فصل 6 بخش 5

CHAPTER 6.5

PAUL TUDOR JONES: A MODERN-DAY ROBIN HOOD

Founder, Tudor Investment Corporation; Founder, Robin Hood Foundation

One of the most successful traders of all times, Paul Tudor Jones started his own firm at the age of 26, after cutting his teeth trading cotton in the commodity “pits.” Paul has defied gravity, having produced 28 straight full years of wins. He is legendary for predicting Black Monday, the 1987 stock market crash that saw a 22% drop in a single day (still the largest percentage stock market drop in any day in history). At a time when the rest of the world was experiencing a meltdown, Paul and his clients captured a 60% monthly return and a nearly 200% return for the year!

Paul is one of my closest friends and personal heroes. I’ve been privileged to be his peak-performance coach since 1993—21 of his 28 full consecutive years of wins and the majority of his trading career. What’s even more impressive to me than Paul’s stunning financial success is his heartfelt obsession to constantly find ways to give back and make a difference. As the founder of the iconic Robin Hood Foundation, Jones has inspired and enrolled some of the smartest and wealthiest investors in the world to attack poverty in New York City. Paul and the Robin Hood team do this work with the same analytical rigor that hedge fund billionaires typically reserve for financial investments. Since 1988, Robin Hood has invested over $1.45 billion in city programs. And just like Jones’s relentless pursuit of asymmetric returns in his financial life (he’ll share his rule of 5 to 1 in a moment), his foundation work is no different. Robin Hood’s operating and administrative costs are covered 100% by board participation, so donors earn a 15-to-1 return on their investment in their community! As Eric Schmidt, executive chairman of Google, says, “There is literally no foundation, no activity, that is more effective!” Jones himself will tell you he’s a trader, not a traditional investor, but like his former employer, E. F. Hutton, when Jones talks, people listen. As a macro trader, he studies the impact of fundamentals, psychology, technical analysis, flows of funds, and world events and their impact on asset prices. Instead of focusing on individual stocks, he bets on trends that are shaping the world—from the United States to China; from currencies to commodities to interest rates. He is sought out by some of the most influential financial leaders on the planet: finance ministers, central bank officials, and think tanks around the world.

I met Paul for this interview at the magnificent campus in Greenwich, Connecticut, for his Tudor Investment family. During the interview, we dug down for the most valuable investment principles he has to share to benefit you, the individual investor. As a result, Paul is about to give us his “$100,000 business education,” the one he shares with his own family of traders and a few university students fortunate enough to hear his message each year. All this wisdom in just six pages.

TR:

Paul, what you’ve done in investing, in trading, is extraordinary: 28 consecutive wins—28 years without a loss. How does a mortal do that?

PTJ:

We’re all products of our environment. I started out as a commodity trader in 1976. The great thing about being a commodity trader—trading cotton, soybeans, orange juice—is that [those] markets are hugely impacted by weather. In a space of three or four years, you’d have huge bull markets and huge bear markets. I very quickly learned the psychology of the bull market and the bear market, and how quickly they could change. What the emotions were like when there were lows. I saw fortunes made and lost. I sat there and watched Bunker Hunt take a $400 million position in silver to $10 billion in 1980, which made him the richest man on earth. Then he went from $10 billion back down to $400 million in five weeks.

TR:

Wow!

PTJ:

So I learned how quickly it can all go away; how precious it is when you have it. The most important thing for me from that is that defense is ten times more important than offense. The wealth you have can be so ephemeral; you have to be very focused on the downside at all times.

TR:

Absolutely.

PTJ:

When you have a good position in something, you don’t need to look at it; it will take care of itself. Where you need to be focused is where you’re losing money, and that’s actually when people generally don’t want to look: “My account’s going down. I don’t even want to open it.” So I’ve created a process over time whereby risk control is the number one single most important focus that I have, every day walking in. I want to know I’m not losing it.

TR:

What do you think are the biggest myths that the general population has about investing? What hurts them?

