Paul Tudor Jones II Interview
and Our Comments
Paul Tudor Jones is a legendary commodity trader. Below is his
interview and our comments.
Interview with Paul Tudor Jones II
by Joel Ramin
January 13, 2000
Paul Tudor Jones II is the president and founder of Tudor Investment
Corporation, and was featured in Jack D. Schwagers classic "Market Wizards".
This is an edited transcript from the interview, which was held at Paul
Jones's office in Greenwich, Connecticut on January 13, 2000.
Q: Can you briefly describe your background?
Paul Tudor Jones: I went to high school at Memphis University school. My
father went to Virginia Law School so he steered me to the University of
Virginia. I went to Virginia from 1972 to 1976, majored in economics and had
a great time. I really loved UVa. I graduated and went to work for Eli
Tullis who was a Virginia graduate from New Orleans. He was a cotton
speculator, maybe the biggest cotton speculator, and he gave me a job on the
former New York cotton exchange and I began literally two weeks after I
graduated from school. That's how I got into the futures markets.
Q: What sparked your original interest in trading?
Paul Tudor Jones: I went to New York and saw the floor of the commodities
exchange and there was such an energy level there and so much excitement
that I knew that was the place for me. I've always liked action and the
exchange seemed like a perfect home for me.
Q: When did you decide you wanted to run a fund?
Paul Tudor Jones: In 1976 I started working on the floor as a clerk and then
I became a broker for E.F. Hutton. In 1980 I went strictly on my own as what
they called a local and did that for about two and a half years and had two
and a half wonderfully
profitable years, but I really got bored. I applied to Harvard Business
School, got accepted and was about to go. I literally was packed up to go
and then I thought, 'this is crazy', because for what I'm doing here,
they're not going to teach me anything. This skill set is not something that
they teach in business school. So I didn't go, I stayed, but I was really
bored because there wasn't the personal interaction that was something that
I craved and having colleagues and being in a clean atmosphere and that was
when I started my fund. All through growing up I've been involved in team
sports and fraternities and in school I was involved in a whole variety of
activities all of which were team oriented and when I was on my own I was
printing money every month, but I wasn't getting the psychic satisfaction
Q: How would you describe your general investment philosophy?
Paul Tudor Jones: I think I am the single most conservative investor on
earth in the sense that I absolutely hate losing money. My grandfather told
me at a very early age that you are only worth what you can write a check
for tomorrow, so the concept of having my net worth tied up in a stock a la
Bill Gates, though God almighty it would be a great problem to have, it
would be something that's just anathema to me and that's one reason that
I've always liked the futures market so much, because you can generally get
liquid and be in cash in literally the space of a few minutes. So that
always appealed to me because I could always be liquid very quickly if I
wanted to. I'd say that my investment philosophy is that I don't take a lot
of risk, I look for opportunities with tremendously skewed reward-risk
opportunities. Don't ever let them get into your pocket - that means there's
no reason to leverage substantially. There's no reason to take substantial
amounts of financial risk ever, because you should always be able to find
something where you can skew the reward risk relationship so greatly in your
favor that you can take a variety of small investments with great reward
risk opportunities that should give you minimum draw down pain and maximum
Q: How do you measure your performance?
Paul Tudor Jones: You've got to look at good traders historically. If a
trader can on average annually deliver two to three times their worst draw
down, then that's a very good track record, and I'd say that that's what I
try to do. If I thought that for the funds that I managed that 10% would be
the worst that I would tolerate in a given year then hopefully I'd annualize
two or three times that and that's probably what I've done. Maybe a little
below that in the '90's and a little above that in the '80's.
Q: What's your competitive advantage as a trader?
Paul Tudor Jones: The secret to being successful from a trading perspective
is to have an indefatigable and an undying and unquenchable thirst for
information and knowledge. Because I think there are certain situations
where you can absolutely understand what motivates every buyer and seller
and have a pretty good picture of what's going to happen. And it just
requires an enormous amount of grunt work and dedication to finding all
possible bits of information.
You pick an instrument and there's whole variety of benchmarks, things that
you look at when trading a particular instrument whether it's a stock or a
commodity or a bond. There's a fundamental information set that you acquire
with regard to each particular asset class and then you overlay a whole host
of technical indicators and that's how you make a decision. It doesn't make
any difference whether it's pork bellies or Yahoo. At the end of the day,
it's all the same. You need to understand what factors you need to have at
your disposal to develop a core competency to make a legitimate investment
decision in that particular asset class. And then at the end of the day, the
most important thing is how good are you at risk control. Ninety-percent of
any great trader is going to be the risk control.
