Book Review: The Greatest Trade Ever, By Gregory Zuckerman

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."

Comments

[jay brebner:]

david faber also dedicates part of his book on the crash to hedge fund manager in texas who pulled the same trade and made 6 billion for his clients. Disciplined to a rational idea - gotta love it.

Nov 07 09:27 AM

[Old Trader:]

As I recall from an article in Bloomberg News on Paulsen, a while back, he was somewhat early in placing his bet. After going back and reexamining his numbers, facts, and premise, he "doubled down" on his bet.

I find it interesting that financial history is replete with similar stories, yet most "trading systems" regard "adding to a losing position" as anathema, being a direct contradiction of the maxim of "cut your losses and let your profits run".

Nov 07 11:53 AM

[TinyTim:]

Thanks for the great review. I plan to read this one.
I love these unexpected success stories, like Rich Dennis' turtles.

Dan Gross has an interesting podcast with Zuckerman at Slate:
www.slate.com/id/2234549/

It's curious that Zuckerman took the trouble to cover others that had a similar idea. Apparently he wasn't as accurate with these without the one-on-one interview time. I followed Michael Burry's Scion Capital hedge fund for some time and while he was way early and a lot of his investors wanted or did pull out, he still made an amazing fortune. The guy was a freshout Stanford brain surgeon. Go figure.

Here's a Jon Markman piece from two years ago on Burry:
articles.moneycentral....

Nov 08 09:56 PM

[southbeach:]

I think the guy in Texas was J Kyle Bass. I recall a documentary featuring the in depth research he did - interviewing people at various stages in the subprime/MBS value chain and coming to the conclusion that his early concerns about the absence of risks for mortgage sellers (and bank repackagers) or credit checks were all too well founded. Fascinating stuff. Borrowers got played by the initial 'lenders', and the skewed system.


On Nov <span title="Convert this amount" class="currency_conver... 09:27 AM jay brebner wrote:

> david faber also dedicates part of his book on the crash to hedge
> fund manager in texas who pulled the same trade and made 6</span>
> billion for his clients. Disciplined to a rational idea - gotta
> love it.

Nov 10 07:00 AM