Predictor of storms: as Tudor Jones earned $4.6 billion

Billionaire Paul Tudor Jones

Hedge funds are investment funds that focus on maximizing return at a given risk or minimizing risk for a given return. Asset management investors occurs a professional investment Manager. But the best of them rarely can leave without loss, if the markets are reeling. Hedge funds worldwide, the market of which recent years is continuously growing and reached $2,86 trillion, has completed the first half of 2016 with the worst performance in six years. According to the global index, Hedge Fund Research, with the beginning of the year to 28 June, they suffered losses at the level of 1.8% in 2011 loss for the half year amounted to 2.1%.

The current recession has led to a fall in global stock markets that followed the devaluation of the yuan in January, and the volatility of the markets due to the decision of great Britain to withdraw from the EU. The outflow of investments from hedge funds in January—March amounted to $15 billion — the strongest since financial crisis (second quarter of 2009, the outflow was $43 billion) and total assets under management decreased during the reporting period, up to $2.86 trillion from $2.9 trillion. According to forecasts of the Blackstone Group, the world’s hedge funds in the coming year, may lose about a quarter of the assets.

Large losses suffered by such leading hedge funds like Pershing Square Capital Management American financier bill Ekman. Fund WCG Management Barry Wittlin and Nevsky Capital Martin Taylor and nick Barnes were closed.

Failed to avoid losses and Fund Tudor Investment, founded by one of the world’s most successful traders Floor Tudor Jones. Veteran of stock trading predicted “black Monday” of 1987 and one of the few made a profit in the crisis of 1994. 40 years on the stock exchange earned him the status of guru of the world stock market and the $4.6 billion they Now face the new challenges.

The test cotton

Paul Tudor Jones II was born in September 1954 in Memphis, Tennessee. As a child he attended the Presbyterian primary school for boys and high school at the University of Memphis. He received his higher education at the University of Virginia, his bachelor’s degree in Economics in 1976. As writes portal Streetstories, as a student he was fond of Boxing and participated in a student tournament in the Welterweight division.

To do stock trading Tudor Jones decided, while still a student. This prompted the selection of his article legends of the American financial market Richard Dennis, which hit him in the hands in that period. “I thought that Dennis had the greatest job in the world. In addition, I had the idea of a trade: my uncle, Billy Dunavant, was a successful cotton trader,” recalled the businessman in interview to the journalist Jack Svagera, author of the book “market wizards. Interviews with top traders”.

After graduating from University, Tudor Jones asked his uncle to help him with early in his career, and he introduced him to a colleague in the industry, known in the United States cotton trader Eli Tollison. Tullis, advised him to gain experience on the new York cotton exchange. “I was a clerk on the trading floor — it always starts like this. But apart from that I had a lot of analytical work: I was watching the market and trying to determine what motivates them”, he said Sageru.

Six months later Tudor Jones went from the stock exchange and became a broker Tulisa. Their collaboration lasted for a year and a half, until one day Tudor Jones, having come to work after partying, fell asleep in the middle of the trading day. “Son, you’re fired,” he responded, Tullis. Work with Tollison billionaire Tudor Jones calls “a great experience”.

Importantly, Tudor Jones took over from his mentor — bold on the verge of bravado the ability to trade items, much superior to the transaction volume of competitors. “It was the most incredible son of a bitch I ever knew,” he recalled. — He could sell the position in 3 thousand contracts when the entire market, there were only 30 thousand open contracts. In terms of trade it was better than any OTC trader. It was worth a look.”

Despite the fact that the opponents were well aware of the positions Tulisa and could quickly calculate his next moves, he said he did not care, because he was ready to beat them with the cards. “He taught me that trading is a highly competitive environment, and you have to be ready for what the market will attempt to kick your ass,” explained Tudor Jones.