Q: Can you give an example?
Paul Tudor Jones: Certainly. The one on a percentage basis that's been the
most profitable for me was the crash of 1987. There was a tremendous
embedded derivatives accident waiting to happen in the crash of '87 because
there was something in the market that time called portfolio insurance that
essentially meant that when stocks started to go down it was going to create
more selling because the people who had written these derivatives would be
forced to sell on every down-tick. So it was a situation where you knew that
if you ever got to a point where the market started to go down that the
selling would actually cascade instead of dry up because of the measure of
these derivative instruments that had been written. And in the crash of '87
you had an overvalued market and you also finally had a situation where
every down-tick would create more selling and I think I understood the
dynamics of that. The crash was something that was imminently forecastable
to somebody that understood the measure of derivatives and how large they
had grown in such a relatively short period of time and the impact that it
would have on a relatively unknowing and na'e market. And the same exact
thing happened in 1990 in Japan.
Q: So what is your opinion of the US equity markets now?
Paul Tudor Jones: Clearly there are parts of the US equity markets that
we've never seen anything like it anywhere in modern times in terms of
valuation. The question is what's the trigger event that gets you to mean
revert and whereas you had specific derivative inspired events in 1987, I
don't see that now. So how long can these levels of overvaluation persist? I
would think rather than seeing any type of really sharp break, what you
might see prospectively is something that looks a lot more like '68 to '73
did where you had big rolling corrections and rotations and a market that
doesn't really make any upside progress but with a lot of volatility that
traverses big ranges.
Q: Do you have any specific catalysts that you're looking for?
Paul Tudor Jones: I think you're finally getting interest rates at a level
where they're extraordinarily negative for equities. You look at every bear
market and they've always basically occurred because of an up-tick in
inflation and an up-tick in interest rates. We're definitely at a point
where rates are high enough where they're going to have a big impact on
equities. When you look at the volatility we've had in the past month in the
NASDAQ for instance, every time I've seen volatility like that, I don't care
what the market was, whether it was soybeans in '76 or '83 or whether it was
silver at the top in 1980 or whether it was some of the biotech stocks at
the top earlier in the '90's, when you get that kind of volatility you know
that generally that's associated with a top. The best you can hope for if
you're long is to look at some type of significant long term sideways action
where the markets consolidate before moving higher or generally speaking
allow that those have done their thing and we will have topped for years and
years to come. I'm probably more of a subscriber to the latter theory.
Q: How big was your fund when you started and how much money does your
company have under management now?
Paul Tudor Jones: Right now we have about five or six billion dollars under
the management of several large traders including myself. Back in '83 we
started with $300,000.
Q: Do you like managing so much more money?
Paul Tudor Jones: I don't like managing it at all. The smaller it is the
greater you can do because there is no slippage and greater liquidity.
Q: It was widely published that in 1987 you reportedly made between $80
million and $100 million ? more than anybody on Wall Street. How did that
make you feel?
Paul Tudor Jones: At the time, I was young enough to enjoy that. I was in my
early 30's and that was exciting, but the older you get you realize that at
the end of the day the amount of money you have has absolutely zero bearing
on how you feel about yourself and the quality of your life. It becomes a
very shallow measure of a person's worth. I have a great wife and four great
kids now and that would be my crowning achievement.
Q: Is there more risk in the stock market now than ever before?
Paul Tudor Jones: Certainly in the stock market, there are some stocks with
valuation levels that mankind has never seen before so one would think that
they have a lot more risk. It's funny, but I'm actually not the best person
to ask about the stock market. You see, our company is just a group of 280
individuals, all of us are basically united under one purpose, and everybody
has pretty much the same MO, young professionals with kids, generally very
conservative. Really all my capital is tied up in this company, so on the
one hand I think to myself my gosh the concept of owning stocks is anathema
to me because of the fact that I always want to be liquid, so a lot of our
investments typically are things with a very short lifespan like
derivatives, not owning stocks. So as far as risk in the stock market,
that's not my core competency, so I'm really not a great person to ask.
Q: Can you comment on the life of your fund's returns since you began
Paul Tudor Jones: Our returns have definitely flattened out since the '80's.
