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.