PTJ:

You can invest for the long term, but you’re not going to necessarily be wealthy for the long term—because everything has a price and a central value over time. But it’s asking a lot, I think, of an average investor to understand valuation metrics all the time. The way that you guard against that—guard against the fact that maybe you’re not the most informed person of every asset class—is you run a diversified portfolio.

TR:

Of course.

PTJ:

Here’s a story I’ll never forget. It was 1976, I’d been working for six months, and I went to my boss, cotton trader Eli Tullis, and said, “I’ve got to trade, I’ve got to trade.” And he said, “Son, you’re not going to trade right now. Maybe in another six months I’ll let you.” I said, “No, no, no—I’ve got to trade right now.” He goes, “Now, listen, the markets are going to be here in thirty years. The question is, are you?” TR:

How perfect.

PTJ:

So the turtle wins the race, right? I think the single most important thing that you can do is diversify your portfolio. Diversification is key, playing defense is key, and, again, just staying in the game for as long as you can.

TR:

Following up on diversification, how do you think about asset allocation in terms of playing defense?

PTJ:

There’s never going to be a time where you can say with [absolute] certainty that this is the mix I should have for the next five or ten years. The world changes so fast. If you go and look right now, the valuations of both stocks and bonds in the United States are both ridiculously overvalued. And cash is worthless, so what do you do with your money? Well, there’s a time when to hold ‘em and a time when to fold ‘em. You’re not going to necessarily always be in a situation to make a lot of money, where the opportunities are great.

TR:

So what do you do?

PTJ:

Sometimes you just have to say, “Gee! There’s no value here, there’s nothing compelling. I’m going to be defensive and run a portfolio where I don’t have any great expectations. I’m going to be in a position where I don’t get hurt, and if and when values do rise, I’ll have some firepower to do something.” TR:

Okay, any specific strategies for protecting your portfolio?

PTJ:

I teach an undergrad class at the University of Virginia, and I tell my students, “I’m going to save you from going to business school. Here, you’re getting a hundred-grand class, and I’m going to give it to you in two thoughts, okay? You don’t need to go to business school; you’ve only got to remember two things. The first is, you always want to be with whatever the predominant trend is. You don’t ever want to be a contrarian investor. The two wealthiest guys in the United States—Warren Buffett and Bill Gates—how did they get their money? Bill Gates got his money because he owned a stock, Microsoft, and it went up eight hundred times, and he stayed with the trend. And Warren Buffett, he said, ‘Okay. I’m going to buy great companies. I’m going to hold these companies, and I’m not going to sell them because—correctly and astutely—compound interest or the law of compounding works in my favor if I don’t sell.’ ” TR:

And so he made his money from the cash flow of all his insurance companies.

PTJ:

He sat through one of the greatest bull runs in the history of civilization. He withstood the pain of gain.

TR:

Amazing. So my next question is, how do you determine the trend?

PTJ:

My metric for everything I look at is the 200-day moving average of closing prices. I’ve seen too many things go to zero, stocks and commodities. The whole trick in investing is: “How do I keep from losing everything?” If you use the 200-day moving average rule, then you get out. You play defense, and you get out. I go through this exercise when I’m teaching a class on technical analysis. I’ll draw a hypothetical chart like the one below—it will go all the way to the top on a clean sheet of paper on a white board.

And then I ask, “Okay, all you know is what you see right here. How many people want to be long and stay long on this chart?” And about 60% will raise their hands, yes. And how many want to get off this investment and sell it? Then 40% or so will say get out. And I say, “You 40% should never ever invest your own money in your entire life! Because you’ve got this contrarian bug, and it’s the greatest way to ruin that there possibly is. It means you’re going to buy every brand—you’re going to buy things that go to zero and sell things that go to infinity, and one day, you’re going to die.” TR:

That’s great, makes total sense. In fact, you say some of your greatest victories have been turning points, right? That’s what’s been different about you.

PTJ:

Right, the crash of 1987. I made my money on the day of the crash.

