John Paulson Has Great Traders, Seriously

According to The Wall Street Journal, John Paulson lost C$562 Million in Sino-Forest this year. Earlier this week Bloomberg estimated Paulson’s losses at C$700+ Million. We did our own calculations and assumed that Paulson’s traders were just average traders. Based on our assumptions Paulson’s losses should have been between C$600-C$650 Million. Fortunately, Paulson’s losses this year were almost C$100 less than the number we calculated. This could mean two things. Either John Paulson started selling Sino-Forest before Muddy Waters’ report was released, or Paulson has great traders who executed stock sales at better prices than each day’s average trade-weighted market price, or both. We need more information to decide what’s true.

Luckily Paulson revealed more information about his holdings. Here is an excerpt from the WSJ article:

Paulson & Co., according to the letter, averted some losses as it sold some Sino-Forest shares between C$19 and C$25 starting in early 2010 through May 2011. Sino-Forest shares closed Thursday at C$2.91 in Toronto. The letter said that in May 2011, Paulson held 31 million shares, just over 12.5% of the shares outstanding.

So, Paulson started selling his shares before the Muddy Waters’ report. We thought about this possibility and estimated Paulson’s losses at C$588 Million. Paulson lost only C$562 Million though. This means his traders’ skills helped them avoid C$26 Million in additional losses. John Paulson has great traders indeed!