This article focuses on the important investment lessons from Paulson & Co. 3Q investor letter. Paulson & Co. is a New York based hedge fund managed by John Paulson. With over $29 billion under management, Paulson & Co. is one of the largest global hedge funds.

Paulson notably earned a record $3.7 billion pay day in 2007 from extremely profitable bearish trades executed during the financial crisis. Paulson’s latest funds include a Gold fund and a Financial Recovery fund. Paulson & Co.’s latest third quarter investor letter provides a unique insight into the hedge fund’s underlying investment philosophy.

From Long Term Capital Management to Amaranth, dramatic collapses of large hedge funds have occurred throughout the history of hedge funds. In general, hedge fund blow ups result from a similar series of events and financial elements.
1. Improbable Market Events
First, there is normally an improbable market event that effects the specific central investment or trading strategy of the hedge fund. For example, the 1997 Asian Financial Crisis contributed to the failure of Long Term Capital as widening spreads caused relative value trades to fail. Hedge funds frequently engage in this type of relative …

Private equity firms have increasingly funded buyouts without using investment banks, but investment banks still add value to the private equity industry.

As the popularity of hedge fund strategies increases, the influence of these strategies in the traditional mutual fund world continues to grow. Once limited to only high net worth accredited individuals or institutional investors, many hedge fund strategies are now be deployed within mutual funds.
130/30 funds are one of these new mutual fund structures. The 130/30 structure differs from traditional mutual funds because the strategy allows managers to have both long and short exposure.
Most mutual fund managers can only have long positions. In a long only portfolio, managers purchase stocks in …

Merger arbitrage, also known as risk arbitrage, is an event driven trading strategy that attempts to exploit the market price spreads of equities during mergers.

The MIT Department of Economics World Economy
Laboratory Conference Washington, D.C.
Delivered April 26, 1994
When Rudi Dornbusch invited me to speak at this conference, he gave me a totally free hand in deciding what I wanted to talk about. Well, I want to discuss a subject which fascinates me but doesn’t seem to interest others very much. That is my theory of reflexivity which has guided me both in making money and in giving money away, but has received very little sdeerious consideration from anybody else. It is really a very curious …