I watched the video yesterday. It provides some interesting insights into his trading psychology and how he handles defeat and disciplined money management. When he looses 6 million on a large SP position and he's is faced with the moment of truth at the end of the day on what to do the stress is obvious in his demeanor. But he calmly barks the order into the squawk box connected to his man in the SP pit to blow out the position. Intensely competiive guy. Subsequently he gets it all back and then some (7 fold)! including a 1 day win of over 5 million. No doubt this guy is a high performance trading athlete. Peter Borish his right hand man is prominent in the video.
PTJII, I have heard, was given more than his share of crap by all sorts of people, including some tree huggers and this AFTER he donated a big parcel of land to the state he loves (is it Maryland?) or some other entity. He knows that if the markets unravel that there will be a witch hunt for traders. I have a great admiration for this man.
had this on file: Paul Tudor Jones II is the president and founder of Tudor Investment Corporation, and was featured in Jack D. Schwagers classic "Market Wizards". This is an edited transcript from the interview, which was held at Paul Jones's office in Greenwich, Connecticut on January 13, 2000. by Joel Ramin jgr6q@virginia.edu Q: Can you briefly describe your background? A: I went to high school at Memphis University school. My father went to Virginia Law School so he steered me to the University of Virginia. I went to Virginia from 1972 to 1976, majored in economics and had a great time. I really loved UVa. I graduated and went to work for Eli Tullis who was a Virginia graduate from New Orleans. He was a cotton speculator, maybe the biggest cotton speculator, and he gave me a job on the former New York cotton exchange and I began literally two weeks after I graduated from school. Thatâs how I got into the futures markets. Q: What sparked your original interest in trading? A: I went to New York and saw the floor of the commodities exchange and there was such an energy level there and so much excitement that I knew that was the place for me. Iâve always liked action and the exchange seemed like a perfect home for me. Q: When did you decide you wanted to run a fund? A: In 1976 I started working on the floor as a clerk and then I became a broker for E.F. Hutton. In 1980 I went strictly on my own as what they called a local and did that for about two and a half years and had two and a half wonderfully -------------------------------------------------------------------------------- RELATED LINK: The Legendary Trader -------------------------------------------------------------------------------- profitable years, but I really got bored. I applied to Harvard Business School, got accepted and was about to go. I literally was packed up to go and then I thought, âthis is crazyâ, because for what Iâm doing here, theyâre not going to teach me anything. This skill set is not something that they teach in business school. So I didnât go, I stayed, but I was really bored because there wasnât the personal interaction that was something that I craved and having colleagues and being in a clean atmosphere and that was when I started my fund. All through growing up Iâve been involved in team sports and fraternities and in school I was involved in a whole variety of activities all of which were team oriented and when I was on my own I was printing money every month, but I wasnât getting the psychic satisfaction from it Q: How would you describe your general investment philosophy? A: I think I am the single most conservative investor on earth in the sense that I absolutely hate losing money. My grandfather told me at a very early age that you are only worth what you can write a check for tomorrow, so the concept of having my net worth tied up in a stock a la Bill Gates, though God almighty it would be a great problem to have, it would be something thatâs just anathema to me and thatâs one reason that Iâve always liked the futures market so much, because you can generally get liquid and be in cash in literally the space of a few minutes. So that always appealed to me because I could always be liquid very quickly if I wanted to. Iâd say that my investment philosophy is that I donât take a lot of risk, I look for opportunities with tremendously skewed reward-risk opportunities. Donât ever let them get into your pocket - that means thereâs no reason to leverage substantially. Thereâs no reason to take substantial amounts of financial risk ever, because you should always be able to find something where you can skew the reward risk relationship so greatly in your favor that you can take a variety of small investments with great reward risk opportunities that should give you minimum draw down pain and maximum upside opportunities. Q: How do you measure your performance? A: Youâve got to look at good traders historically. If a trader can on average annually deliver two to three times their worst draw down, then thatâs a very good track record, and Iâd say that thatâs what I try to do. If I thought that for the funds that I managed that 10% would be the worst that I would tolerate in a given year then hopefully Iâd annualize two or three times that and thatâs probably what Iâve done. Maybe a little below that in the â90âs and a little above that in the â80âs. Q: Whatâs your competitive advantage as a trader? A: The secret to being successful from a trading perspective is to have an indefatigable and an undying and unquenchable thirst for information and knowledge. Because I think there are certain situations where you can absolutely understand what motivates every buyer and seller and have a pretty good picture of whatâs going to happen. And it just requires an enormous amount of grunt work and dedication to finding all possible bits of information. You pick an instrument and thereâs whole variety of benchmarks, things that you look at when trading a particular instrument whether itâs a stock or a commodity or a bond. Thereâs a fundamental information set that you acquire with regard to each particular asset class and then you overlay a whole host of technical indicators