John Paulson's Top 10 Transactions

by: Insider Monkey

John Paulson is the most successful hedge fund manager of the past four years. He made $4 billion by betting against subprime mortgage investments in 2007 and another $5 billion by betting on gold and the recovery of the economy in 2010. Paulson's Paulson & Co. manages separate client-focused portfolios, employing merger arbitrage, long/short, and event-driven strategies. Paulson uses fundamental analysis to make his investments.

Paulson’s overall performance disappointed his investors so far this year. Especially his longer term holdings performed worse than the market. That’s why we wanted to see what he is doing to recover his losses. Here are John Paulson’s top 15 transactions during the second quarter:

Bank of America (NYSE:BAC): Paulson sold 51% of his stake in BAC during the second quarter. This was actually a very smart move considering that he had more than $1.6 Billion in the company at the end of first quarter. BAC lost more than 32% since June. Paulson avoided a $200 Million loss by selling this stock. Bruce Berkowitz had $1.1 Billion in BAC at the end of June (see Berkowitz’s top stock picks).

Comcast Corp (NASDAQ:CMCSA): Paulson sold 49% of his stake in CMCSA during the second quarter. This was a $500 Million transaction. This was also a very smart transaction. CMCSA lost 15.9% since June, vs. 9.4% loss for the SPY.

Life Technologies (NASDAQ:LIFE): This was Paulson’s biggest new stock pick. Unfortunately, the stock lost more than a quarter of its value since the end of second quarter. Larry Robbins’ Glenview Capital is very bullish about LIFE and considers it as a long-term investment (see Robbins’ portfolio here).

Alpha Natural Resources (ANR): Paulson cut his stake in ANR by 72%. This was a $400 Million transaction. This was also a very smart move, the stock lost 29% since June.

Wells Fargo (NYSE:WFC): One would think that Paulson is giving up on large financials but he increased his stake in WFC by 64%. This was a $350+ Million transaction. He also increased his holdings in Capital One (NYSE:COF) by 17% and reduced his positions in JP Morgan (NYSE:JPM), Suntrust (NYSE:STI), and Blackrock (NYSE:BLK) by 6%. So we can say that he was reallocating his capital into the stocks which he thought would do better over the long term. WFC performed relatively better since June, losing only 12%. JPM lost 11% and STI declined by more than 26%. So, Paulson’s transactions actually benefited his investors.

Transocean (NYSE:RIG): Paulson cut his $1.6+ Billion RIG stake by 23% during the second quarter. This was also a $350+ Million transaction. The stock underperformed the market by more than 4 percentage points since June.

Anadarko Petroleum (NYSE:APC): Paulson reduced his position in APC by 21%. This was a $350 Million transaction. Anadarko actually outperformed the market by two percentage points.

Citigroup (NYSE:C): Citigroup is the largest financial bet in Paulson’s portfolio. He had $1.4 Billion in C after trimming his stake by 19% during the second quarter. The stock lost 28% since June. If Paulson didn’t reduce his stake further, his losses are approximately $400 Million. He should have sold more of Citigroup and bought more of Wells Fargo. Citigroup is also the largest position in David Tepper’s portfolio. Tepper also reduced his BAC stake significantly but trimmed his C positions by only 6% (check out David Tepper’s stock picks).

Mylan Inc (NASDAQ:MYL): Paulson sold 44% of his stake in the company. This was a $300 Million transaction. MYL lost 18.9% since June. Once again Paulson’s investors avoided much bigger losses.

Ralcorp Holdings (RAH): Paulson increased his stake in this stock by more than 800%. It’s like a brand new position. The transaction is close to $300 Million. The stock outperformed the SPY by nearly 5 percentage points since June. Julian Robertson's protege Patrick McCormack initiated a brand new position in RAH during first quarter (see Tiger Consumer's top stock picks).

Overall we have the impression that Paulson’s portfolio is too big to manage effectively. Paulson tries to improve his performance by trimming $1-2 Billion positions but still couldn’t avoid the losses entirely. Most of his large moves benefited his investors but his overall losses were still large. We believe John Paulson is a very talented hedge fund manager. There are several reports in the media mentioning his large losses in his levered hedge fund. However, he has been urging his investors to switch to gold denominated versions of his funds. Gold ETF (NYSEARCA:GLD) and gold mining stocks like Anglogold (NYSE:AU) and Gold Fields (NYSE:GFI) are among his top positions. GLD gained 19% since the end of June and more than 25% since the beginning of the year. Paulson made $900 Million from his GLD position during the past 6 weeks but the media focuses on his losses in financials.

Disclosure: I am long C, SPY. I am long physical gold.