Famous Traders and Their Strategies: Episode 5 – Paul Tudor Jones

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Paul Tudor Jones, known as the man who shorted the “Black Monday 1987” crisis, is one of the most well-known and respected traders of our time. He is renowned for his aggressive trading styles and is one of the most famous contrarian traders alive today.

He is the founder of Tudor Investment Corporation, a hedge fund that is a prestigious money management firm for people all over the world. With his acumen of hitting trades with great market timing, combined with courage and discipline, he has managed to amass quite a fortune. As of 2018, the net worth of Paul Tudor Jones stands at $4.5 billion.

Early Life

Born in Memphis, Tennessee, in 1954, Tudor Jones went on to earn a degree in Economics from the University of Virginia, in 1976. After that he worked as a clerk on the trading floors, following which he started his stint as a broker at EF Hutton & Co.

After a couple of successful years, he applied to and was accepted at Harvard Business School. However, he ultimately turned down the acceptance, citing a desire for a more practical approach, or rather an “on-the-job” learning experience, which he felt no classroom could teach.

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Shortly afterwards, a cousin introduced him to the famous commodities trader, Eli Tullis, who didn’t just hire Tudor Jones as a futures trader in the New York Stock Exchange, but also taught him much of what he knows today about trading.

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The Success That Followed

At the young age of 26, Tudor Jones went on to establish Tudor Investment Corporation, which actively trades, invests and researches assets across the globe, for its international clients. The firm specialises in currencies, commodities, fixed income and equities.

On October 19, 1987, the financial markets across the world crashed in what is referred to as “Black Monday.” Tudor Jones and his colleagues had been predicting this for some time. So, while the world around him crashed and burned, he managed to make a profit of 62% by holding on to short positions. That year, he made a profit of $100 million.

Over the years, Tudor Jones has taken his firm to new heights. He has managed to combine five consecutive, triple digit return years, with low equity retracements. As of 2007, the firm was managing $17.7 billion worth of assets for clients in the US, Europe and Asian markets. With his colleague, Hunt Taylor, Tudor Jones created FINEX, the financial futures division of the New York Board of Trade. Tudor Jones also served as the Chairman of the NYSE from 1992 to 1995.

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Trading Strategies

Jones emphasises that traders, especially beginners, should always focus on playing defensive, rather than having an offensive strategy. He says that rushing into trades, without a sound plan, is always catastrophic, even if it results in profit for some time. He advocates the importance of a sound money management plan for everyone.

Jones is known for his contrarian methods of buying and selling turning points. He trades in one particular direction, until the fundamentals suggest otherwise.

His macro trading style is based primarily on technical analysis, with a lot of emphasis on momentum indicators. However, like a lot of prominent traders, he too believes that the future cannot be predicted.

Tudor Jones cautions all traders against having an ego and being overconfident. He asks them to always double and triple check their moves. Paul Tudor Jones is involved in a lot of philanthropic activities today, especially eradication of poverty and hunger, through his Robin Hood Foundation.

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