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Paul Tudor Jones Speaks: Learn From A Billionaire Hedge Fund Manager

Posted by Timothy Sykes on Wed 3rd of Jun, 2009 05:45:23 PM

Paul Tudor Jones (PTJ) is one of the greatest traders/fund managers of all time, learn about him in Wikipedia HERE.

Very nice, but more importantly, he gave a great interview to Alpha Magazine HERE so I’ve reposted the whole thing below (thanks to BS for finding this article)

Learnnnnn from a true trading master:

What’s so special about macro hedge fund managers?

I love trading macro. If trading is like chess, then macro is like three-dimensional chess. It is just hard to find a great macro trader. When trading macro, you never have a complete information set or information edge the way analysts can have when trading individual securities. It’s a hell of a lot easier to get an information edge on one stock than it is on the S&P 500. When it comes to trading macro, you cannot rely solely on fundamentals; you have to be a tape reader, which is something of a lost art form. The inability to read a tape and spot trends is also why so many in the relative-value space who rely solely on fundamentals have been annihilated in the past decade. Markets have consistently experienced “100-year events” every five years. While I spend a significant amount of my time on analytics and collecting fundamental information, at the end of the day, I am a slave to the tape and proud of it.

Is it possible to teach someone to be a tape reader — what some might call a trend follower or technical analyst?

Certain people have a greater proclivity for it because they don’t have the need to feel intellectually superior to the crowd. It’s a personality thing. But a lot of it is environmental. Many of the successful macro guys today, they’re all kind of in my age range. They came from that period of crazy volatility of the late ’70s and early ’80s, when the amount of fundamental information available on assets was so limited and the volatility so extreme that one had to be a technician. It’s very hard to find a pure fundamentalist who’s also a very successful macro trader because it is so hard to have a hit rate north of 50 percent. The exceptions are in trading the very front end of interest rate curves or in specializing in just a few commodities or assets.

What’s your take on the next generation of managers?

I see the younger generation hampered by the need to understand and rationalize why something should go up or down. Usually, by the time that becomes self-evident, the move is already over. When I got into the business, there was so little information on fundamentals, and what little information one could get was largely imperfect. We learned just to go with the chart. Why work when Mr. Market can do it for you? These days, there are many more deep intellectuals in the business, and that, coupled with the explosion of information on the Internet, creates the illusion that there is an explanation for everything and that the primary task is simply to find that explanation. As a result, technical analysis is at the bottom of the study list for many of the younger generation, particularly since the skill often requires them to close their eyes and trust the price action. The pain of gain is just too overwhelming for all of us to bear!

You’re not necessarily a fan of hiring people straight out of business school.

Today there are young men and women graduating from college who have a tremendous work ethic, but they get lost trying to understand the logic behind a whole variety of market moves. While I’m a staunch advocate of higher education, there is no training — classroom or otherwise — that can prepare for trading the last third of a move, whether it’s the end of a bull market or the end of a bear market. There’s typically no logic to it; irrationality reigns supreme, and no class can teach what to do during that brief, volatile reign. The only way to learn how to trade during that last, exquisite third of a move is to do it, or, more precisely, live it — a sort of baptism by fire. One has to experience both the elation and fear as markets move five and six standard deviations from conventional definitions of value.

How will macro investing fare over the next five years?

The macro space will be great. I think we’re going into one of those slow or zero-growth periods in the U.S., which will give us a lot of volatility.

Will hedge funds do as well as they have done in the past?

Average returns will drop. The amount of money that was made by hedge funds in the past two decades was so outsize relative to anything in civilization in the past couple of centuries that it naturally attracted the best intellectual capital in the world. As a result, the inefficiencies that existed in the ’70s and ’80s and even the ’90s are not as readily seen. But in this business there will also always be that upper tier — that top 10 or 20 percent of managers who will outperform everyone else.

What experience had the biggest impact on your career?

Trading commodity markets back in the late ’70s — when they were still extraordinarily volatile — allowed me to experience repeated bull and bear markets across a variety of different instruments. Remember, in agricultural markets the cycle can be just 12 months. I lost my stakes a couple of times, which taught me risk control and risk management. Losing those stakes in my early 20s gave me a healthy dose of fear and respect for Mr. Market and hardwired me for some great money management tools. Oh, incidentally and by necessity, I became a pretty good fundraiser, which has helped me in the not-for-profit world.

Who’s had the biggest influence on your career?

My first boss and mentor, Eli Tullis, of New Orleans. He was the largest cotton speculator in the world when I went to work for him, and he was a magnificent trader. In my early 20s, I got to watch his financial ups and downs and how he dealt with them. His fortitude and temperament in the face of great adversity were great examples of how to remain cool under fire. I’ll never forget the day the New Orleans Junior League board came to visit him during lunch. He was getting absolutely massacred in the cotton market that day, but he charmed those little old ladies like he was a movie star. It put everything in perspective for me.

What was your single best trade or investment?

