Paul Tudor Jones is famous for correctly predicting Black Monday when the Dow Jones Industrial Average dropped by 22 percent in one day. I recently re-watched TRADER: The Documentary, one of the classics in investor education. Wikipedia describes it as:
In the 1987, PBS film “TRADER: The Documentary”. The film shows Mr. Jones as a young man predicting the 1987 crash, using methods similar to market forecaster Robert Prechter.
Although the video was shown on public television in November 1987, very few copies exist. Those that do are hoarded by traders who watch the hourlong movie in the hope of gleaning possible trading tips from Jones. On the Internet, bids for the video start at $295. According to Michael Glyn, the video’s director, Jones requested in the 1990s that the documentary be removed from circulation. The video surfaced briefly on YouTube at the end of July 2009, before being taken down due to alleged copyright violation.
For the past two years, the video has been available here at Tudou, but recently has only been limited to viewers in Asia due to copyright violation. I watched a copy that I had saved to my local hard drive recently with the purpose of transcribing certain portions that I found particularly enlightening.
One theme throughout the documentary is that Paul Tudor Jones and other individuals profiled thoroughly enjoy the act of analyzing financial markets and they are not primarily driven by greed. This is a defining characteristic of investment managers who have reached the top of their profession:
Well I originally decided to come here to be on vacation, getting away from everything. Then as it turned out, a number of the clients are here in Europe, so I’ve been doing an enormous amount of business. I’ve been in Paris, I’ve been in Geneva, so I can combine business with pleasure. I wish it had been more pleasure, but I still wouldn’t trade it for anything in the world. If life ever ceased to be an educational experience, I probably wouldn’t get out of bed.
After a while, the size means nothing. It gets back to the question of whether you’re making a 100 percent rate-of-return on $10,000 or $100 million. It doesn’t make any difference. If you complete 78 percent of your passes, it’d be nice if you were in the NFL, but if you’re in college or high school or even elementary school, I’m sure the thrill is just as great.
Paul Tudor Jones’s intensity and passion is quite apparent throughout as well. The film crew follows him over a course of several months, so viewers are able to see him on a down 5 percent day and an up 5 percent day. Paul Tudor Jones shares some insights on the qualities he values most as an investment manager:
The whole concept of the investment manager making these incredible intellectual decisions about which way the market is going to go — I don’t want that guy managing my money. If he can be that dispassionate, he doesn’t have the competitive nature which is necessary to be a winner in this game. I want the guy who is not giving to panic, who is not going to be overly emotionally involved, but who is going to hurt when he loses. When he wins, he’s going to have quiet confidence. But when he loses, he’s gotta hurt.
To do the job right requires such an enormous amount of concentration. It’s physically and emotionally mandatory that you find some time to relax. And you’ve got to be able to turn it off like that. There will be times though that I get so incredibly excited about a trade or even a project that I’ll wake up at 4 o’clock in the morning and there’s no way in hell that I’m going back to sleep. I’ll sit there in my dreams and trade for four hours.
The one piece of advice directly applicable to individual investors is found in the middle of the documentary and it is quite simple:
Where you want to be is always in control, never wishing, always trading, and always first and foremost protecting your ass. That’s why most people lose money as individual investors or traders because they’re not focusing on losing money. They need to focus on the money that they have at risk and how much capital is at risk in any single investment they have. If everyone spent 90 percent of their time on that, not 90 percent of the time on pie-in-the-sky ideas on how much money they’re going to make. Then they will be incredibly successful investors.
And finally, Paul Tudor Jones’s comments on predicting Black Monday are eerily accurate and insightful:
The accumulation and then the repayment of debt basically drives every economic cycle that there is. Right now we have probably explored the envelope with regard to mortgaging our future earnings. The next part of this cycle will be the repayment of what we’ve enjoyed now for the past four or five years.
The last guy who buys a share of stock when the Dow is at 3,000 or whatever number it is, he’s buying it because he thinks it’s going to 6,000 because it’s been reinforced in his mind over the past however many number of months, years, or decades that stocks can’t go down.
The one thing that I’m certain about as a trader, and you’re talking to someone who is incredibly long the stock market, is that all of Wall Street and the investment community at large basically is geared towards a Dow somewhere in the 2,600 to 3,200 range. These are people who have track records that are impeccable. Let’s assume that they are 100 percent wrong. If nothing else, there will be a time unquestionably when the market turns down. The investment community almost at once will say “this was the top”, and you’re going to have all the people who are right now very comfortably investing, that are feeding off the hope that the market will go higher, try to get out at the same time. It’s just a question of how fast before we hit the bottom.
I highly recommend readers to watch this documentary. It has a very strong 80′s feel to it which is quite pleasant. Thorough searching through Google should yield a download link — if not, please contact me and I can try to help you obtain a copy.