"Don't Focus On What You Can Make, But On What You Can Lose"

David Craig is a pioneer in the British hedge fund industry. In The Spectator, he writes about meeting John Paulson in New York City in the mid-1990s. Craig pens the piece praising Paulson upon finding out he (Paulson) is ranked as the top moneymaking hedge fund manager for 2007 -- making a cool $3.7 billion in personal income.

A key bit:

John sold us on three key tenets he followed in the risk arbitrage business. First, it’s best to back takeover deals where you get paid in cash, not flaky securities. Their value is unpredictable, whereas cash offers certainty. Second, look for merger deals with a twist, such as a guaranteed ‘floor price’ hidden behind a share exchange, or where there may be more than one potential buyer around. You never know, there may be an auction contest that might swell your return. Third, don’t focus on what you can make, but on what you can lose if something goes wrong.

Good stuff. Read the entire thing when time permits.

Comments

[David]

Very cool article. Thanks!