John Alfred Paulson is a renowned American trader and hedge fund manager. In 1994, he founded his own hedge fund, Paulson & Co. He gained global recognition in 2007 when he earned nearly $4 billion by trading credit default swaps against the U.S. subprime mortgage market.

 

John Paulson's Background

 

Born in 1955, John Paulson is the billionaire hedge fund manager best known for making one of the greatest trades in Wall Street history—profiting billions by betting against the U.S. housing market during the 2008 financial crisis. His rise from merger arbitrage specialist to macro legend proved the power of deep research, contrarian thinking, and perfect timing.

• After stints at BCG and Bear Stearns, Paulson founded his hedge fund focusing on merger arbitrage and event-driven strategies.

• Built a steady, analytical investing track record before his historic pivot to macro speculation.

 

The Big Short: Betting Against Subprime (2007–2008)

• Spotting the Bubble: Saw early signs of trouble—reckless lending, inflated home prices, and fragile mortgage-backed securities.

• Strategic Execution: Used credit default swaps (CDS) to short subprime debt, partnering with firms like Goldman Sachs to structure trades like ABACUS.

• Massive Payoff: As the crisis hit, Paulson’s fund soared 590% in 2007. His personal gain? $4 billion—one of the largest single-year hauls ever.

After the Crisis

• Gold Bet: Pivoted to gold in the 2010s as an inflation hedge—results were mixed.

• Decline: Post-2008 performance faltered, leading to investor withdrawals and downsizing.

Legacy & Impact

• Central figure in The Greatest Trade Ever by Gregory Zuckerman; mentioned in The Big Short by Michael Lewis.

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John Paulson's Trading Tips

 

■ Buy the dip sell the top

Many investors make the mistake of buying high and selling low while the exact opposite is the right strategy to outperform over the long term. Fear-driven periods in the past have been used as buying opportunities for savvy investors.

 

■ There is no such thing as the perfect trading strategy

No one strategy is correct all the time. We’re not going to play a winning hand every day.

 

■ Nothing is right in all markets at all times

Nothing is right in all markets at all times. Sometimes it’s difficult to interpret the markets.

 

■ Setting realistic goals

Our goal is not to outperform all the time – that’s not possible. We want to outperform over time.

 

■ Think about the future, forget about the past

You can’t think about the past. You have to think about the future.

 

■ The manager and the team matter the most

It is the manager and the team that affect performance, not the size of the fund or firm. We think the most important criteria for selecting an investment firm are the manager, team, and track record.

 

■ Size is almost irrelevant to investment success

We believe the size is almost irrelevant to investment success. Our size has certainly not diminished our enthusiasm for investing in our funds, our ability to find or create opportunities, or our performance outlook.

 

■ Owning a house

I still think, from an individual perspective, the best deal investment you can make is to buy a primary residence that you're the owner-occupier of.

 

■ The mass media

I avoid the media.

 

■ On the financial crisis of 2007-2008

the problem in the U.S. financial system is one of solvency. In general, financial institutions are undercapitalized and have insufficient tangible common equity to support their over-levered and deteriorating balance sheets.

 

■ The Citigroup Trade

The Citigroup trade was very complicated. People were afraid to invest. People that invested early lost a lot of money and they wouldn’t invest anymore. The valuation was low. We were correct to assume the government recap plan was the right plan and that would be the last capital they needed. We thought that the valuation of Citigroup was well below what it would have traded at on a normalized earnings multiple and that it was the most discounted of all the banks. We did the analysis on the banks with the most return potential and Citigroup came out on top.

 

■ What matters for the financial markets

Lower taxes, less regulations, less lawsuits, deals that support U.S. manufacturers are all very positive.

 

 

■ John Paulson (Hedge Fund manager)

Forex-Investors.com (c)

 

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