John Paulson Betting Big On Gold ETF

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May 23, 2009 8:11am NYSE:GLD

john-paulsonAs we head into Memorial Day weekend, we are also closing the books on one of my favorite investing holidays — the time period for most money managers to file their 13-F with the SEC is pretty much coming to an end. These filings are an incredibly valuable tool, providing insight into the thoughts and actions of some of the best investors on the planet. I have written about the moves by some of my favorite investors recently and I want to finish out the week by examining a few others.

John Paulson has very quickly become something of an investment legend. After a 500%-plus return in 2007 shorting mortgage-backed securities, he followed it up by earning better than 35% in the difficult 2008 period. In the first quarter of 2009, he appears to be betting big on gold. 

He bought a large stake in the gold exchange-traded fund (GLD – commentary – Trade Now) as well as several gold stocks including AngloGold Ashanti (AU – commentary – Trade Now). He is the single largest shareholder of the gold ETF. He is worried about eventual dollar weakness and inflation as a result of U.S. budget deficits.

He appears to have put his money where his mouth is with gold and related securities now making up 30% of his fund. He joined Daniel Loeb and David Einhorn by establishing a merger arbitrage trade in Wyeth (WYE – commentary – Tr=). He also purchased shares another pharmaceutical blue-chip involved in a merger, Schering-Plough (SGP – commentary – Trade Now).

In his year-end letter, Paulson noted that he thought merger arb spreads were the best since 2000 and remain a core part of his approach to investing. Pualoso is also opening a new fund to bet on recosvery in the real estate market. Since he clearly had the mortgage meltdown correct, it will be interesting to track his moves in that fund.

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