Paul Tudor Jones is an American investor and founder of ‘The Robin Hood Foundation’, a foundation that has donated over $3 billion for various causes aimed at poverty reduction.
The foundation was formed in 1988, and while its philanthropic efforts have been appreciated, its founder is perhaps more famous for what he did only a year earlier before the foundation was founded.
Tudor Jones is arguably the greatest contrarian trader of our time, and he has gone against the age-old trading wisdom of ‘never try to time the market’. Tudor Jones is a global macro trader, who focuses on the political and economic underlying factors of the assets he wishes to trade.
In his own words, Tudor Jones compares conventional trading to playing chess, and macro trading to playing ‘3D Chess’. After gaining fundamental insight on a financial asset (he prefers the futures market), Tudor Jones then mainly uses technical analysis to time his entries in the market. He is also a proponent of ‘tape reading’, which essentially means observing price trends and momentum.
On October 19th, 1987, the Dow Jones tumbled 22%; a record at the time that required even television graphs to be recalibrated to account for the weird fall.
This day became known as Black Monday. As Wall Street was licking its wounds, Tudor Jones, then aged 32 years, had shorted the market and in that day alone, had managed to earn investors of his Tudor Investment Corporation hedge fund a whopping 200%.
Tudor Jones himself walked away with a $100 million payday, an unheard-of amount in those days, and to date, he is probably one of the few people who likes Mondays.
Before executing the 1987 ‘Black Monday’ trade, Tudor Jones had observed how the no limits financial futures market could be vulnerable to the trading mob mentality.
The stock market was overvalued, and portfolio insurance had just been introduced. It was an accident waiting to happen.
Tudor Jones then mapped the 1987 situation against the 1929 Great Depression and noticed striking similarities. With the help of his favourite technical analysis tool, The Elliot Waves theory, Tudor Jones managed to time the market to a tee.
After his ‘Black Monday’ genius, Tudor Jones has made several other great trades over the years and continues to manage his hedge fund, which now has an investment fund of close to $20 billion.
Over the years, Tudor Jones’ successful trades have come from shrewd short-term, but big, moves. This means that his greatest strength is flexibility.
He is able to exploit market opportunities as quickly as they arise, but he is also willing to cut his losses fast when he realises he is wrong.
As a contrarian trader, Tudor Jones is exposed to high market risk, but he sums up his risk management plan with the quote: ‘I think I am the single most conservative investor on earth in the sense that I absolutely hate losing money. I’d say that my investment philosophy is that I don’t take a lot of risks, I look for opportunities with tremendously skewed reward-risk opportunities….’
Ultimately, Tudor Jones’ unrelenting pursuit of trading and investing knowledge is what makes him a success story. With an in-depth knowledge of market history, and the innate ability to spot repeating patterns, Paul Tudor Jones is able to pick out great opportunities, with minimal risk, in the financial markets.
If you learn from ‘Robin Hood’ himself, perhaps dull Mondays could now see the sunshine.