Quick comment – Paulson didn’t actually bet the ranch; the trade didn’t cost him that much to put on because no one really knew what was going on initially except for him.

You show poker players in your new DVD, did you ever hear about a poker player taking a shot and going all in ? I understand you are a promoter and trend following is valid, but just because it is valid does not mean something else is not valid, you will add credibility if you let trend following speak for itself and stop trying to “sell” too hard…. yes you are a promoter but tone it down a bit…

According to the Wall Street Journal this is what Paulson did, when: `Housing remained strong, and the fund lost money. A concerned friend called, asking Mr. Paulson if he was going to cut his losses. No, “I’m adding” to the bet, he responded, according to the investor. He told his wife “it’s just a matter of waiting,” and eased his stress with five-mile runs in Central Park.

“Someone from more of a trading background would have blown the trade out and cut his losses,” says Peter Soros, a George Soros relative who invests in the Paulson funds. But “if anything, the losses made him more determined.”`

http://online.wsj.com/article/SB120036645057290423.html

Quote:
“Even after he makes the bet, Mr. Zuckerman points out how there are so many times that people tell Mr. Paulson to take the bet off or cash in his profits too early. His own investors complained. Complaints also came from brokers from Bear Stearns and others who helped sell him the credit default swaps on the toxic tranches of mortgage bonds, as well as the most troubled sub-prime lenders and banks holding the troubled securities.

Even his own staff complained that he wasn’t taking money off the table. They told him to sell when he was down in his trade and they told him to sell when he was up on the trade after New Century reported its first blown quarter in early 2007. Through it all, Mr. Paulson stuck to his guns because he foresaw even bigger profits ahead – and he was proved right.”

David, yes someone with an itchy finger would have blown the trade. Being in the trade and riding the trend is vastly different from analyzing it.

paulson was definitely not the only one to put on the CDS trade. we did at my former fund and made a ton of money. one of my friends started a sizable hedge fund based on some great CDS trades. and one clarification – paulson did not bet the ranch, he didnt have to. in the early days of the CDS trade (2005-2006), on many trades (actually defined as contracts), the counterparty would not require ANY capital up front, only capital adjustments based on price at defined periods going forward. most all of our trades until early 2007, we put up zero money, and never had to put up any money… they simply just paid out on default. so paulson then didnt put up a lot of capital up front, but certainly had contingent liability should the trades go against him. my guess is that he bought all these in a separate entity to limit the liability to the parent should the trades have gone against him.