Hubris bites Paulson: “Our bets were too aggressive.”

“A humbled John Paulson told investors on Thursday he was “too aggressive” with some of the stock bets in his flagship funds and he is trimming back some of his riskiest holdings.

The hedge fund manager told clients in a conference call that he was dialing back the risk by moving away from bank holdings with heavy mortgage exposure.

The investor call came after a tumultuous first half of the year for Paulson, whose flagship Paulson Advantage fund lost about 12 percent. A related fund called Advantage Plus was off 18 percent.”   See: Paulson: our bets were too aggressive..

Paulson is learning what all good money managers have to learn eventually. Getting a couple of big aggressive bets right is great when it works , but when it loses money your unit holders want out. Welcome to the challenge of managing other people’s money, John.

This is one of the most crazy, volatile cycles ever in history. Government intervention has mucked about so much with normal market forces the past couple of years that we are working in the midst of manic price movements that have hurt most long and short players year to date leading hedge funds to suffer losses, pare back risk and step aside. See Soros’s Quantum at 75% Cash leads hedge funds reducing risk:

Even billionaire George Soros, who made $1 billion betting against the British pound in 1992, is perplexed.

“I find the current situation much more baffling and much less predictable than I did at the time of the height of the financial crisis,” Soros, 80, said in April at a conference at Bretton Woods organized by his Institute for New Economic Thinking. “The markets are inherently unstable. There is no immediate collapse, nor no immediate solution.”

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3 Responses to Hubris bites Paulson: “Our bets were too aggressive.”

  1. dazzo says:

    Morici: Deficit Drama Will Continue in 2012 and Beyond

  2. DGDye says:

    The future of investing would appear to belong to “quants,” like myself: traders who let our computers make decisions about what we do and where we go. There are too many economically sensitive variables to track, and as the link to Soros points out, fundamentals are unreliable because of political interference. If the market goes higher — as it has for the past couple weeks, despite the doom and gloom predictions — I am long the fastest rising markets. If it decides to crash tomorrow, I will be immediately (literally) short everything that’s tanking. No human can hope to capture the maximum profit excursions of every market…but computers can.

    I believe it is only a matter of time before investors come to the realization that humans ruminating over market ebbs and flows and making grand (and usually 100% wrong) predictions about market and economic direction ranks right up there with Greek philosophers discussing how many angels can dance on the head of a pin…it’s interesting, but it won’t make you rich.

    While Soros and Paulson pore over their economic forecasts of what SHOULD be happening to the markets, quants are quite happily making upwards of 25% per month from what IS happening in the markets. We are starting to see this disparity among the top performing hedge funds where quants are beginning to systematically dominate over the long term.

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