Even hedge-fund stars stumble
Kai Ryssdal: Here’s a guy with a better track record than Bernanke, mostly: John Paulson. Back in 2003, he was pretty much a nobody. Now he’s a Wall Street legend. Because he bet big that subprime mortgages would crash and gold would rise. He’s made many, many billions of dollars being so prescient. But this month he took a huge hit on an investment he made in a company called Sino-Forest. It is, as you might figure, a Chinese timber plantation company. There were warnings along the way that Sino-Forest wasn’t what it seemed and Paulson did sell all his shares. But it may have been too late.
Our New York bureau chief Heidi Moore explains even sophisticated investors sometimes… aren’t.
Heidi Moore: Masters of the universe, it turns out, have feet of clay. The talk of Wall Street right now is John Paulson’s disastrous investment in Sino-Forest, a Chinese timber company. If Paulson can lose on a bad investment, anyone can.
Sal Arnuk: You cannot rely on other people to have your back.
That’s Sal Arnuk. He runs a brokerage called Themis Trading. He argues that even sophisticated investors are often treated as patsies and fed unreliable information. He blames, in part, weak financial regulation.
Arnuk: Even great investors, like Paulson, have all jumped in and gotten burnt because we are in an environment where there’s less protection.
Ironically, Paulson started out as the small guy in subprime mortgages, but he could do the research on them and he got big. It’s not as easy to do the research when the problems are in other countries — particularly countries like China, where capitalism is new and fraud rules are still weak.
Here’s Adam Bold, the CEO of the Mutual Fund Store.
Adam Bold: Clearly in the less developed countries, you have much more opportunity for graft, for bribery, for whatever unethical practices are going on.
It’s another reminder that power and status, on Wall Street, don’t mean that an investor won’t get the short end of the stick. What really matters is doing your homework.
In New York, I’m Heidi Moore for Marketplace.
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