Thursday, June 19, 2008


Everybody's opinion needs to be taken with a grain of salt, as you never know what motive they may have up their sleeve. Last year, John Paulson made a fortune in the CDS market betting against subprime, and there's no way to know if he's still riding that trick now. However, one of the things I like about getting opinions from hedge funds is that they actually have the luxury of changing their minds when the facts change. So when I here things like this:
"We're only about a third of the way through the writedowns,'' [John] Paulson, 52, told the GAIM International hedge fund conference in Monaco today. "There are a lot of problems out there and it will continue to be felt through the year. We don't see any signs of stabilizing.''

Paulson said he's preparing to buy distressed securities such as bank loans, call them a "potentially $10 trillion opportunity.'' While it is still "premature'' to invest in many of them, he sees "opportunities this year'' to buy mortgage backed debt, he said.

He hired employees this year to research securities firms such as Citigroup Inc. for long-term investment positions. "We're trying to see the right entrance point,'' he said. "If you invest too early, you lose money.''
It means a lot more to me than when I hear exactly the same thing from Rich Pzena, who you already know is going to say this anyway. For as smart an investor as he is, Pzena has carved out a niche managing a value fund, and mathematically speaking, financials are where the value is right now. So Pzena is not really allowed to have any other opinion or invest in anything else, or even just wait and see how bad all this gets. He may ultimately be right, but he is right the way a stopped watch is. An opinion is only as valuable as the size of the possibility space from which it is chosen, otherwise it contains no information.

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