and thatâs how you make a decision. It doesnât make any difference whether itâs pork bellies or Yahoo. At the end of the day, itâs all the same. You need to understand what factors you need to have at your disposal to develop a core competency to make a legitimate investment decision in that particular asset class. And then at the end of the day, the most important thing is how good are you at risk control. Ninety-percent of any great trader is going to be the risk control. Q: Can you give an example? A: Certainly. The one on a percentage basis thatâs been the most profitable for me was the crash of 1987. There was a tremendous embedded derivatives accident waiting to happen in the crash of â87 because there was something in the market that time called portfolio insurance that essentially meant that when stocks started to go down it was going to create more selling because the people who had written these derivatives would be forced to sell on every down-tick. So it was a situation where you knew that if you ever got to a point where the market started to go down that the selling would actually cascade instead of dry up because of the measure of these derivative instruments that had been written. And in the crash of â87 you had an overvalued market and you also finally had a situation where every down-tick would create more selling and I think I understood the dynamics of that. The crash was something that was imminently forecastable to somebody that understood the measure of derivatives and how large they had grown in such a relatively short period of time and the impact that it would have on a relatively unknowing and naïve market. And the same exact thing happened in 1990 in Japan. Q: So what is your opinion of the US equity markets now? A: Clearly there are parts of the US equity markets that weâve never seen anything like it anywhere in modern times in terms of valuation. The question is whatâs the trigger event that gets you to mean revert and whereas you had specific derivative inspired events in 1987, I donât see that now. So how long can these levels of overvaluation persist? I would think rather than seeing any type of really sharp break, what you might see prospectively is something that looks a lot more like â68 to â73 did where you had big rolling corrections and rotations and a market that doesnât really make any upside progress but with a lot of volatility that traverses big ranges. Q: Do you have any specific catalysts that youâre looking for? A: I think youâre finally getting interest rates at a level where theyâre extraordinarily negative for equities. You look at every bear market and theyâve always basically occurred because of an up-tick in inflation and an up-tick in interest rates. Weâre definitely at a point where rates are high enough where theyâre going to have a big impact on equities. When you look at the volatility weâve had in the past month in the NASDAQ for instance, every time Iâve seen volatility like that, I donât care what the market was, whether it was soybeans in â76 or â83 or whether it was silver at the top in 1980 or whether it was some of the biotech stocks at the top earlier in the â90âs, when you get that kind of volatility you know that generally thatâs associated with a top. The best you can hope for if youâre long is to look at some type of significant long term sideways action where the markets consolidate before moving higher or generally speaking allow that those have done their thing and we will have topped for years and years to come. Iâm probably more of a subscriber to the latter theory.
paul tudor jones interview continued... Q: How big was your fund when you started and how much money does your company have under management now? A: Right now we have about five or six billion dollars under the management of several large traders including myself. Back in â83 we started with $300,000. Q: Do you like managing so much more money? A: I donât like managing it at all. The smaller it is the greater you can do because there is no slippage and greater liquidity. Q: It was widely published that in 1987 you reportedly made between $80 million and $100 million â more than anybody on Wall Street. How did that make you feel? A: At the time, I was young enough to enjoy that. I was in my early 30âs and that was exciting, but the older you get you realize that at the end of the day the amount of money you have has absolutely zero bearing on how you feel about yourself and the quality of your life. It becomes a very shallow measure of a personâs worth. I have a great wife and four great kids now and that would be my crowning achievement. Q: Is there more risk in the stock market now than ever before? A: Certainly in the stock market, there are some stocks with valuation levels that mankind has never seen before so one would think that they have a lot more risk. Itâs funny, but Iâm actually not the best person to ask about the stock market. You see, our company is just a group of 280 individuals, all of us are basically united under one purpose, and everybody has pretty much the same MO, young professionals with kids, generally very conservative. Really all my capital is tied up in this company, so on the one hand I think to myself my gosh the concept of owning stocks is anathema to me because of the fact that I always want to be liquid, so a lot of our investments typically are things with a very short lifespan like derivatives, not owning stocks. So as far as risk in the stock market, thatâs not my core competency, so Iâm really not a great person to ask. Q: Can you comment on the life of your fundâs returns since you began investing? A: Our returns have definitely flattened out since the â80âs. But if you look at my risk adjusted returns, theyâre very similar and Iâm probably the same exact trader as I was 15 years ago. Whatâs different has been my own personal appetite for risk and volatility. I think that probably happens with a lot of people as they get older. Everything is a function of leverage, how much of a draw down are you willing to tolerate, how much leverage do you want to put on. When I was younger, I had much greater draw downs, much greater draw down frequency, much greater leverage. So