TR:

Okay, you have to tell me about that. That’s considered one of the top three trades of all time, in all history! Most people would be thrilled with a 20% annual return; you made 60% on that trade alone that month. Did your theory about the 200-day moving average alert you to that one?

PTJ:

You got it. It had gone under the 200-day moving target. At the very top of the crash, I was flat.

TR:

So you waited until it turned?

PTJ:

Yes, absolutely.

TR:

That’s amazing! I’m blown away by that one. So you don’t consider yourself to be a risk taker, and you focus on how to protect constantly and how to align with the trend. What’s the second thought for students?

PTJ:

Five to one.

TR:

Asymmetric risk/reward?

PTJ:

Exactly. Five to one means I’m risking one dollar to make five. What five to one does is allow you to have a hit rate of 20%. I can actually be a complete imbecile. I can be wrong 80% of the time, and I’m still not going to lose—assuming my risk control is good. All you’ve got to do is just be right one time out of five. The hard part is that that’s not how we invest. The way that human nature is, we’re never really calculated about our entry points. We’re never really thoughtful about where we give in and what are we really risking.

TR:

And Paul, you are not wrong 80% of the time! Since asset allocation is so important, let me ask you: If you couldn’t pass on any of your money to your kids but only a specific portfolio and a set of principles to guide them, what would it be? I’m asking this to help people get a model of how the average person can look at investing through your eyes.

PTJ:

I get very nervous about the retail investor, the average investor, because it’s really, really hard. If this was easy, if there was one formula, one way to do it, we’d all be zillionaires. One principle for sure would be get out of anything that falls below the 200-day moving average. Investing with a five-to-one focus and discipline would be another. But here’s what I do know. You’ve got to go interview Ray Dalio. He knows better than anybody. If you’re looking for asset allocation, he’s the one guy who does it better than anybody.

TR:

He’s next on my list, thanks! Okay, let’s shift gears. You’ve had this phenomenal success in your life, you’re legendary, and you’re so humble about it. Tell me about giving back: What’s driven all of the amazing philanthropic work that you do? What continues to drive you to make a difference in so many people’s lives?

PTJ:

As a young child, I’d gone to this huge outdoor vegetable market in Memphis, and I remember all of a sudden looking up, and my mommy was gone. And when you’re four years old, your mother is everything. And this extraordinarily kind, very old, very tall black man came over and said, “Don’t worry. We’re going to find your mama. Don’t cry, we’re going to find her. You’re going to be happy in a minute.” He took my hand and walked me down those roads until, finally, he saw my mother, and she started laughing because she could see I was crying.

TR:

Wow.

PTJ:

You never forget stuff like that. God’s every action, those little actions become so much bigger, and then they become multiplicative. We forget how important the smallest action can be. For me, I think, it kind of spawned a lifetime of trying to always repay that kindness.

TR:

That’s so beautiful, Paul; I see and feel the depth of impact of that moment on your life even now. You got us both on the edge of tears. Thank you. Last question for you: most people have an illusion that if they have enough money, stress goes away. Is it true? Does financial stress ever go away?

PTJ:

That day still has not come.

TR:

Okay. That’s what I wanted to hear.

PTJ:

The problem is, like anything, it’s never enough. Financial stress right now for me is that there are so many causes that I believe in. My financial stress relates to being able to give to the things that make me happy, that create passion in my life, and that are really exciting. There’s a huge conservation project that I’ve just discovered about a month ago that I probably can’t afford. The time frame on this is 100 years, at least. And I’m thinking, “Oh my God! If I went and bought this timber operation, and let that land heal, and restored it. One hundred years from that day—it’s going to be one of the most breathtakingly beautiful places! This is where God would have spoken to Adam; it has to be the Garden of Eden.” And I’m thinking, “Okay, I can’t afford it, but I really want to do it. I better go out there and work my ass off, because it will be the best contribution I can make to someone one hundred years from now. They won’t know who did it, but they’ll love that spot and they’ll be so happy.”

TR:

Thank you, Paul. I love you, brother.