Paul Tudor Jones: The Stock Rally Could Continue Well Into 1Q2010

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Nov 02, 2009
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(GuruFocus, November 1, 2009) Famed Hedge Fund manager Paul Tudor Jones published his 3Q09 Letter to his investors (see it at the end of this post). If you are not familiar with him, here is primer from
Hedge fund manager's flagship fund lost 4% last year; smaller Tensor fund rose 36% in 2008. Memphis native studied economics at U. of Virginia. Made first fortune trading cotton on Wall Street. Launched Tudor Investment Corp. 1980. Anticipated 1987 market crash, returned 125% net of fees that year. His BVI Global fund up 130% since 2002; S&P 500 down 10% over same period. Assets under management: $10 billion.

It is very difficult for value investors who are used to the trading pace of Warren Buffett to piggyback on Tudor's holdings as he is known as a trader. On his investment strategy, I found this website gave a comprehensive write-up:
  • Contrarian attempt to buy and sell turning points. Keeps trying the single trade idea until he changes his mind, fundamentally. Otherwise, he keeps cutting his position size down. Then he trades the smallest amount when his trading is at its worst.
  • Considers himself as a premier market opportunist. When he develops an idea he pursues it from a very-low-risk standpoint until he has been proven wrong repeatedly, or until he changes his viewpoint.
  • Swing trader, the best money is made at the market turns. Has missed a lot of meat in the middle, but catches a lot of tops and bottoms.
  • Spends his day making himself happy and relaxed. Gets out if a losing position is making him uncomfortable. Nothing’s better than a fresh start. Key is to play great defense, not great offense.
  • Never average losers. Decreases his trading size when he is doing poorly, increase when he is trading well.
  • He has mental stops. If it hits that number, he is out no matter what. He uses not only price stops, but time stops.
  • Monitors the whole portfolio equity (risk) in real time.
  • He believes prices move first and fundamentals come second.
  • He doesn’t care about mistakes made 3 seconds ago, but what he is going to do from the next moment on.
  • Don't be a hero. Don't have an ego. Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead.
I don’t think you can learn to be as good a trader as Paul Tudor Jones based on this description, nor can I.

Sufficient to know he makes money by trading (speculation?) and his success seems to suggest there is more than one way to skin a cat. It is just normal investor Joe cannot mimic what he does and how he does it.

Back to his 3Q09 Letter, here are some notes I take:
  • The forceful policy response to avert depression tail risks posed by the financial crisis has likely unleashed a wave of liquidity which is probably greater than that of 2001-2003.
  • Fund manager’s job is to identify the best performing assets of this “Great Liquidity Race”. At present, those assets are gold, emerging market equities denominated in local currencies, and commodity related stocks.
  • The US dollar will continue its path lower as global flows seek high yielding assets and sovereign reserve managers diversify their growing US dollar-based reserves. Reserve accumulation and diversification trends will be persistent and mutually reinforcing with the direction of the dollar.
  • During times of overt monetization, hyperinflation, or when questions arise about the stability of the banking system, gold prevails as a more reliable store of value. Gold has an economic value even in the worst of times.
  • Compared to the long-run average, gold appears to be cheap. Gold’s value should increase as its scarcity relative to printed currencies increases..
  • Tudor thinks the current bull run in stock price could continue well into the first quarter of next year. Companies cut cost aggressively during the recession and are now poised to reap reward should the revenue start to grow.
  • Tudor supported his assessment on stock market by technical analysis. It makes little sense to me, but this is how this guy made billions of dollars in his life.
  • Tudor favors emerging market in general and countries like Brazil and Taiwan, in particular.

Read the complete letter:

Tudor Third-Quarter Letter

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