Paul Tudor Jones (Trades, Portfolio) has been a titan of the hedge fund industry for nearly four decades. His fund, the Tudor Investment Corporation, has grown into a massive global macro-focused operation, with exposure to equities, fixed-income, currencies, commodities and more.
As a self-professed technical trader, Jones may seem like an odd subject for a forum dedicated to the principles of value investing. Yet, despite his investing style seeming antithetical to their views, value investors can still learn a great deal if they care listen to what Jones has to say.
Control your risk and be humble
In order to make money in the stock market, you must first ensure that you do not lose money. This is a pivotal lesson that has been taught by countless investment gurus down the ages, so it is unsurprising that Jones has offered his two cents on the subject:
āAt the end of the day, the most important thing is how good are you at risk control.ā
Obviously, that is not always possible, but it should always hold a prominent place in investorsā minds. Moreover, as Jones has explained, an investor must adopt a position of humility in order to avoid the punishment of hubris:
āDonāt be a hero. Donāt have an ego. Always question yourself and your ability. Donāt ever feel that you are very good. The second you do, you are dead.ā
This sentiment goes hand-in-hand with Jonesā opinion of risk management. An individual who fails to understand their own limitations, or who stops thinking critically, will suffer nasty consequences. Jones has offered a powerful mantra that can serve anyone interested in the stock market game:
āEvery day I assume every position I have is wrong.ā
Never stop learning
Adopting punctilious risk management practices and embracing emotional and intellectual humility will get you only so far. These qualities will help you preserve your capital, but they will not grow it. In order to actually win, you have to develop an edge. According to Jones, this can only come from knowledge:
āThe secret to being successful from a trading perspective is to have an indefatigable and an undying and unquenchable thirst for information and knowledge.ā
This is a sentiment echoed repeatedly by a litany of investors who have enjoyed long-term success, including the likes of Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio).
It is clear that knowledge is power in the investing world. Indeed, knowing more than the market -- or at least interpreting available information more accurately -- is the only real source of persistent alpha. Thus, another Paul Tudor Jones mantra belongs in every investorās repertoire:
āIntellectual capital will always trump financial capital.ā
Toughen yourself up
We now have a mantra for winning, in addition to one for not losing. But the market is a fickle beast. All the research and preparation in the world can still fail to translate into victory. Good risk management can mitigate the worst of such misfortunes, but it is not enough. According to Jones, it is also important that investors learn to pick themselves back up after they get knocked down:
āTrading is very competitive and you have to be able to handle getting your butt kicked.ā
Playing in the stock market, whether as a fast-paced trader or a stodgy value investor, demands a degree of grit. Being smart and curious is not enough, anymore than avoiding risks is.
An investor who lacks the mental and psychological fortitude to keep pushing forward, even after things have gone wrong for them, will not be able to find long-term success. Investors must be adaptive and tough. Jones has yet another excellent mantra that reflects this fact:
āYou adapt, evolve, compete or die.ā
Disclosure: No positions.
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