One investor sank a chunk of his wealth into gold exchange traded funds (ETFs) and made a cool $5 billion when prices soared in 2010. Can you replicate the feat? Well…
Filings with the Securities and Exchange Commission (SEC) show that billionaire John Paulson’s hedge funds own 31.5 billion shares of SPDR Gold Shares (NYSEArca: GLD). Those shares are worth an estimated $4 billion. [Commodity ETFs and Contango.]
Paulson is said to have made $1 billion in performance fees last year, which is normally a 20% cut of his funds’ profits, reports Dorothy Kosich for Mineweb. Paulson does think that gold is still going to rise into the next year and is the best hedge against a weak U.S. dollar. [Gold ETFs: After a Run, Now What?]
If you didn’t do nearly as well as Paulson, then you might be wondering what the secret to his success is. We can only speculate, but it may have to do with a few important factors:
- Knowing when to buy. Paulson was clearly in ahead of gold’s big run-up, so he and his clients were in a position to ride alongside the rally. Timing for investors is crucial – get in too early (or before any real signals are there), and you could risk losing. Get in too late, and you could be buying at the top.
- Knowing when to sell. Although it’s not clear whether the hedge funds are still in GLD, it’s still important to bring up: after you’ve made some profits, the next step is protecting them with some kind of stop loss. Don’t fall in love with your investments.
Knowing these things comes with practice, practice, practice.
There are dozens of formulas investors use to determine buying and selling opportunities. We prefer to keep it simple with trend following: when a position is above the 200-day moving average, it’s a buy signal; when it’s below, it’s a sell. You can read more about implementing a trend following strategy here.
For ETF Trends Premium subscribers, we also offer trading alerts. All you do is tell us which funds you want to watch, and we’ll send an alert that a trading opportunity has appeared, straight to your inbox! But that’s just one of the benefits of premium membership.
For full disclosure, Tom Lydon’s clients own shares of GLD.
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.