Hedge fund manager John Paulson is no doubt a smart guy. He made a lot of money shorting the subprime mortgage market in 2007 and 2008. His large gains and the bet he made is even chronicled in the book The Greatest Trade Ever Made (and probably a few others).
Recently however, Paulson has not as much success. His two largest hedge funds are down over 20% this year and he may soon have to start liquidating assets in order to meet the outflows. If he starts selling the bulk of his investments it could cause the value of his remaining investments to fall, making matters worse.
Did Paulson make a great trade? Absolutely. It is also true that he has struggled as of late. I cannot say for certain whether his initial trade was luck, or if Paulson is an unbelievably skilled trader who will eventually recover.
The point is judging a manager based on one trade, good or bad, is probably not the best way to pick if you invest with him or her. Investing money purely on past returns is a fool’s game. You need to look at the process and whether or not it’s sustainable.
