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Cranky Science

John Paulson’s grumpy market advantage.

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Once upon a time, when few on Wall Street knew his name, John Paulson was something of a carouser. He hit the clubs, held parties at his Soho loft, lost-weekended out in Sagaponack. His career, however, was unspectacular. Though rich, he was, by hedge-fund standards, a plodder, a serial underperformer. But as Gregory Zuckerman details in The Greatest Trade Ever, Paulson remade his personality. He became a grump. He lashed out at employees for overusing the printer and was so militant about healthy diets that people couldn’t eat pizza in his presence without being reprimanded. Behind his back, Zuckerman notes, friends called him “the Undertaker.”

Then we all know what happened. Paulson made a killing in the collapse of the housing market. While the rest of us were worried for our jobs, homes, and the future of the republic, he racked up a $20 billion profit over the last two years. And if new research is correct, his irritability had everything to do with it.

According to a just-published study, a bad mood can be a competitive advantage. “Whereas positive mood seems to promote creativity, flexibility, cooperation, and reliance on mental shortcuts,” wrote a researcher at the University of New South Wales, “negative moods trigger more attentive, careful thinking paying greater attention to the external world.”

Consider the rampant good cheer that prevailed on Wall Street around, say, 2007, as investors kept piling into real estate. Even savvy investors like David Einhorn, apparently blinded by their own positive outlooks on life, didn’t see the collapse coming until it was almost right on top of them. But Paulson was perfectly positioned. He had separated from the herd and bought up cheap insurance contracts on mortgage debt. As far as investing goes, this was antisocial behavior, and it proved wildly popular.

It’s a fair question, however, whether it was the bad mood that helped Paulson or, more specifically, the difference between his mood and the prevalent one. There might be a corollary here to Warren Buffett’s beloved maxim, which is to be fearful when other people are greedy and greedy when other people are fearful. So you want to be in a bad mood when everyone is in a good one, and then get chipper when everybody descends into the dumps. Like earlier this year, for example, when the Dow Jones dipped below 7,000 and grumpiness reigned supreme. Those who were able to maintain their good spirits took advantage of what history might well record as the buying opportunity of a lifetime (let’s hope so, anyway). Paulson himself was there at the bottom, scooping up dirt cheap shares of Bank of America, among other wounded giants. After his two-year run, it’s hard to imagine he was in anything but a great mood.

Have good intel? Send tips to intel@nymag.com.


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