Probably buying March put options on the Japanese stock market in early February of 1990. The volatility was an absurd 5 percent, owing to the newness of the options market, with which many Japanese had little experience. Much like the U.S. stock market just before the 1929 crash, the Japanese stock market in early 1990 was following the same price pattern with remarkably similar fundamentals and valuations that provided enormous profit opportunities in a truncated period of time. I actually felt sorry for the people who were on the other side of that trade when I was buying those puts.

Your biggest missed chance?

I missed the subprime opportunity of 2007, and it rankles me every time I hear the term. We have studiously avoided mortgages at Tudor specifically because it is a big-carry game that does not adequately compensate for the inherent tail risk. That unfamiliarity, though, came with a huge opportunity cost.

Is the price of oil high for fundamental reasons, or are hedge fund managers and Wall Street driving it up?

It’s a very bullish supply-and-demand situation, and the peak oil theory is probably correct. But the run-up in prices is now bringing in an enormous amount of speculative, nontraditional capital such as pension funds and university endowments — principally through index products. Commodities have been the worst-performing asset class behind stocks, bonds and real estate for the past 200 years, but Wall Street doesn’t highlight that long history when selling commodity index instruments today. Instead, it shows a chart of the bull market of the past 12 years to rationalize why some pensioner should be long cattle futures in the derivatives markets as part of a basket. I am sure they were using similar logic about tulips three centuries ago. Oil is a huge mania, and it’s going to end badly. We’ve seen it play out hundreds of times over the centuries, and this is no different. It’s just the nature of a rip-roaring bull market. Fundamentals might be good for the first third or first 50 or 60 percent of a move, but the last third of a great bull market is typically a blow-off, whereas the mania runs wild and prices go parabolic.

Should hedge funds be more closely regulated?

I selfishly do not want to be regulated, but I understand the necessity of it.

Check Out This Podcast I Did With The #3 Ranked Trader Out Of 25,000+ On Covestor.com

Posted by Timothy Sykes on Tue 2nd of Jun, 2009 08:25:02 AM

Hey–yesterday I showed you some short videos that explained how to spot pump & dumps, what their charts look like and how they usually end up…you can watch them all HERE!

Today I have another special gift for you.
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Check Out This 20-Minute Podcast Interview I Did The Other Day

Posted by Timothy Sykes on Sat 30th of May, 2009 09:40:38 AM

A lot going on these days–great-to-trade pump & dumps, surging piles of biotech crap, dozens of TIMalert subscriber testimonials like HERE, HERE and HERE (those are all just from the last 3 days as there’s been $250,000+ in TIMalert subscriber gains in May 2009 alone) all coming at me every single day.

I love it.

So while I do trade--up 18%+ in May alone--my focus is on educating you guys and this quick podcast that I did with Wall Street Window is a great intro to me and my PennyStocking strategy.

CLICK HERE TO VISIT WALL STREET WINDOW & LISTEN TO THE PODCAST INTERVIEW

Why You Shouldn’t Believe The Swine Flu Penny Stock Hype

Posted by Timothy Sykes on Sun 3rd of May, 2009 10:10:24 AM

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Because this is the same damn pattern that’s made a millionaire! (see the pattern HERE)

Over and over and over again, whether it’s the Y2K bug, the Asian tsunami, bird flu, swine flu–it’s all sad and potentially catastrophic and NONE of these under $5 stocks have any chance whatsoever at benefitting fundamentally because they’re all too carcass-y so nobody wants to work with them.

The good news is that gullible readers of gossip rags like The Motley Fool and the idiots who crowd the Yahoo! Finance slumdog boards actually believe the hype and these carcass-y stocks actually rise based on all the dumb chatter and fear.

I love it–there are new suckers born every minute and while I totally screwed up my trade in BCRX–ended up losing $1,000 or so over several trades–I shoulda woulda coulda made $4,000+ if I just stuck to my guns and wasn’t such an egotistical undisciplined schmuck (detailed blog post coming).

See my latest interview with TheStreet.com below and sense my frustration:

How Much Is Facebook Worth? How Much Is Twitter Worth?

Posted by Timothy Sykes on Sat 2nd of May, 2009 09:15:59 AM

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Another great chat with all-around-the-nicest-guy-in-finance James Altucher, this time talking about what all these social networks like Twitter (follow me!) & Facebook are worth.

Yey for Chart.ly!

Yey for StockTwits!

How To Spot A Scam Stock

Posted by Timothy Sykes on Tue 28th of Apr, 2009 08:20:43 AM

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Another video interview I did for TheStreet.com with the wizard James Altucher in front of the NYSE the other day:
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Check Out My Video Interview With TheStreet.com About How To Trade Penny Stocks

Posted by Timothy Sykes on Mon 20th of Apr, 2009 08:15:28 AM

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This was the video interview I did on Friday morning at the NYSE just before the market open with James Altucher…

…and understand that its creation and my subsequent awesome talk with James–the man has some seriously exciting upcoming projects–was the reason I missed morning panic play CZZ (dropped 20% in the 1st hour–TIMalert subscribers were prepared ahead of time as I alerted it as an awesome potential short if and when it cracked through support at $4 and VION, which turned out to be a great 20% intraday dropper from $1.40 to $1.10–and yes, there were plenty of shares to short at horrific-at-customer-service-but-great-at-borrows-Interactive-Brokers.