again, Iâm probably the exact same trader as I was 15 years ago, itâs just less risk, less return. There are exceptions to the rule, but the normal progression of most traders that Iâve seen is that the older they get something happens. Sometimes they get more successful and therefore they take less risk. Thatâs something that as a company we literally sit and work with. Thatâs certainly something that Iâve had to come to grips with in particular over the past 12 to 18 months. You have to actively manage against your natural tendency to become more conservative. You do that because all of a sudden you become successful and donât want to lose what you have and/or in my case you get married and have children and naturally, consciously or subconsciously, you become more conservative. If thereâs one thing in our company that we probably will spend more time working on in the year 2000 than we ever spent historically, itâs that as a group we all came to be overly conservative and we need to leverage up more within our company and Iâm probably the worst offender. So now I have a whole variety of portfolio measures that I sit down with every afternoon, to try to hit some benchmark leverage measures to make sure I deliver what my investors unequivocally deserve in terms of the opportunity to get the kinds of returns theyâre used to.
paul tudor jones interview continued... Q: What are some perceptions and priorities of yours that have changed over the years? A: I think thereâs a natural progression that everyone goes through. The older you get, the more youâll realize that a quality life is one that has an extraordinary balance in it. The guy thatâs working at 75 years of age and still running a company, that doesnât have any appeal to me because I think his life is out of balance. If the only thing that he can find thatâs that satisfying to him is being involved in a profession with something, I think youâve got to have more balance. In my 20âs all I cared about was being financially successful and today I look to strive for a more balanced life. In that context though, when I come to work Iâm as competitive as anybody youâll meet and I clearly look forward to the day when I have the best performance of my peers, the macro hedge funds, for the year, which hopefully will be this year. Q: What was the best and worst year you ever had? A: The worst year was probably 1993. I only returned 1.6%. Never had a down year. And my best years, well I fortunately cut my teeth in two great bear markets, the â87 bear market and the 1990 Japan bear market and thereâs no question that thatâs biased me a bit. I returned about 200% in 1987 and 80% or 90% in 1990. I worked 80 hours a week and clearly Iâm not doing that without trying to be number one. All my friends are in the business, and I wish them all well, but everybodyâs got a competitive spirit. Q: Are you more naturally bearish or bullish? A: Bearish, I think. I would have difficulty asking anyone to pay 10 or 20 times earnings for my earnings capability for the rest of my life. I would think youâre crazy to do that even though it might be a great deal, so the concept of paying one-hundred-and-something times earnings for any company for me is just anathema. Having said that, at the end of the day, your job is to buy what goes up and to sell what goes down so really who gives a damn about PEâs? If itâs going up youâre supposed to be long it. But thereâs no question that itâs just easier for me to leverage with some degree of conviction the short side of some markets. Q: When are you going to retire? A: I have a son that just turned three and I would unequivocally continue to trade until he went to college. At that point I think Iâd probably be airborne hunting and fishing all over the globe every day in my life. I donât even necessarily need to be hunting and fishing, I just love to be out doors. Q: What do you think is going to happen to your company when you do retire? A: I could get run over by a truck tomorrow morning and the company would go on and wouldnât miss a beat. Weâve got the best business model there is on the street for doing this. Q: Who are you going to vote for in the presidential election? A: I think the biggest issue facing America, unequivocally, is campaign finance reform. When you sit down and talk about gun control or charter schools or whatever, all those issues, itâs impossible to have politicians actually vote their conscience when theyâre all unequivocally conflicted because of the fund raising necessities they have and the amount of money they take. Until you have campaign finance reform and term limits, weâre dealing with a whole group of elected officials who are incapable of making any independent and honest decisions. So McCain, Bradley, Iâll vote for either one of them. Iâll vote for any politician thatâs going to sign the dotted line to get the money lenders out of the temple. I think that if you look at the 13,000 registered lobbyists in Washington, what chance do you or I have of having a voice in government unless youâre willing to write a big check? Because thatâs what all those guys are doing. Iâll tell you from my conservation battles down in Florida. The entire sugar industry in Florida, which is destroying the Everglades, they have one business. Their business is not growing sugar. Their business is paying off every politician that they can see simply so that they can continue with a subsidy that does nothing but take money out of every Americans pocket and put it in theirs. Q: You were close to getting that legislation to go your way, werenât you? A: Right. And they spent forty some-odd-million dollars to fight us. Forty million dollars that they probably got through some extraordinarily inequitable and unfair and offensive subsidy that they have done an excellent job of paying off every politician in Congress for. Campaign finance for me is the key issue. Itâs funny, McCain is a great example. Heâs probably way too conservative for me, but Iâd vote for the guy in a heart beat because thereâs no doubt in my mind that he more so than anyone would probably go in and attack the vested interests there in Washington that completely distort and destroy our political process.
