John Paulson Misses Out on Rally, Predictions Correct

John Paulson has had a rough time of things lately. His largest hedge fund lost 47% in the first nine months of the year and now, the man that gained prominence after betting against the housing market seems to have had his bets on the wrong things at the wrong times.

John Paulson Scales Back

John Paulson began to scale back his more bullish bets after posting the large loss, reports the Wall Street Journal. Paulson opted to ill back a bit after his “largest funds plunged in value this year amid high-profile, and poorly timed, bets on stocks such as Bank of America Corp., Hewlett-Packard Co., and China’s Sino-Forest Corp.” Paulson owned up to his mistake, telling shareholders that he made a mistake and should not have been running so exposed without the proper hedges in place. So, Paulson reduced his positions in American Capital, Ltd (ACAS) and others.

And Then There was a Rally

In the case of ACAS, Paulson filed his paperwork on October 4, 2011, but had begun selling off his interest in the company on September 27. Since October 4th, ACAS has returned 27.19%, profits Paulson lost out on. The market rallied. Bank of America (BAC) swelled almost 18% in the first 4 weeks of October, while Hewlett Packard Company (HOQ) jumped 20.22% in the same period. The Wall Street Journal reports that in spite of the losses, “Paulson remained bullish on equities, saying earlier this month that the U.S. economy was ‘chugging along’ and he was still optimistic that his funds would recover. He’s maintained the view that the stock market is cheap.” It appears Paulson may have been right. Unfortunately, “Now, as stocks have rebounded, Mr. Paulson is no longer as well-positioned to profit from the rally.”