Inside the World of a Billionaire Speculator - Paul Tudor Jones Documentary

by the late 20th century a new breed of money managers is emerging paul tudor jones is one of the most profitable traders ever who through sheer wealth power and calculated risk taking turn a small time hedge fund into an empire pot tudor jones ii was born into a wealthy family in memphis tennessee his father was a lawyer who also ran the family's publishing business jones went to the university of virginia where he was a welterweight boxing champion he was a tough guy often beating the hell of his opponent i think that competitiveness that desire to win very much defined his character [Applause] even though his family was rich paul tudor jones still had to work to pay for his tuition as a writer for his family's newspaper the single most important thing you need to learn for any job in business is how to communicate how to write a memo how to talk how to think the easiest way to learn how to do that is to take journalism 101 newspaper writing during college part twitter jones developed a liking for competitive mind games i played a whole bunch of games uh chess bad game when i was older when i was in college i was the booking opportunity so i had by the time i graduated from college i already had probably at least a master's in probabilistic theory jones soon realizes that there is no better game than a game of the financial market my senior year uh the guy that i inherited the book from said to me oh man um you gotta try this soybean futures uh i'm back and we're hedging up they had a huge plantation to time in arkansas we're hedging up our soybean crop and this this just makes this makes football gambling just pale in comparison in 1976 after earning a bachelor's degree in economics paul tudor jones landed a job at the new york cottons exchange at that time commodities trading was really the wild west much like cryptocurrencies today jones started as a float clerk studying the market to figure out what makes it tick he very quickly figures out that the market is not some abstract concept it's just a group of people standing there trying to outsmart each other to win this game all jones has to do is to understand the behavior of the traitors around him like a biologist studying a group of animals jones discovers that there are some patterns of behavior that can be exploited jones sees his future he can outsmart the market and become rich in the process however before jones can take on his great conquest he was fired from his job [Music] and i read a story on a guy named richard dennis who was the biggest local at the board of trade and then he used to say that he did his best trading when he was hungover because there was no emotion i thought hmm this is starting to get close to what i'm culturally pretty good at jones was indeed a drinker and a party animal after a wild night in new orleans he fell asleep at his desk he was fired immediately by his boss paul tutor jones love for the party life will come back and hunt him in the future but for now he learned to separate that from his day-to-day work part twitter jones soon landed a job as a commodities broker for ef hutton buying and selling contracts on behalf of his clients jones excelled at this job in two short years he made over one million dollars from commissions for the next four years paul tudor jones learned the ins and outs of the futures market futures are just contracts that set specific price for a commodity at a future date of course this contract itself has value which is traded in an exchange but there are markets for some of the wildest things and the reason that you have these markets is because when two mutually consenting adults have opposite views and they want to express them then you want to be able to let them do that and allow them to basically either hedge their risks or take on risks that they're able to do although tudor jones makes lucrative commissions by being a broker he also started making money by trading his own account then after a while i realized i could do so much better if i just traded for myself because the commissions back then were nine dollars a contract and i realized i could go trade for myself and clear i think even then clearing was still 30 or 40 cents a contract and just do and i i started doing that for myself and i did really really really successful from the start pretty much but the life on the trading floor is taking a toll on pot tudor jones [Applause] for traders losing voice is a common occupational hazard which pot tudor jones is trying to avoid by 1983 paul tudor jones started his own firm the tudor investment corporation although jones has made millions for himself as a floor trader he understands the power of leverage by trading other people's money and he knows just the people to ask for it paul tudor jones cousin was the ceo of the world's largest cotton merchant he became jones first client i think a lot of the success of these hedge fund billionaires has to do with their network and finance as an industry in particular tends to emphasize more on networking than just skills with enough money at hand tudor jones is not free to trade all kinds of assets during the next few years he was generating double and triple digit returns with only one losing month but the true testament of a trader's ability only comes during the bear market and jones is about to come face to face with the biggest bear since the great depression when ronald reagan took over the presidency american economy boomed however by the late 80s the growth had slowed while inflation was still high the strong dollar was putting