Many people would jump at the chance and many wealthy people have given John Paulson lots of money to invest for them.
But there’s a downside to trying to get rich via the stock market. The people who “swing for the fences” often strike out.
We found this article in Private Wealth an excellent illustration of this point.
Billionaire John Paulson posted the second-worst trading year of his career in 2014 as a wrong-way energy bet added to declines tied to a failed merger and investments in Fannie Mae and Freddie Mac.
The worst performance was in the Advantage Plus fund, which plummeted 36 percent last year, two people with knowledge of the returns said. …
Paulson & Co.’s performance placed it near the bottom of the hedge fund pack last year as the industry returned a meager 1.4 percent. The manager, who shot to fame after making $15 billion on the housing crisis in 2007, has struggled to regain its footing since 2011 when bets on the U.S. recovery went awry, losing money in all of its main strategies — including a 51 percent tumble in the Advantage Plus fund. Paulson also lost money in investments tied to gold and Europe’s economy, causing assets to dwindle to $19 billion, half the peak in 2011 ….…
Investors in the Advantage fund have lost 48 percent since the end of 2010, while clients in Advantage Plus are down more than 66 percent. ….
At Korving & Company, we are fiduciaries, Paulson is not. He’s a hedge fund manager who makes big bets. We don’t bet, we invest.
We manage retirement money. People nearing retirement don’t want to see the money they are saving cut in half. That could force them to work years longer than they planned. People in retirement who saw their savings plummet would have no choice but to reduce their lifestyle.
With that in mind, we do the opposite of Paulson. Our primary directive is keeping what we have and making a fair rate of return on that money by a carefully thought out process of diversification.
Realizing that even the smartest or luckiest investors – like Paulson – can be wrong, we focus on picking good funds but making sure that if any of our fund managers has a bad year, our clients will not have their plans interrupted or their lifestyles affected.
To go back to our baseball analogy, we just want to get on base and do so consistently.