Fatal transaction

During his long career Tudor Jones spent tens of thousands of transactions, but among them it allocates one perfect them on the cotton market in 1979 when he worked as a broker at E. F. Hutton & Co., where he settled after retirement. Due to this transaction the now legendary trader had almost quit the profession.

As recalled Tudor Jones in an interview Svagera, the market had a lot of speculative accounts, Tudor Jones was a long position of almost 400 contracts of July cotton. The market ranged from 82-86 cents and Tudor Jones bought every time it fell to the lower boundary of this range. Once the market dropped to new lows, knocked out stop orders, and then immediately worked up by 30 or 40 points. Tudor Jones has decided that the previous lethargy of the market was caused by the volatility of prices near these well-known stop orders. But now, when they worked, he thought that the market is ready to rebound.

“I was standing outside the circle and suddenly in the heat of some feigned bravery ordered his broker to buy 100 July contracts at a price of $82,9 that it was a very large order. He requested the purchase of 100 contracts at 90, and I remember the Refco company rushed to us across the Playground shouting “Sold!”. At the moment Refco had the largest stock of cotton ready for delivery on contracts, ” he explained Sageru. — I immediately understood that they intend to deliver cotton against the July contract, which was then a premium of about 4 cents for the October contract. And it dawned on me that, moving in the corridor 82-86 cents, the market was just set benchmarks for future break down [that is, the course from the level of 82 cents will be equal to the width of the preceding chetyrehrazovoe corridor]”.

Tudor Jones immediately realized that made a mistake. “I understand that the market will move straight to 78, and it will be generously paid for by my blood. I already had a long position of 400 contracts to which I added another 100 and finally another 100 in the course of this heroic purchase that never should have been done”, — he explained to the journalist.

He realized that he needed to play on the slide. “When Refco shouted “Sold!”, everyone looked at me — they knew I was going to try to do [to sell]. If you need the toilet — do not waste time, do it right here, said the neighbor, seeing that I was white as a sheet. I remember I turned around and went to take a SIP of water, then ordered the broker to sell as much as possible. The market is literally in a minute has reached the lower price limit, and I was able to sell only 220 contracts,” he said.

The next morning the market opened 100 points lower and Tudor Jones started selling from the opening. When the market is halted at the lower limit, it sold only about 150 contracts. In the end he sold some contracts for 4 cents below the level where for the first time realized that the position failed.

The young trader has suffered a serious setback and made it to the end several conclusions. “First, never pretend to be hero in the market. Second, never excessive not to increase its position”, — shares his experience Tudor Jones. According to him, his main problem was not the number of points lost on this transaction, and the number of contracts, disproportionate compared to the capital managed accounts. In this deal his Bank accounts lost about 60-70%.

At that moment he said to himself: “Why, you fool, risking everything on one trade? Isn’t it better to find joy and not sorrow?” He did not give up and decided to learn the discipline of trading methods and money management.

Independent

In 1980 Tudor Jones returned to the exchange as an independent trader. Then he founded Tudor Investment Corporation which will then become the main asset of the group of companies Tudor. Tudor Jones traded his own money for two and a half years until he “got bored”.

He considered the possibility to go to school. He went to Harvard business school, but at the last moment they dropped the idea. “It’s crazy. What was I to do there? Anything new they don’t teach me. This skill [to trade] is not something taught in business school,” recalled the businessman in an interview with Turtle Trader.

Initially under the management of Tudor was $1.5 million — all the money earned by Tudor Jones by the time and money. This allowed him to focus on that so much interested him, mainly crude oil, and corn, government bonds and currency. In the coming years his Foundation has become one of the most successful in the United States: the first five years the yield exceeded 100% per annum, which was a phenomenal achievement, and only the sixth was “only” 99.2% of that Jones was regarded as a failure.

Strategy of success

As writes portal Trejdify, Tudor Jones developed a strategy based on the simultaneous carrying out of many transactions. Of them are profitable turned out to be only 10 to 25%, but they brought income to successfully offset the losses from other transactions.