But if you look at my risk adjusted returns, they're very similar and I'm
probably the same exact trader as I was 15 years ago. What's different has
been my own personal appetite for risk and volatility. I think that probably
happens with a lot of people as they get older. Everything is a function of
leverage, how much of a draw down are you willing to tolerate, how much
leverage do you want to put on. When I was younger, I had much greater draw
downs, much greater draw down frequency, much greater leverage. So again,
I'm probably the exact same trader as I was 15 years ago, it's just less
risk, less return.
There are exceptions to the rule, but the normal progression of most traders
that I've seen is that the older they get something happens. Sometimes they
get more successful and therefore they take less risk. That's something that
as a company we literally sit and work with. That's certainly something that
I've had to come to grips with in particular over the past 12 to 18 months.
You have to actively manage against your natural tendency to become more
conservative. You do that because all of a sudden you become successful and
don't want to lose what you have and/or in my case you get married and have
children and naturally, consciously or subconsciously, you become more
conservative. If there's one thing in our company that we probably will
spend more time working on in the year 2000 than we ever spent historically,
it's that as a group we all came to be overly conservative and we need to
leverage up more within our company and I'm probably the worst offender. So
now I have a whole variety of portfolio measures that I sit down with every
afternoon, to try to hit some benchmark leverage measures to make sure I
deliver what my investors unequivocally deserve in terms of the opportunity
to get the kinds of returns they're used to.
Q: What are some perceptions and priorities of yours that have changed over
Paul Tudor Jones: I think there's a natural progression that everyone goes
through. The older you get, the more you'll realize that a quality life is
one that has an extraordinary balance in it. The guy that's working at 75
years of age and still running a company, that doesn't have any appeal to me
because I think his life is out of balance. If the only thing that he can
find that's that satisfying to him is being involved in a profession with
something, I think you've got to have more balance. In my 20's all I cared
about was being financially successful and today I look to strive for a more
balanced life. In that context though, when I come to work I'm as
competitive as anybody you'll meet and I clearly look forward to the day
when I have the best performance of my peers, the macro hedge funds, for the
year, which hopefully will be this year.
Q: What was the best and worst year you ever had?
Paul Tudor Jones: The worst year was probably 1993. I only returned 1.6%.
Never had a down year. And my best years, well I fortunately cut my teeth in
two great bear markets, the '87 bear market and the 1990 Japan bear market
and there's no question that that's biased me a bit. I returned about 200%
in 1987 and 80% or 90% in 1990. I worked 80 hours a week and clearly I'm not
doing that without trying to be number one. All my friends are in the
business, and I wish them all well, but everybody's got a competitive
Q: Are you more naturally bearish or bullish?
Paul Tudor Jones: Bearish, I think. I would have difficulty asking anyone to
pay 10 or 20 times earnings for my earnings capability for the rest of my
life. I would think you're crazy to do that even though it might be a great
deal, so the concept of paying one-hundred-and-something times earnings for
any company for me is just anathema. Having said that, at the end of the
day, your job is to buy what goes up and to sell what goes down so really
who gives a damn about PE's? If it's going up you're supposed to be long it.
But there's no question that it's just easier for me to leverage with some
degree of conviction the short side of some markets.
Q: When are you going to retire?
Paul Tudor Jones: I have a son that just turned three and I would
unequivocally continue to trade until he went to college. At that point I
think I'd probably be airborne hunting and fishing all over the globe every
day in my life. I don't even necessarily need to be hunting and fishing, I
just love to be out doors.
Q: What do you think is going to happen to your company when you do retire?
Paul Tudor Jones: I could get run over by a truck tomorrow morning and the
company would go on and wouldn't miss a beat. We've got the best business
model there is on the street for doing this.
Q: Who are you going to vote for in the presidential election?
Paul Tudor Jones: I think the biggest issue facing America, unequivocally,
is campaign finance reform. When you sit down and talk about gun control or
charter schools or whatever, all those issues, it's impossible to have
politicians actually vote their conscience when they're all unequivocally
conflicted because of the fund raising necessities they have and the amount
of money they take. Until you have campaign finance reform and term limits,
we're dealing with a whole group of elected officials who are incapable of
making any independent and honest decisions. So McCain, Bradley, I'll vote
for either one of them. I'll vote for any politician that's going to sign
the dotted line to get the money lenders out of the temple. I think that if
you look at the 13,000 registered lobbyists in Washington, what chance do
you or I have of having a voice in government unless you're willing to write
a big check? Because that's what all those guys are doing. I'll tell you
from my conservation battles down in Florida. The entire sugar industry in
Florida, which is destroying the Everglades, they have one business. Their
business is not growing sugar. Their business is paying off every politician
that they can see simply so that they can continue with a subsidy that does
nothing but take money out of every Americans pocket and put it in theirs.
