How John Paulson Learned Risk Arbitrage From Candy
John Paulson, founder of Paulson & Co. and one of the world's most successful hedge fund managers, claims that his success can be traced to eating candy when he was a kid in the new book The Alpha Masters: Unlocking the Genius of the World's Top Hedge FundsThe Alpha Masters. He tells the story that, as a five year old, his grandfather bought him a pack of Charms candies. He took the candy to school the next day and realized that he could sell the individual pieces out of the box. He learned how to arbitrage as a five year old, making a profit by selling the candy out of this box, buying one for himself with the proceeds, and pocketing the difference.
Paulson's story is one of dedication, drive, and heart. He is a natural risk-taker, but is very good at weighing the risk/return of any situation. He was able to judge demand for Charms candies in kindergarten and was able to judge the risk/reward of shorting the US housing market through CDS in 2007 and then the risk/reward of buying financials at the depths in 2009.
As he says in the book, "I liked buying and selling. I would take the profits I made and put them in a piggy bank - that was what I called the 'bank.' Eventually, I filled up the bank and that's what I thought banking was. So at a very young age, I wanted to be a banker." Paulson is a classic example of doing what you like and following your passions, no matter where they take you.
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