The Rules That Made Tudor Jones Successful Rule #1: Cut Losers Short & Let Winners Run. It takes tremendous humility to navigate markets successfully. There can be no such thing as hubris when investments do not go the way you want them. Investors plagued with big egos cannot admit mistakes, or they believe they’re the most significant stock pickers who ever lived. To survive markets, one must avoid overconfidence. Rule #2: Investing Without Specific End Goals Is A Big Mistake. Before investing, you should already know the answer to the following two questions: At what price will I sell or take profits if I’m correct? Where will I sell it if I am wrong? Hope and greed are not investment processes. Rule #3: Emotional & Cognitive Biases Are Not Part Of The Process. If your investment (and financial) decisions start with: I feel that My friend told me I heard I hope You are setting yourself up for a bad experience. Rule #4: Follow The Trend. “80% of portfolio performance is determined by the underlying trend. “ Rule #5: Don’t Turn A Profit Into A Loss. Investing is about creating returns over time. If you don’t harvest gains, and then allow them to turn into a loss, you have started a “financial rinse cycle.” Most importantly, “getting back to even” is not an investment strategy. Rule #6: Odds Of Success Improve Greatly When Technical Analysis Supports Fundamental Analysis. The market for a long-time can ignore fundamentals. As John Maynard Keynes once said: “The stock market can remain irrational longer than you can remain solvent. “ Applying a technical overly to determine the “when” to invest can significantly improve the return and control the capital risk of the “what” fundamental analysis uncovers. Rule #7: Try To Avoid Adding To Losing Positions. Paul Tudor Jones once said, “only losers add to losers.” The dilemma with “averaging down” reduces the return on invested capital, trying to recover a loss than redeploying capital to more profitable investments. Cutting losers short allows for more significant growth over time. Rule #8: In Bull Markets You Should Be “Long.” In Bear Markets – “Neutral” Or “Short.” To invest against the major “trend” of the market is generally a fruitless and frustrating effort. During secular bull markets – remain invested in risk assets like stocks or initiate an ongoing process of trimming winners. Rule #9: Invest First with Risk in Mind, Not Returns. Investors who focus on risk first are less likely to fall prey to greed. We tend to focus on the potential return of investment and treat the risk taken to achieve it as an afterthought. The objective of responsible portfolio management is to grow money over the long-term to reach specific financial milestones and to consider the risk taken to achieve those goals. Managing to prevent significant drawdowns in portfolios means giving up SOME upside to prevent the capture of MOST of the downside. While portfolios may return to even after a catastrophic loss, the precious TIME lost while “getting back to even” can never be regained. Rule #10: The Goal Of Portfolio Management Is A 70% Success Rate. Think about it – Major League batters go to the “Hall Of Fame” with a 40% success rate at the plate. Portfolio management is not about ALWAYS being right. It is about consistently getting “on base” that wins the long game. There isn’t a strategy, discipline, or style that will work 100% of the time. Once you understand that, the other 9-rules above become much simpler to incorporate, Conclusion “The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological.” – Howard Marks The biggest driver of long-term investment returns is the minimization of psychological investment mistakes. As Howard Marks opined: “The absolute best buying opportunities come when asset holders are forced to sell.” As an investor, it is merely your job to step away from your “emotions” for a moment. Look objectively at the market around you. Is it currently dominated by “greed” or “fear?” Your long-term returns will depend much not only on how you answer that question but how you manage the inherent risk. “The investor’s chief problem – and even his worst enemy – is likely to be himself.” – Benjamin Graham Whether it is Paul Tudor Jones or any other great investor throughout history, they all had one core philosophy in common; the management of the inherent risk of investing. “If you run out of chips, you are out of the game.” 10 https://www.zerohedge.com/markets/navigating-q4-2020-paul-tudor-jones-10-investing-rules
Except for "Where will I sell it if I am wrong"?... That's your initial risk/stop if things go against you before going in your favor.... I disagree with Jones on this point. In Rule #1, he says "Let winners run", but in rule #2, he says, [paraphrasing] "Where will I sell if I'm correct?"... IOW.. "target". The notions of "target" and "let profits run" are inconsistent with each other. The CORRECT placeS to get off of your winner (using a long for example) are #1, aggressively selling into what you believe is an "exhaustion top", and #2, defensively selling once the move has broken back against you enough to suggest the play has run its course. IOW... Let the market TELL YOU where instead of picking your target in advance. (You need Technical Analysis to be able to do this well.) It's all in the charts. KISS, baby. FWIW....
Watched a video once where in the 80s he was trying to apply a cycle seen in the 1920s or something to make a trade. Needless to say he soon gave up that idea
In Steve Shellins' MoneyResearch Newsletter, he once said that those who claimed analysis of cycles as their primary approach to the markets had the lowest performance of any sub-group he tracked. FWIW...
I think he is basically looking at things from an initial risk reward framework when he speaks of where to take profits..Doest mean he has a hard profit target.. FWIW,my group covered him when I worked at an IB,and the one thing he never did is sell any type of premium or cap his upside..
Not true..He and Peter Borish did alot of that type of research and it largely led him to getting short stock and long bonds PRE 1987 crash
for the peeps who havnt seen it, its a fun watch. all of a sudden i have an urge to watch 70's kung fu flicks
I don't see where he mentions target. Know where to sell if I'm right does not necessarily mean having a target. I do that with a trailing stop. I don't sell when I hit a specific price I sell when I get a sell signal. Let winners run .... KISS baby!!
He didin't say target, of course... instead he described it by having a price in mind where he will sell.