Gold: Paulson's Next Big Play

Gold: The Next Big Play?

If you’ve looked at Monte Carlo simulations, maybe you’ve thought about this: put 10,000 people in a football stadium and let them flip coins.  Some individual will inevitably come up with an extremely long string of heads or tails – say 25 heads in a row!  

Does this make that person a champion coin flipper?  

Uhm, no.  

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In business, a healthy portion of being successful is being in the right place at the right time.  

I am not suggesting there is no such thing as a “sense of commercial opportunity” (I know several guys like that), but merely the fact of having been in a successful startup/IPO may not be sufficient evidence that one is an exceptional businessperson.  

Nevertheless I meet people who, having been very successful in one enterprise, are ready to bring their Midas touch to each new business situation they confront, no matter how far out of their ken.  I think of the them as people who, having been struck by lightning, now feature themselves to be Professional Lightning Strikees. 

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Jon Paulson, who achieved great fame through his brilliant macro call on mortgages and who made himself (and his limited partners) a fortune might be (I say, might be) an example in this category.  It is true that he made a very astute strategic and that he acted on it to capture a great prize. 

I was in the offices of an investment manager some weeks ago and noted that he had the prospectus for Paulson’s new gold fund on his desk.  With Paulson’s previous grand slam at his Credit Opportunities Fund, raising his next fund would be easy.  But based upon my own reflections on gold I thought: could he be making a strategic mistake? 

So I found it ironic today to read that Paulson’s new gold fund was down 14% in January, its first month.  I also noted that his investors have a three year lockup, so I guess he’s in it for the long pull.    But I still wonder… 

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