pressure on exports the future earnings are going downhill but the stocks are unaffected all of this is a recipe for financial disaster while his peers are unaware of the impending doom pot tudor jones is preparing for the worst case scenario yes there will be some type of a decline without a question in the next 10-20 months and it will be earth-shaking it will be saber-rattling and it'll have wall street in a tizzy and it will create headlines that will be that will dwarf anything that's happened at this point in time but a market boom can last longer than expected and paul tudor jones is attempting the impossible market timing tudor jones hired an economist peter borish who predicted that a crash will happen sometime around the spring of 1988 but on that friday paul tutor jones noticed that s p 500 has gone down a little after years observing the market behavior he was convinced that this is the moment once the market starts to fall then it is unstoppable expecting worse decline to come on monday jones shorted some s p 500 futures in this situation the risk and reward payoff are asymmetric what i mean by that is that if jones is wrong his loss is small but if he's right his returns will be huge good evening today is black monday the day the dow dropped more than 500 points the day the dow dropped more than 22 percent i knew for a fact that if and when it broke because of the derivative structure that the downside was going to be unlimited literally unlimited because there were no limits on futures while the bubble is actualizing jones finds more ways to profit from this crash during a typical financial recession federal reserve tends to pump cash into the system to provide more liquidity jones realizes that if the fed indeed injects more cash into the economy the bunk market will soar but if the fed does nothing the bunk price will stay the same this is another asymmetric bat of course it doesn't know for sure that it will happen but the upside is huge while the downside is very limited these two baths paid off pot trader joe's netted 80 million dollars from his first trade and another 100 million dollars by betting that the fed will prank more money while most traders on wall street were wiped out tudor jones gained 200 percent for that year in finance one of the best ways to make a name for yourself is make money during the bear market winning while everyone else is losing if tutors management was a smart fund them the black money's win has made jones a sensation on wall street now everyone wants to invest with him part twitter jones is now a force to be reckoned with and he wants to enjoy his wealth after every financial crisis there is always anti-wall street sentiment by the mid-1980s jones reportedly was developing a reputation for recording fashion models and parting long into the night the wall street journal ran a front page article referring to jones as a quatron man in a profile covering his lifestyle moved to the u.s in around 1986 i was modeling and came here to model in 1988 jones married sonia klein soon after they moved into greenwich [Music] connecticut a year after black money crashed paul tutor jones saw another financial bubble on the brink of bursting this time it was the japanese equities market post world war ii japan saw unprecedented growth becoming the second largest economy in just a few decades by the 80s economic growth has saturated japan no longer relies on exports for growth and started stimulating the growth by printing more money japan for a long time now has had a situation where very much the stock market and the land market have been based on a um credit type situation people have land they put the land in its collateral buy stocks they didn't put those stocks in is collateral to buy more land jones once again realized that this is not a sustainable situation a crash must happen but they decide not to act quickly because the market tends to experience rallies on the way down as more delusional traders refuse to accept the reality i mean the one thing that that's that i would say i've learned the past 40 years is these you know price patterns and and price stories this it's the same old story so often just just with different characters different times different plots then at the start of 1990 the tokyo market fell nearly four percent in a matter of days after that the market has a few rallies but fell seven percent in february and 13 in march jones timing proved excellent everything happened almost exactly like how he predicted tokyo's market fell steeply from july through early october he shorted the japanese equities market using index futures that year he returned ninety percent on his portfolio largely from his tokyo bet paul trader jones is the ultimate defensive trader he's like the floyd mayweather of finance he's very strategic and very good at avoiding big losses always first and foremost protecting your ass and that's why most people lose money as individual investors or as traders because the fact they're not focusing on losing money they need to focus on the money that they have at risk how much capital is the risk in any single investment they have if everyone spent nine percent of their time on that or the nine percent of their time on pie in the sky ideas about how much money they're going to make then they'd be incredibly successful investors what he means by that is that as a trader you should always have insurance against the worst case scenario while rare events happens rarely but when they do happen they tend to be more catastrophic than you think in the financial terms it is called the tail risk or the black swan event [Music] remote events happen less often but when they happen they command much greater effect on the total properties so the definition of fat tail is a small number of observations in a given data set will represent the bulk of statistical properties paul trader jones has another secret weapon systems thinking rather than looking at assets individually he thinks about the flow of capital throughout the whole system like right now i'm watching the currencies i'm watching crude i'm watching stocks and bonds they're all interrelated you know the whole world is simply nothing but a big flow chart for capital and if i start getting hurt in for instance stocks or bonds then i'm going to make a total portfolio adjustment just because of fact i might not like the way the numbers are going over the course of the day in the game of the financial market paul tudor jones plays it better than most he's an embodiment of a true speculator whose returns are so consistent making every trader jealous as his popularity grew people are watching his every move hoping to uncover the secret for his trading success one of these people is the sec in 1994 paul tudor jones paid a fine of 800 000 dollars to settle allegations of violating the uptick rule which prohibits the sale of a borrowed stock while the stock is declining the early 80s were the golden age for commodities trading the market was new and full of opportunities paul tutor jones grew up with a passion for competitive games he threw himself into the pit becoming a multi-millionaire before age 30. after successfully predicting the black money crash paul tutor jones emerged as a superstar trader on wall street but the world is getting more complicated and no one can win forever in time jones will face his biggest challenge yet [Music] with every crisis there's an opportunity to profit paul twitter jones has become a master at spotting financial crises by the summer of 2008 jones saw that there was going to be a major crisis again perhaps even bigger than a black money crash like what he did during the previous crisis he started shorting index futures but there's a problem employees of lehman brothers today as the wall street giant stock went to zero the collapse of the venerable new york bank follows a tumultuous few months of market volatility being a long-term client paul tudor jones had a hundred million dollars worth of assets at lehman brothers when the bank went bust he lost them all but that was not the end of it jones was not able to liquidate his bump positions in the emerging market because everyone was selling but jones short positions came through offsetting part of his losses he ended 2008 with just four percent down and this is the only negative year he has ever had after that he has become more conservative and his returns have become less outlandish i mean if you look at hedge fund indices over time big funds underperform small funds there's an inverse correlation with size and the returns you generate at the same time futures market has become more matured and information is much more easily accessible when he first started out commodity trading was relatively new and one can almost spot trends with naked eyes in the old days commodities or currencies had a tendency to trend not necessarily the very light trend you see here but but trending in in periods and if you decided okay i'm going to predict today by the average move in the past 20 days there's 20 days maybe that would be a good prediction and i'd make some money and in fact years ago such a system would work not beautifully but it would work so you'd make money you'd lose money and make money but this is a year's worth of days and you you know you'd uh make a little money during that period in order to maintain his performance paul tudor jones has been searching for a new edge ever since early 2000 i have found a solution technology has transformed the world that just 20 years ago even jones couldn't imagine while a great majority of hedge funds is struggling to make profits there is a one group of funds that are making ungodly amount of money simon started a hedge fund over the course of 15 or 20 years he's put together a track record that has literally beaten every other hedge fund manager's track record by a lot he did this by building a quantitative investment management company with 75 phds in mathematics physics computer science and so on it became obvious to portugal jones that the only way forward is to break down his trading principles and turn them into algorithms this is what goat mining looks like in the modern world all of the visible gold has been pretty much gone what is left are the microscopic gold that are barely visible to the naked eye you may be wondering there must be less gold extracted per year wrong goal extraction has actually increased even when jones first started out he was able to spot large patterns that he could exploit but those patterns have faded away just like modern day industrial gold mining quant strategy tend to make small profits consistently which add up to huge returns in the long run in 2002 paul tudor jones co-founded two sigma which later became a quant powerhouse i've been watching paul jr drilling since 2020 what's really impressive about this guy is that he has been making the right predictions all this time he successfully predicted that a market will rebound after march last year he also called it during october last year about the effect of biden's tax plan [Music] [Music] you

Channel: FINAiUS

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Id: azLvQJUJyIQ

Length: 20min 28sec (1228 seconds)

Published: Sat Jul 24 2021