All,

We had the opportunity to have Paul Tudor Jones speak to our Financial Trading class today.

He had some interesting things to say, and I thought I'd share them with you. I'll just quote/paraphrase some of the things he said and let the discussion evolve if anything is of particular interest.

"If anyone in the world was stranded on a deserted island, and they could only have access to one form of trading, either all the fundamental information in the world, or the access to charts for technical analysis, I would say that, and it's not even remotely close, people would be foolish not to choose technical analysis every day of the week and twice on Sunday."

"I can't think of a single circumstance in which I will ever hire a trader who says he bases his decisions on fundamentals. I've been burned too many times by these guys who think they are smarter than the market."

He was ranting pretty hard core against fundamental traders. He was saying they run such a huge risk of going broke because the fundamentals can change without them knowing it, and they will average down too many times due to the market being oversold, too much value on the table, etc.

"All the major busts and meltdowns in the history of Wall Street have developed from owning a super reversal portfolio."
A super reversal portfolio is one he defines as opposite the trend in regards to the 200 day moving average and the 25 day moving average. So long something that's below both the 200 day moving average and 25 day moving average, or short something above those trend lines.

"Using that [fundamentalist] mentality...that may have worked in the past, but it's insane to average down in the greatest liquidation of the biggest credit bubble in history, especially considering the S&P is trading at 1.7x book. In the Great Depression it traded at 0.4x book and in the 70's it traded at 0.8x."

He says he more of less lives by 3 rules:
1) The trend is your friend
2) Losers average losers
3) 5 to 1, ie only risk your money when there is a 5 to 1 payoff for that specific trade.

The last interesting thing I can recall: He shat upon Warren Buffett, saying he may be one of the greatest investors in history, but he has absolutely terrible risk management skills to be entirely fully invested and long at this current juncture. He also called into question his ability to profit in a bear market, citing that he started investing in 1972, one of the greatest times in history to start investing.

I'm not a Buffett brown noser so I'll post this:

If we're talking post WW2, 1972 is a crappy time to start investing imo. 1992 is a great time. 1979 is somewhere in the middle. With how buffetts system works though, I don't think his comment is applicable. Buffetts risk management, in his mind, is moving towards companies that will always be useful companies in any market climate. Its a different philosophy to what traders have, and to what I have, but it seems to work for him even if Berkshire does experience a few significant drawdowns from time to time.

Ok, with that said, can we not derail this thread into Buffett defending? I'm looking at you, desert cat!

These assertions are just plain ******ed.

Buffett started investing in 1956 - not 1972. Even if he did start in '72, the market went sharply up that year and then down 15% and 26% the next 2 years, so, yeah, greatest time ever to start ldo.

As for performance in bear markets, in only one year did Buffett show a loss (2001), and he NEVER underperformed the S&P in a year the S&P showed a loss. His relative performance has been BETTER in bear markets, which is exactly what you would expect based on his strategy even if you didn't know the details of his track record.

I consider this a factual clarification rather than Buffett slurping, but whatever.

Bold added by me for completeness. Fundamental guys don't use much leverage by definition.

In other words, it's insane to buy GOOG for $1.

Also, who exactly in the **** is Paul Tudor Jones? Has he done something? Am I supposed to know who he is?

Edit: Well apparently he has done something, but he sure says a lot of dumb ****.

With simple factual errors like

(he ran his partnership before then and had some of his best results during that time), you have to question whether Paul Tudor Jones really understands Buffett and how his strategy has been so successful and will continue to be successful.

Bills looked it up, but in case any one has not yet, here is his Wikipedia entry:

http://en.wikipedia.org/wiki/Paul_Tudor_Jones

He's an extremely successful trader that was profiled in the first edition of the Market Wizards series. Although he did say some dumb stuff about Warren Buffett, overall he was a very entertaining and inspiring speaker. He certainly made making millions in trading sound achievable.

Also, his main fund is down 2% for the year. He has only had 1 losing year since starting Tudor Investment Corporation in 1980. He said he will just about die of a heart attack if they have a losing year this year.

The crash of 1987 was his single greatest trading day of all time. He talked to us about it for a little bit.

