September 21, 2019

Do Paulson and Soros Have the Golden Touch?

George Soros, at the 2011 Munich Security Conference, has increased his funds' exposure to gold along similar moves by Paulson.

Maybe I should buy gold. After all, the dollar’s value is decreasing. Well, I’m not alone in my interest in gold investing. Two esteemed hedge fund managers have signed on big-time. George Soros and John Paulson are both putting their funds’ capital to work through buying exposure to gold’s rise. Do Paulson and Soros have the golden touch? Nigam Arora of Forbes says, “Not so fast.”

There are plenty of reasons to buy gold; buying gold just because Paulson and Soros bought gold is a fool’s game.

I have analyzed Form 13F Reports filed by institutional investment managers with the SEC. An institutional investment manager exercising discretion over $100 million is required to report holdings on the Form 13F.

Paulson purchased 4.53 million shares of the SPDR Gold Trust (GLD). Paulson also added to his holdings of NovaGold Resources (NG), maintained his position in Barrick Gold (ABX) and reduced his holdings in Gold Fields (GFI).

Soros increased his position in GLD to 884,400 shares from 319,550 shares.

Here are the reasons why it is foolish to buy gold on these headlines.

Poor Track Record

Paulson and Soros are two of the world’s most accomplished investors, but neither has a good track record when it comes to precious metal investments. Soros said that gold was ‘the ultimate asset bubble’ when gold was trading at $1275 in September 2010.

45-Day Delay

13F filings are as of the last day of the quarter and are 45 days delayed. There is no telling what position Paulson and Soros are holding now.

Gold Fund

Paulson has a fund specifically dedicated to gold. It is reasonable to expect that a gold fund would buy gold and there would be spillover to a related fund that shares the same research.

Portfolio Strategy

An investor who simply buys one position of a fund without understanding the rest of the portfolio of the fund is not doing himself a favor.

The point is that it is important to look below the surface and not get carried away with headlines.

Not only isn’t it prudent invest purely best on someone else’s strategy, but as a portfolio manager, according to the CFA Institute, it would be unethical. One must perform their own diligence on an idea and have a reasonable basis for it. Following someone prominent’s decision is insufficient for either criteria.

Additionally, Warren Buffett advises against investing in gold in his 2011 shareholder letter. He calls it an investment based on fear rather than fundamentals. He likes investments that can create value as opposed to remaining stagnant.

It’s quite possible that gold may be a good investment. So do Paulson and Soros have the golden touch? Do your own due diligence before blindly following the top hedge fund managers’ activity.

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