Gold Bug Profile: John Paulson

JP Buntinx
April 30, 2020

In the financial world, being an expert means putting one’s money where their mouth is. Gold bug John Paulson has certainly done that over the years, primarily because he continues to focus on gold and where its price may be headed next.

John Paulson’s Career Path

It is always worthwhile to learn more about how gold bugs came to be who they are today. For John Paulson, the early parts of his life weren’t always that easy. In terms of his career, he worked for Boston Consulting Group as a researcher. 

Later on, he moved to Odyssey partners and Bear Stearns, where he picked up a few bits of knowledge regarding mergers and acquisitions. Eventually, he ended up at Gruss Partners LP, where he was made a partner.

Near the mid-1990s, John Paulson founded the Paulson & Co. hedge fund. Starting initially as a $2 million fund, the business venture proved to be extremely successful. By 2003, the fund’s worth had increased to $300 million in assets. 

John Paulson Shorts at a Crucial Time

One of the reasons why John Paulson got on so many people’s radar is because of his actions in 2007. Prior to the financial crisis, he began shorting the US housing market. Many considered this to be an uneducated gamble at the time, although it turned out to be the only right course of action in the end.

The 2008 financial crisis was caused primarily by the subprime mortgage crisis. Paulson took advantage of his well-researched decision through investing in credit default swap. That trade alone netted him roughly $4 billion when everything was said and done, proving all of the doubters wrong. 

John Paulson and Gold

Putting that money to good use is always a tough balancing act. On the one hand, Paulson made over hundred investments over the years, most of which involved merger arbitrage. On the other hand, he also began to diversify his personal portfolio by moving funds into different types of assets.

In fact, he is still considered to be a “major investor” in gold, albeit no official statistics have been made public recently. 

It is also worth noting that the gold sector has treated Paulson rather well in his career. Back in 2010, he set a hedge fund record by making almost $5 billion in just twelve months. Most of those profits were realized by investing in the gold sector as a whole. 

John Paulson Quotes

Even today, some of the quotes by John Paulson hold a lot of merit. When it comes to real estate in New York, Paulson offered the following:

“New York periodically goes through a real estate crisis. I didn’t subscribe to the school that real estate only goes up.”

That is a very powerful sentiment, although one that also rings true. There is no such thing as a market that can only go up in value. In fact, there is a chance that the financial crisis may repeat itself in the near future. Paulson explains:

“The financial crisis was linked to the fact that banks had excessive leverage and too many risky assets. The solution is not to try to dictate to banks what they can do or not do, but to require them to strengthen their capital to absorb potential losses and hold less risky assets.”

Last but not least, Paulson has some words of advice for anyone who remains unsure as to whether they should invest in gold: 

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

There are genuine concerns about the current financial situation. Paper-based currency is being phased out, but that may not benefit consumers nor businesses. 

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