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Paul Tudor Jones' Losing Strategy

January 27, 2011 | About:
Paul Tudor Jones, is one of the heavyweights in the hedge fund industry where he manages an estimated $10 billion. Jones is one of the most revered macro traders on Wall Street and became famous for having predicted the 1987 stock market crash.

In his October 2010 letter to shareholders, Paul Tudor Jones noted that we were in a trending market due to Quantitative Easing. In a trending market, Jones likes to trade momentum favorites. In the letter he laid out his strategy where the best way to make money is to buy those asset classes that have done best in the preceding three quarters.

Jones equated the current market environment to the Internet bubble of the late 90's. His strategy at the time was to buy the best performing asset classes in Q1 through Q3 which continued to do well in Q4. In addition, one should avoid the worst performing asset classes that continued to trade poorly in the fourth quarter.

For example, the top performers in 2010 Q1-Q3 were silver (28.3%), U.S. Bonds (18.7%), gold (18.7%), and the nifty 50 in India (NASDAQ:INDY) (15.9%) and in a trending market they should continue to do well into 2011.

“Using the above methodology (buying what worked in Q1-Q3 1999 and selling what didn’t work in Q1-Q3 1999) as a roadmap for how to trade the coming liquidity avalanche, we’ve listed the ten best and ten worst performing assets year-to-date in table 5. My personal favorite for potential price appreciation well into 2011 would be a portfolio comprised of India’s Nifty Fifty, an emerging markets consumer stock basket, gold, copper, grains, and US 10 year notes.”

However, if one followed his strategy outlined in October 2010, one would be sitting on mixed results.

Here is a summary of the losses from October 22, 2010 for these momentum favorites.

INDY (9.7%)

ECON (2%)

GLD (1.4%)

IEF (5.3%)

JJC 11.8%

JJG 13.4%

Since Jones is a short term trader he is a difficult money manager to shadow.

Tudor Investments Letter October2010

For more information about hedge fund managers please visit www.fundmanagernews.com

Rating: 3.7/5 (6 votes)


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