Both plays were in my paremarket watchlist, which is why I send it out each and every day, so that even when I’m busy–as I will be every now and then—you guys are prepared with potential buys and shorts on actively traded PennyStocking plays.

And you know my special $197 annual TIMalerts subscription offer, aka 67 cents/day to be fully prepared, is only good until Tuesday at midnight so snap it up already!

Ok, below is the the sweet video interview created by those good ole guys at TheStreet.com, I actually call VION a potential short (although this video wasn’t released until 2:16PM Friday afternoon:

Don’t Understand SEO (Search Engine Optimization)? Check Out This Interview

Posted by Timothy Sykes on Sat 18th of Apr, 2009 09:40:42 AM

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Because I owe a ton of traffic to him as he’s my SEO guy!
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How To Make Money Blogging: My Latest Interview On How I Make $80,000/Month

Posted by Timothy Sykes on Tue 14th of Apr, 2009 08:05:57 AM

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Check out the whole interview HERE or just read a lot of it below as there be gold in my words as I’m apparently one of the highest paid bloggers in the blogosphere (see the list HERE):
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Part Two Of My Interview With Optionetics

Posted by Timothy Sykes on Sat 4th of Apr, 2009 09:35:18 AM

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You can read part one of this interview HERE…
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Part One Of My Optionetics Interview

Posted by Timothy Sykes on Sat 28th of Mar, 2009 02:30:13 PM

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Read the whole article HERE, or read the majority of it below (yeah, yeah even the options peeps respect my instructional DVDs):
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Emerging Entrepreneur Profile: Brian Burke Of ISellMac.com

Posted by Timothy Sykes on Fri 13th of Mar, 2009 08:15:59 AM

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I had to feature this loyal reader since he got me a great deal on a Macbook Pro through his website ISellMac.com.
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I Forgot To Link My Feature Article In Crain’s Business Journal

Posted by Timothy Sykes on Sat 28th of Feb, 2009 08:30:24 AM

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Please excuse my tardiness and no offense to Crain’s–which is actually a great publication, this was my early December 2008 feature:
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An Interview With A Disciplined Investor Who’s Up 15% The Last Six Months

Posted by Timothy Sykes on Wed 11th of Feb, 2009 08:15:37 AM

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You know you’re good when MSN Money says:
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How To Make Money Blogging: My 42-Minute Podcast With Yaro Starak

Posted by Timothy Sykes on Tue 20th of Jan, 2009 08:15:44 AM

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So nwo that my little blogging business is displaying 100%+ quarter-over-quarter growth, earning me $80,000+ last month…

…well, it’s not some magic secret, it’s just a lot of hard work and fortunately for me, PennyStocking is real, as evidenced by not only my Covestor dominating returns, but those of my subscribers and DVD students as well, so it’s not very tough to get the word out

But I have done some podcasts to better explain how to get your blog to earn big money, HERE’s a great near-hourlong one I did with Yaro of Entrepreneu’s Journey, a true blogging genius, which has 50,000 RSS readers (you can subscribe to mine HERE!)

Podcast Interview: Day Traders Reacting To Market Volatility

Posted by Timothy Sykes on Mon 5th of Jan, 2009 07:45:14 AM

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A few weeks back, I did an exhaustive audo interview with a NYC economics report, Lisa Chow, who wasn’t interested in my stock picks, she was more concerned with my trading process (finally, someone who gets it!)
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Chanukah Present #3: Interview With A Real Wall Streeter, Mr. Doug Kass

Posted by Timothy Sykes on Wed 24th of Dec, 2008 08:59:35 AM

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Yesterday’s interview with Phil Pearlman was nice, but now we’re going even more bigtime with Doug Kass, manager of the ridiculously successful short-biased Seabreeze Partners hedge fund, whose exploits mean I gotta repost his whole impressive bio here too:
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Chanukah Present #2: An Interview With Phil Pearlman

Posted by Timothy Sykes on Tue 23rd of Dec, 2008 07:40:11 AM

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A follow up to my 1st interview with a financial Jew who you should know about, here’s some wise words from ex-hedge fund manager Dr. Phil Pearlman, best described by Howard Lindzon in this post:
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Chanukah Gift #1: The 1st Of Eight Interviews With Jews Who Work In Finance Who Jew Should Know About

Posted by Timothy Sykes on Mon 22nd of Dec, 2008 07:30:04 AM

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Smack in the middle of Timukah comes the 8 crazy days/nights of Chanukah, the festival that inspired Timukah in the first place…
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Did My ‘The Big Money’ Interview On Day Trading Predict The $50 Billion Fraud Of Bernard Madoff?

Posted by Timothy Sykes on Fri 12th of Dec, 2008 07:03:48 AM

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UPDATE: Yes, my weekly live web show LiveStock is live today from 1-2PM EST right HERE.

You might’ve noticed a really well done video interview on the right hand side of this site lately…if not check it below:
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