The emphasis in the process of trading Tudor Jones is paid to risk control, said Trejdify. He carefully watching so as not to exceed the established limit for yourself the risk, and gave more importance to not profit from trading, and what damages they can bring. Some high current profit of the position Tudor Jones always for the entry price accepts the closing of market the day before. With this approach, the buffer in the transactions are not available, so Tudor Jones never lose vigilance. He not only watches the risk of each position, but also monitors the indicators of the whole portfolio in real time. If at the current session, his account balance starts to fall to a few percent, he can easily close all their positions. “To return to the market is always easier than to get out of it,” he explained Sageru. Better to hold fast to the defense than to rapidly occur.”

The prophet of the “black Monday”

Paul Tudor Jones became a legend after he predicted “black Monday” — one of the strongest collapses of the us stock market. 19 October 1987, the industrial index Dow Jones fell by a record 22.6 per cent. The consequences of this spread to the whole world: the stock exchange of Hong Kong lost by the end of the month to 45.8%, Australia 41.8 percent, the United Kingdom 26.4 percent, Canada 22.5 percent.

Tudor Jones predicted the stock market crash by comparing the market situation in the 1980s, the years that formed the eve of the crash in 1929 (“black Thursday”). Then the collapse was preceded by a speculative boom in the mid 1920-ies, when millions of people have invested their money in stocks that led to the formation of the bubble. Comparative analysis showed that in the 1980s, the market also grew rapidly. In 1987, Jones was traded on the basis of the probability of imminent devastating landslide.

Only for October Tudor Jones earned on short positions 62%, and year-end profitability Tudor Investments amounted to 200%, said Trejdify. By the end of October 1988, each nested in Tudor Investments $1 million turned into $17.5 million, and total assets under management of the Fund reached $330 million, the Amount could be more, but since October 1987, Jones has stopped taking new deposits and since then make payments in cash, clarifies the portal.

The oldest in the US business magazine “Financial world” in 1987 called the first Tudor Jones, among the most successful futures traders wall street: according to the New York Times, he earned $100 million In 1990, the Tudor Investment assets reached $385 million, and investors received a $200 million dividend in the previous year. In 1992, the Fund managed assets of $650 million, and in 1993-m — a-billion. Even in “black Tuesday” in 1994, when many traders counted their losses, Tudor Jones made a profit of 9%. How notes portal The Streetstories in 1996 in the list of the most successful traders in the Financial world,” Tudor Jones has occupied 11-e a place, having received a $60 million profit.

Tudor Investment Corporation was a reliable instrument to generate income. Among his investors, banks, funds, private persons in total from 35 countries. In 2011, Paul Tudor Jones took the 107th place in the ranking of the richest people the world Forbes with a fortune of $3.2 billion

Losses are inevitable

And that’s just in the second quarter of 2016 Tudor Investment, managing assets of $11 billion, has experienced, according to Bloomberg, outflows of $700 million Loss for the third quarter are projected at $400 million And the outflow since the beginning of this year, according to the Agency, exceeded $2 billion.

Last year Tudor Jones and HC Technologies, a company out of Chicago specializing in trading through computer algorithms, initiated a joint project LaunchPad Trading. He also invested in the company Engineers Gate, founded two years ago by his friend, investor Glenn by Dubinin.

And in the beginning of this month, sources Bloomberg reported that Jones decided to bet on computer algorithms and employed specialists in the field of IT and mathematicians for making appropriate changes in the trading strategy. One of the interlocutors of the Agency emphasized that we are not talking about complete replacement of traders ‘ computer algorithms in question the final decision on the transactions and on the use of financial managers of relevant programmes. Will the Jones modern technology to keep it afloat, the ship is clearly taking on water? This year the Fund has experienced a negative yield of 2.5%. August 16, Bloomberg reported that the company intends to cut 15% of staff, which numbers over 400 people.