market folly

John Paulson is perceived as, for lack of a better term, a financial rock star. Young traders, analysts, and fund managers alike dream of the day they can emulate him, pocket billions, exclaim "F*ck you!" to the markets and then bask in the fame of those worshiping their every move. Many investors idolize him. Mainstream America now relishes his genius in predicting the crisis. This is the public perception. Gregory Zuckerman's new book, The Greatest Trade Ever, somewhat changes that.

In addition to detailing what the book's title deems, 'The Behind-The-Scenes Story Of How John Paulson Defied Wall Street And Made Financial History,' Zuckerman manages to humanize Paulson through his insider look. While this might imply that Paulson possesses some sort of villainous trait, one could argue the book showcases him as neither a financial deity nor a villain. Instead, he is portrayed as a diffident and practical human being that relentlessly pursued an idea and gained notoriety through success.

Let's first get to the facts: This is an intriguing book. So intriguing, in fact, that we read the entire thing in one sitting cover-to-cover. While we acknowledge that this could be in part due to the fact that we are enamored with tracking hedge funds at Market Folly, it is still a good read regardless.

The Greatest Trade Ever chronicles how hedge fund manager Paulson (and others) bet against subprime and reaped billions. The work of senior Wall Street Journal writer Zuckerman falls right into our niche and gives us an unprecedented look with exclusive access to Paulson through more than fifty hours of interview. It specifies how the thesis was formulated, how the idea was pursued, and most notably, how exactly the trade was put on. This book is the definition of insider access.

The remarkable thing about this story is the fact that Paulson's idea can be summed up by one simple chart: a plot of how much real estate prices had diverged from their historical norm. That chart, crafted by then Paulson & Co analyst Paolo Pellegrini, would serve as the glistening prize in their collective trophy case. What this book shows you though is just how complex of a journey it was to arrive at that simple piece of paper. While Zuckerman's work rightly showcases Paulson as the protagonist, it also details the journeys of other individuals pursuing the same historic trade. It details the investment timelines of Jeffrey Greene (an investor who knicked Paulson's idea and tried it on his own), Michael Burry (an investor who made the right call but was early to the play), and Andrew Lahde (the hedge fund manager who pursued his conviction in the play and later penned the infamous 'F*ck you' goodbye letter to Wall Street).

Zuckerman also rightly focuses on Paolo Pellegrini, the analyst who performed much of the legwork behind the idea. What's interesting about Pellegrini is his ruffled past. Before joining Paulson & Co, Paolo seemingly floundered in the investment industry and appeared to be on the brink. However, this match seemed destined to be, as the Paulson & Co team appeared a rather ragtag bunch sprinkled with 'grind-it-out' pasts. They weren't perfect and The Greatest Trade Ever highlights this, bringing this hedge fund deity (and envious readers) back down to earth. Just like you and me, the people behind this trade are human and struggled with tough times. Before his uprising, Paulson doubted himself and was essentially a run of the mill fund manager, nothing too out of the ordinary. Yet, all it took was an idea and a determined set of minds.

In short, The Greatest Trade Ever is a magnificent insider look at how Paulson and others profited off of subprime's demise, detailing both the formulation and implementation of such a trade. It chronicles the hedge fund's uprising and shows you how before this one idea, the ragtag bunch at Paulson & Co were far from deities. In the end, Zuckerman's work is both insightful and gripping. As for Paulson? He's back at it again. His latest bet? The demise of the US Dollar. As Paulson says, "It's like Wimbledon. When you win one year, you don't quit; you want to win again."


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The above is the latest addition to our growing list of book reviews. Make sure to check out our previous thoughts on these titles:

- The Murder of Lehman Brothers by Joseph Tibman
- Street Fighters: The Last 72 Hours of Bear Stearns by Kate Kelly
- The Ivy Portfolio: How To Invest Like the Top Endowments by Mebane Faber

And as always, you can head over to our recommended reading lists for other insightful books.