Paul Tudor Jones is arguably the world’s greatest living trader. He is a leading figure in the hedge fund world. His rags-to-riches story is both inspiring and educational for investors of all skill levels. This article will provide you a peak into his life and provide five key investing lessons that are critical for success.
Unlike many hedge fund managers, Tudor Jones credits technical analysis for his career defining trade. Back in 1987, his chief technical analyst, Peter Borish noticed a correlation between the pre-crash 1929 stock market and the 1987 stock market. Jones acted on the signal and nailed the 1987 stock market crash. This tripled his money and forever earned him a place in stock market lore.
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Here’s a video interview of Tudor Jones soon after he made the “killing” in the stock market crash.
He built both fame and fortune on the foundation of this 1987 trade. He was featured in the seminal Market Wizard’s book… and… a rare video documentary of him which aired around the time of the ’87 market crash. Jones is now a member of the “Forbes 400″… which… is a list of the wealthiest folks on earth.
Interestingly, Jones bought up all the copies of the video documentary prior to it being published. No one really knows why. The few copies of this VHS video on the market sell for over $1000.00 to investors searching for the secrets it may reveal.
Jones owns homes and land all over the world but calls Greenwich, Connecticut his home base.
On a side note, he is well known in his neighborhood for hosting an outrageous celebration of Christmas decorations. Here’s a video of this extravaganza.
Tudor Jones is not only extraordinarily wealthy… but also… heavily involved in philanthropic activities. For example, his Robin Hood Foundation gives aid to the less fortunate and has become a giant in the world of giving.
The Robin Hood Foundation is comprised of hedge fund managers and others in the financial business. The foundation has distributed over $1 billion to help fight poverty in New York City. Interestingly, all the administrative costs of the foundation are paid for from the board of directors’ own pockets. This means that 100% of donations go directly to those who need it most.
As you can see, investors would do well to emulate Jones.
Let’s take a closer look at the life of Paul Tudor Jones.
Tudor Jones started his career in 1976 as a clerk on the trading floor.
He was soon promoted to the rank of broker for EF Hutton. In 1980 he started trading on his own.
After booking two years of success, he got accepted to Harvard Business School. But he decided not to attend. Jones felt there was nothing they could teach him about trading he couldn’t learn himself.
With this in mind, he sought out the tutelage of cotton trader, Eli Tullis.
Tullis mentored Jones in trading cotton futures at the New York Commodity Exchange.
In 1980, he formed Tudor Investment Corporation in Greenwich, Connecticut. He nailed the 1987 crash and effectively tripled his funds. This was his first major success placing him on the road to massive wealth.
Today, Tudor Jones is worth over $3 billion and actively trades his fund’s portfolio. His quarter to quarter stock trading turnover is 31%, which is very active for such a large fund.
His primary fund is named Tudor Investment Corp and currently holds over 1400 individual stocks and ETF’s. Most interestingly, Tudor Jones does not subscribe to the same trend following mantra of most funds his size.
Let me explain.
Trend followers try to catch the meat of every stock market move. They don’t care if they miss the top or the bottom of any longer term move. They are only interested in riding the main part of the trend higher or lower. Tudor Jones specializes in catching the tops and bottoms of moves rather than the center of the trend.
He admits to missing a lot of money from the middle of trends. However, he firmly believes most of the money is made by catching tops and bottoms. Clearly, his success makes this philosophy very appealing.
Here’s a look at Tudor Jones’ other primary investing rules.
Test your ideas
Enter a position with small size to test the market first. Should the market move in your anticipated direction, start to buy or short more of the stock. If the stock doesn’t react as you expected, close your position and look for the next opportunity.
Never average losers
When you have a losing trade, decrease your size rather than increase. Averaging into a losing trade is a recipe for disaster.
Be disciplined to use mental stops
Your broker and other market participants cannot see your mental stops to run them. However, you must be disciplined enough to close the trade immediately when your stop is hit.
Don’t think about the past
Tudor Jones does not care about mistakes he made 3 seconds ago. He is only concerned with what he is about to do in the future.
Price is more important than any fundamentals
You don’t trade fundamentals, you trade price. Jones goes so far as to believe that price moves before the fundamentals. In other words, price leads news or other fundamental events. While this may seem strange, if you think about sentiment moving a stock in anticipation of fundamental, it makes sense.
The Key Takeaways
Paul Tudor Jones is a great hero for every investor. He has made and given away a fortune over his lifetime. Following his five basic rules will help every trader increase their bottom line.
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