Q: You were close to getting that legislation to go your way, weren't you?
Paul Tudor Jones: Right. And they spent forty some-odd-million dollars to
fight us. Forty million dollars that they probably got through some
extraordinarily inequitable and unfair and offensive subsidy that they have
done an excellent job of paying off every politician in Congress for.
Campaign finance for me is the key issue. It's funny, McCain is a great
example. He's probably way too conservative for me, but I'd vote for the guy
in a heart beat because there's no doubt in my mind that he more so than
anyone would probably go in and attack the vested interests there in
Washington that completely distort and destroy our political process.
Q: Would you ever run for political office?
Paul Tudor Jones: No. I've got a family and kids and I couldn't be away from
them that much.
Q: Let's play a word association game. I'll say a word and you say whatever
comes to mind.
Q: Technical analysis
Paul Tudor Jones: Made well over half the money that I've made in my
Q: Fundamental Analysis
Paul Tudor Jones: Made the rest.
Q: Are you better at one or the other?
Paul Tudor Jones: Probably technical analysis.
Q: Market efficiency
Paul Tudor Jones: No such thing.
Q: Long Term Capital Management
Paul Tudor Jones: Icarus.
Q: Black Monday
Paul Tudor Jones: It was like watching a natural disaster from the
sidelines. I was intimately involved in that day, but the macro implications
of what was happening overwhelmed any personal considerations that I had.
Q: Warren Buffet
Paul Tudor Jones: His aversion to paying taxes made him a great investor.
Paul Tudor Jones: The most fun you'll ever have.
Paul Tudor Jones: The second most fun you'll ever have.
Q: The Internet
Paul Tudor Jones: A wonderful delivery mechanism that's overhyped.
Q: Day Traders
Paul Tudor Jones: 95% losers.
Q: The University of Virginia
Paul Tudor Jones: The most balanced education a person can receive and I'm
not talking about just academic education, but all the other touch points
that go with that; character building, ethics, exposure, etc?
Q: Wall Street
Paul Tudor Jones: The last great frontier. I went there with nothing. You
can go there with nothing and do whatever you want to do.
Q: What do you think you'll be most remembered for?
Paul Tudor Jones: I don't think anybody will remember me.
Q: What do you hope you'll be remembered for?
Paul Tudor Jones: I think Teddy Roosevelt's greatest legacy is the national
parks system, so on a micro level anything that I could do to protect
natural resources, I think, would be the best legacy that I could leave my
Q: If you were writing a story about Paul Tudor Jones, what one question
would you ask him?
Paul Tudor Jones: If you could do one thing differently, what would you do?
Q: And what's the answer?
Paul Tudor Jones: When you look at the wealth creation in the Internet in
the past decade, it would have required me to literally completely change my
stripes and move over in a different world from macro analysis and trading a
whole variety of instruments to going into building a business in a brave
new world in the Internet. So I look back and I see the wealth creation that
we've seen the past three years of which we've fortunately, derivatively
been able to enjoy here at Tudor because we have our whole Boston office
that's dedicated towards private equity and that did an extraordinary job
last year. But I guess, everyone that works on Wall Street today,
particularly given our industry reliance on computers, knowing that that
entire explosion occurred right under your nose, everyone has got to say,
'My gosh, what if eight or 10 years ago I had made a decision to completely
focus and be in the middle of technology? Instead of sitting in front of a
screen, what if I had gotten on a plane and gone and played the venture
capital game out in California every day'? I'd argue that many of the people
that benefited from it probably were in the right place at the right time
and got very fortunate and there probably aren't but a handful of people
that actually had the vision to go do it and the ones that actually did, I
take my hat off to them and applaud. But I've always said, I'd just as soon
be lucky as good and there are a whole variety of people that were just in
the right place at the right time who did extraordinarily well and I'm happy
for them. But I always do play the 'what if' game. What if you'd taken your
full repertoire of talents and skills and been involved in that from day
one? Could you have been Bill Gates or could you have been whatever empire
builder there was?
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