Friday, August 12, 2011

Trading and Expectation Management | Reuters | The Case of John Paulson

Trading requires discipline beyond anything else you have ever experienced.  It will teach you things about yourself you never wanted to know. Great traders will know and accept their rationale and subsequent decisions based on the information they have and that which they receive.  In response, they apply strict trade management that suits their account/position size, individual risk tolerance and trading style.  As with price action in any given time frame - there is no certainty, only probabilities.  Great traders put the probabilities of risks versus reward in their favour consistently and above all else, including emotion.

NEW YORK/BOSTON (Reuters) The crown may be slipping fast from billionaire trader John Paulson's head.

The hedge fund manager became an overnight sensation in 2007 by betting big and early on the collapse of the U.S. housing market, and then doing much of the same on a surge in gold prices. But he is now emerging as one of this year's big losers in the $2 trillion hedge fund industry.
His Paulson & Co. hedge fund firm, which managed $38 billion as recently as this past March, is down to about $35 billion as of the first week of August, and it shrinks a little bit more with every big drop in the U.S. stock market.
One of Paulson's two main funds is now down more than 30 percent this year, the firm has reported to clients, compared to a much smaller 6.1 percent decline for the average hedge fund, according to Hedge Fund Research.
The problem for the 55-year-old manager: His equally daring bet that the U.S. economy and housing market would rebound strongly from the financial crisis -- a big wager that looked prescient a year ago -- isn't panning out as planned.
Paulson's funds have amassed huge, mutual fund-style stakes in shares of financial institutions like Bank of America, Citigroup, Hartford Financial, Popular Inc. and American Capital. But these are ringing up hefty losses.

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