Book Review – The Greatest Trade Ever: John Paulson

by Manshu on December 15, 2009

in Books

I just finished reading – The Greatest Trade Ever, a book that tells the story of John Paulson’s bets against subprime mortgages, and how he made billions in just about a couple of years or so. It is written by Greg Zuckerman, and has created quite a buzz already.

Overall, it is a good book and is not only about Paulson, but a few other investors scattered across America who made these types of bets, and bagged millions, while the rest of the world was teetering on financial collapse.

It started out slow, with details about subprime mortgages, which have already been reported gazillion times, and I think anyone interested enough to buy the book will know all of that already.

But it gets more interesting as you read through, as it starts narrating the tale of Paulson, and others who bet against subprime.

I liked the fact that the book was not focused on John Paulson alone, and had stories of other people as well. There were snippets about how Pimco’s Bill Gross reworked Pimco’s portfolio to contain safe short term Treasury bonds because he wanted to protect his assets, but at the same time didn’t dabble a lot in derivatives, as many of his clients were not allowed to.

It also touches very briefly on Peter Schiff who had been warning people about subprime for years, but couldn’t really profit from it even though his predictions got right. Peter Schiff moved into foreign currencies, commodities, and emerging markets, but all of these were big losers in 2008.

So, there were people who saw it coming but couldn’t profit from it.

The book places a lot of emphasis on Paolo Pellegrini who was the main architect of the trades that eventually led to Paulson making so much money. Paolo Pellegrini was doing badly in the investment industry and was on the brink, when he joined John Paulson as a research analyst on his team. He did a lot of the research that was required to make these trades happen, and eventually made a lot of money in bonuses through them too.

In fact, there is a nice little story in the book, where Pellegrini’s wife goes to withdraw money from the ATM, and sees that the machine shows a balance of $45 million! That money was from his bonus, which was deposited to their joint account.

This book gives you a window to a few people who made spectacular gains last year, but at the same time doesn’t put them on any sort of pedestal. If anything, it brings up the self-doubts of Paulson and others on several occasions. There were several times when they get worried, and think whether they are making the right trade or not. It shows how difficult it is to go against the tide, and how hard it was for them to remain focused on it.

In fact, another striking thing about all this is that most of these people were average by Wall Street standards, and hadn’t done anything nearly as dramatic ever in their life. After reading the book, I really didn’t think about Paulson and others as hedge fund rock-stars or anything, because their frailties are discussed quite often in the book, and that probably makes it easier for regular people to relate with their stories.

My only complaint with the book is that it starts out slow, and a few pages in the beginning sounded repetitive and had stuff that was covered quite a few times in the mainstream media already. Other than that, — The Greatest Trade Ever is a good read, and I enjoyed it quite a bit.

Disclosure: The two links to Amazon are affiliate links, which means if you buy this book by clicking them, it will net me a small amount.

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{ 2 comments… read them below or add one }

Mr Credit Card December 17, 2009 at 7:56 am

Thanks for reviewing this book. It’s great something like that was written about the folks who called the market right.

Mr Credit Card

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Romy Polito January 31, 2011 at 11:23 pm

What was Paulson trying to do is actually what Buffet and mentor Ben Graham were and is trying to do, beat the market. Those few are greedy when many are in fear and fearful when the many are greedy is the secret of the game. The problem is determining what makes them greedy and fearful at the same time. Only a handfull of people in the world can handle or figure that out, aside from Paulson or Soros or Buffet.

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