren said...
I am with you. I don't think it's socialism to have rules and boundaries so we know what game we are playing. Forgive me for over-simplifying it, but its like the having referees and lines on a football field; if we didn't have markers or measures it would be a free-for-all with no consequences and the constant temptation to cheat.
No rules creates uncertainty, inhibits people from taking positive, informed risks, and throws everything left ambiguous into arbitration and courts. I am very pro-market and pro-growth and that's why I want rules.
11-16-2009 @ 4:44PM
thinkermom said...
And does this genius pay only 15% federal tax on this windfall?
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11-17-2009 @ 3:16PM
jimsgem said...
No, he probably pays more like 45% + capital gains +(the tax that is placed on all of us if we make more than the government thinks we should. Congress has been trying to repeal this because it is a direct assault on the middle class. I can't think of the name of it right now...I hate the mini strokes I've had for taking that part of my memory...I'll probably think of it as soon as I hit the send button.) My husband & I got hit by that one and are still paying for it in the form of a penalty for not including that in our tax prep in 2002 or 2003.
These people are just doing what you, me and all these other people that are commenting on here against this guy wish that we could have done.
Do you take out insurance on a car or a house because you know something is GOING to happen or because it MIGHT happen. That's all these guys are doing. They look at what is going on around them, access the situation and then they make an INFORMED decision to purchase "investment insurance" to prevent a catasrophic loss of revenue. Sometimes tha "insurance" pays off but other times you are just putting money in a hole.
I paid big time premiums on my homeowners insurance for 13 years and then I had a total loss fire. Did I know that would happen? NO...I took out the insurance to PROTECT myself from catastrophic loss. And before you say anything about that being different, think about it.
11-17-2009 @ 1:02PM
Mike said...
Hey George, Ralph,
Davey and tinklemom
no one will EVER talk about you anywhere anytime
you will always be poor.
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11-17-2009 @ 1:57PM
James said...
Nobody will ever talk about you either Mike, because you are poor and stupid!
11-16-2009 @ 5:12PM
HedgeTrimmer said...
It's easy to be a insider when you have as much money as this creep. He may be living high off the hog and have a lot of money but, he will still be a creep.
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11-17-2009 @ 3:05PM
charley said...
why is he a creep. You have no idea what he does with his money. For all you know he could be funding the very medical reseach that may save your life. By the way finance goes both ways sometimes you gain sometimes you don't - he did put up his own money you know.