paul tudor jones interview continued... Q: Would you ever run for political office? A: No. Iâve got a family and kids and I couldnât be away from them that much. Q: Letâs play a word association game. Iâll say a word and you say whatever comes to mind. Q: Technical analysis A: Made well over half the money that Iâve made in my lifetime. Q: Fundamental Analysis A: Made the rest. Q: Are you better at one or the other? A: Probably technical analysis. Q: Market efficiency A: No such thing. Q: Long Term Capital Management A: Icarus. Q: Black Monday A: It was like watching a natural disaster from the sidelines. I was intimately involved in that day, but the macro implications of what was happening overwhelmed any personal considerations that I had. Q: Warren Buffet A: His aversion to paying taxes made him a great investor. Q: Kids A: The most fun youâll ever have. Q: Environment A: The second most fun youâll ever have. Q: The Internet A: A wonderful delivery mechanism thatâs overhyped. Q: Day Traders A: 95% losers. Q: The University of Virginia A: The most balanced education a person can receive and Iâm not talking about just academic education, but all the other touch points that go with that; character building, ethics, exposure, etc⦠Q: Wall Street A: The last great frontier. I went there with nothing. You can go there with nothing and do whatever you want to do. Q: What do you think youâll be most remembered for? A: I donât think anybody will remember me. Q: What do you hope youâll be remembered for? A: I think Teddy Rooseveltâs greatest legacy is the national parks system, so on a micro level anything that I could do to protect natural resources, I think, would be the best legacy that I could leave my kids. Q: If you were writing a story about Paul Tudor Jones, what one question would you ask him? A: If you could do one thing differently, what would you do? Q: And whatâs the answer? A: When you look at the wealth creation in the Internet in the past decade, it would have required me to literally completely change my stripes and move over in a different world from macro analysis and trading a whole variety of instruments to going into building a business in a brave new world in the Internet. So I look back and I see the wealth creation that weâve seen the past three years of which weâve fortunately, derivatively been able to enjoy here at Tudor because we have our whole Boston office thatâs dedicated towards private equity and that did an extraordinary job last year. But I guess, everyone that works on Wall Street today, particularly given our industry reliance on computers, knowing that that entire explosion occurred right under your nose, everyone has got to say, âMy gosh, what if eight or 10 years ago I had made a decision to completely focus and be in the middle of technology? Instead of sitting in front of a screen, what if I had gotten on a plane and gone and played the venture capital game out in California every day?â Iâd argue that many of the people that benefited from it probably were in the right place at the right time and got very fortunate and there probably arenât but a handful of people that actually had the vision to go do it and the ones that actually did, I take my hat off to them and applaud. But Iâve always said, Iâd just as soon be lucky as good and there are a whole variety of people that were just in the right place at the right time who did extraordinarily well and Iâm happy for them. But I always do play the âwhat ifâ game. What if youâd taken your full repertoire of talents and skills and been involved in that from day one? Could you have been Bill Gates or could you have been whatever empire builder there was? i originally copied this interview with paul tudor jones from www.theangle.com some years ago, but it's been taken down since. cheers
Thank you for this post. Well, ladies and gentleman, don't let it go to your head but....you might be cut out for this after all.
allright. i'll bite---i bid $50.00 for the video tape. i had it back in 1991 and gave it away . please advise. surf
I'm surprised Andre didn't post it already, but Scott Kaminski is this week's Master Interviewee over on Innerworth. It's not bad. I liked his comments on target objectives and patience and then risk/money management explanation for scaling out. -Joe