He said he was watching the market leading up to the the crash and it started to trade just like the 1929 top. Luckily he had been researching and studying the crash of 1929 somewhat recently so he was immediately very fearful about being long the market.

Tudor had started up a risk or merger arbitrage fund recently, run by a fundamentalist. Paul informed the fund manager that he was fearful and didn't want to be holding much stock in the coming weeks. They fund manager assured him that the stocks in the arb fund don't trade with the market at all, and that they are insulated.

Sure enough, Jones goes back and looks and they trade very much in line with the market.

Then, I don't remember his exact specifics, but the market was on somewhat of an uptrend, dropped around 10% and then resumed a climb. However, these "dogs" of stocks that were being held in the arb fund stopped trending with the market, and started falling off a bit. He tells the fund manager again, I want out of these stocks, I don't feel good about the future, etc.

The fund manager comes back to him and says, "Listen, I got out of 2/3 of the stocks, but I cannot get rid of the other 1/3. If you found out what prices I'm selling these stocks at, and the value I'm leaving on the table.. it's just absurd, you would fire me! I just don't think I should do it."

Paul Jones replies back, "I'll give you 30 minutes to get out of these stocks. Get me out of these stocks, or your done."

Sure enough, within the next couple of days, the crash of 1987 occurs, sending the market done 23% in a single day. He's a great storyteller, and it was really hilarious. I obviously don't convey it by just typing up what he said.

cool story, OP. Are you at UVA?

POTD

This is kinda impressive...

The Man Who Won as Others Lost
Landon Thomas, New York Times, October 13, 2007
http://www.nytimes.com/2007/10/13/bu...3&ref=business

BDaws, TYVM for sharing this with us. I am always interested in anything PTJ has to say.

Oops, I just realized I misread the article. Seems they were referring to his comments in 87, not recently. My bad.

Well, he's built up a net worth of $2.5 billion, so I would lean toward giving him the benefit of the doubt.

I'm interested in your view in regard to his statements about S&P trading 1.7 over book compared to 0.4 (depression) and 0.7 (1970's).

I can dismiss the seemingly inaccurate things he says, as those statements about Buffet had nothing to do with his enormous success.

moe ansari (president of compaq management) said that warren was buying in today's market and if he loses a few billion, its not going to hurt his life. but the point is that warren is looking at the big picture and can handle the swings.

can you?

Buffet is giving away his money regardless, so I'm not really sure how to interpret his recent buying. I would imagine with his recent NYT article, he is trying to use his influence to somehow instill some confidence into this current market.

Certainly the volatility in the market right now can shake out just about everybody without substantial capital.

PTJ Interview- Very interesting

well here's what mr jones had to say in oct 2007, from that article :

Anyone know where one can find his documentary, "TRADER: The Documentary" ?

Chatter online has it that the video was extremely limited release and that Jones himself requested that it be removed from circulation.

It seems to have a "Margin of Safety" thing going for it...

http://cgi.ebay.com/Paul-Tudor-Jones...d=p3286.c0.m14

The S&P trading at 1.7x book is an obvious non-sequitir unless he was talking about averaging down an index fund, which he clearly wasn't. If someone wants to sell me GOOG for $1, and the S&P trades at 10x book, so what?

Buffett believes that certain historical ratios compared to S&P has some relevance for investing, i.e. identifying market "exuberance". So in that regard I do not think it is totally irrelevant.

The first question I would ask would be why GOOG is trading at $1. If your fundamental analysis is grossly different than the market, who is most likely to be correct?

With regard to broad market valuation it might have *some* relevance (accounting book value obviously doesn't tell even close to the whole story and involves a lot of shenanigans), but I am typically unconcerned with broad market valuation, as is Buffett (at least from the perspective of his own investment activities).

Depends on how good the fundamental analyst is and how complicated the idea is. If it's DesertCat pointing out that a company is set to pay a dividend worth twice the value of its shares, then DesertCat is probably right. If it's Shoe going ZOMG VIDEO GAMES 40% EARNINGS GROWTH 20 YEARS OUT, then the market is probably right.