The Greatest Trade Ever

I am currently reading The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History by Gregory Zuckerman.  This is one of many books about the Great Recession, albeit a more focused on a specific group of traders who went on to profit from the collapse of real estate.

A few main points strike me most about this book.
1.  It was incredible how no one even thought real estate could go down.  The best and the brightest on Wall Street had incredibly complex models which never even accounted for a drop in housing.

2.  You have to be not only a contrarian to go against the crowd, but also have the conviction to stay the course.  John Paulson, who ran a Hedge Fund which made billions off of his trades was ridiculed, told he was flat out wrong and was often like a canary in the coal mine.  In fact, he invested nearly all of his money, $30 million in his fund, so convinced he was right.  He never wavered.

3.  There is no excuse for hard work.  Part of the success of these investors was the due diligence they conducted.  To call them traders, as if they suddenly one day decided to short the market is a misnomer.  In fact, Paulson and his team researched real estate and these investments for years.  The book does a great job of describing how his analyst poured over data and financial models night after night.

4.  All of the investors focused on in this book are described as outsiders - men who went against the norm and often followed their own paths.  The implication seems to be that only someone like this would have gone onto succeed.  If a person follows the crowd they would have assumed the good times would go on forever.

5.  Up to these 'great trades', most of these men at least by the standards of their industry were undistinguished and in many senses had something to prove.  From a historical perspective many of the most remembered/revered men of history fit in this bucket.  Lincoln failed countless times in his past before saving the nation.  Churchill was essentially exiled before being brought back to save Britain.

6. It has been my experience that journalists on average write the best non-fiction books.  The author is a Wall Street Journal writer, who keeps the pace going despite some complexities as CDS, ABX, CDOs, MBS and plenty more esoteric investments.  Next time you are looking for a book to read take a look at the author - if he's a writer for the WSJ, NY Times, Washington Post, New Yorker or other top notch newspaper or magazine the odds are in your favor.

Takeaways:  Following the crowd is easy, but if it's greatness you seek, don't expect it that way.  There's no excuse for hard work.  Finally, be very careful about underestimating people - keep an open mind and remember a few of them have history on their side.

For more book suggestions visit Apellicon's Book Recommendation website.  Great books in such categories as Business, Wall Street and Investing.