John Paulson is founder and president of New York-based investment firm Paulson & Co. Although Paulson had great success early in his career, he is famed for hitting it big when he bet against subprime mortgages during the 2007 credit bubble and raked in billions. Since then, although there have been good years, he and his firm have suffered various heavy losses that have taken some of the luster off of his previous successes.
John Paulson is a native of Queens, New York City, and he got his start in business as a teenager. His father had family in Ecuador, so when young Paul would visit there, he would ship clothing back home to father to sell. This planted seeds in his mind that the business world was his calling.
Later, after graduating from NYU with a finance degree, Paulson decided that a career in the investment banking world was his best bet to make a name for himself. After NYU, he attended Harvard Business School, where he earned an MBA, and soon started his career in finance.
After Harvard, John Paulson earned his keep and learned his craft at firms like the Boston Consulting Group, where he did research and provided advice to corporate clients, and Odyssey Partners, where he learned under legendary investor Leon Levy. During this time, one of Paulson’s first successes was profiting from the purchase of a New York apartment and a Hamptons home, both of which were in foreclosure sales.
Later, Paulson went on to Bear Stearns as a mergers-and-acquisitions investment banker before rising to managing director of the company’s M&A department. After that, he had a stint as a mergers arbitrager at Gruss & Co., doing well enough to rise up the ladder and eventually become a partner.
Paulson & Co.
In 1994, with only $2 million to work with, John Paulson struck out on his own and formed Paulson & Co. Following what Paulson himself had done best, his firm began focused on M & A. The first decade saw steady, very profitable rewards, and the firm turned the initial $2 million into around $400 million. Once the tech bubble burst in 2002, the firm continued its profitable trajectory.
Paulson and his firm became household names in 2007 when the fund bet big against the housing market and won big – $15 billion big in returns. Paulson himself raked in $3-4 billion on a pattern he and his firm had first noticed in 2005, causing them to realize what would happen when, not if, mortgages lost value.
Since then, Paulson & Co. has had both great years and bad. Both 2010 and 2013 were particularly strong years as the fund adapted its investing focus to suit the prevailing conditions. However, 2014 nearly balanced both years out as the fund crashed spectacularly. And most of 2016 has not been kind, either, with heavy losses in pharmaceuticals.
You can credit much of the success of John Paulson to several core principles. One of them is that no strategy is steadfastly correct. You have to be ready to adapt – and quickly. A second concept is that you must be prepared to act when committed to an idea. For example, the 2007 success was one that may never come again, but Paulson took advantage of it because of he and the firm saw a pattern developing two years prior. They were patient, which is a third necessary tenet, and it paid off immensely.
Another principle is that pride and emotion have to be taken out of the equation because they can cloud judgment. Furthermore, he says that you don’t have to make profits all the time, but you do have to make them continually over time. Accordingly, he believes that the best investors are those who are patient and who compound better-then-average rates over the long term. Everyone suffers losses because no one’s perfect, but you have to be resilient and never give up to succeed.
As he likes to say, he has always had a piggy bank and all he wants to do is keep filling it up. Stay patient, keep the faith, and always remember the markets will outperform over time if played well and disciplined. That’s why, when he and his firm see something after analyzing trends, banks, and markets worldwide, even if it’s complicated and people are afraid to invest, they remain committed to their goal.
So, even as recent years have seen Paulson and Co. take heavy losses, you can’t help but wonder if they have something up their sleeves that hasn’t matured yet.