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Key Quotes From Paul Tudor Jones in TRADER: The Documentary

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. (more…)

Jim Chanos On Short Selling: The Power of Negative Thinking

Short selling and Jim Chanos go hand in hand. Whenever you see his name, you instantly think of Enron and how he unveiled the fraud there. The Kynikos Associates hedge fund manager is worth following due to his success but maybe more-so for the fact that he makes so many public appearances. If hedge funds operate behind a shroud of secrecy, then short sellers typically operate behind a shroud ten times as secret. Yet Chanos deviates from the norm and can often be found on television, doing interviews, and sharing his ideas. While talking his book might help some of his positions, it also means he’s more often than not cast as a villain. Chanos argues that good short sellers are born, not trained. Many would take issue with that statement as numerous hedge funds recommend their analysts read Kathryn Staley’s book, The Art of Short Selling

to really gain an edge.

In late May, Chanos delivered a presentation at the CFA Institute’s annual conference. You’ll remember that Baupost Group’s Seth Klarman also spoke at this event and we previously covered his thoughts on the markets

as well. This time around we present you Chanos’ speech entitled, “The Power of Negative Thinking” which focused on his bread and butter: short selling. (more…)

Warren Buffett: How I Choose The Next Person To Run Berkshire Hathaway

“Four years ago, I told you that we needed to add one or more younger investment managers to carry on when Charlie, Lou and I weren’t around. At that time we had multiple outstanding candidates immediately available for my CEO job (as we do now), but we did not have backup in the investment area.

It’s easy to identify many investment managers with great recent records. But past results, though important, do not suffice when prospective performance is being judged. How the record has been achieved is crucial, as is the manager’s understanding of – and sensitivity to – risk (which in no way should be measured by beta, the choice of too many academics). In respect to the risk criterion, we were looking for someone with a hard-to-evaluate skill: the ability to anticipate the effects of economic scenarios not previously observed. Finally, we wanted someone who would regard working for Berkshire as far more than a job.

When Charlie and I met Todd Combs, we knew he fit our requirements. Todd, as was the case with Lou, will be paid a salary plus a contingent payment based on his performance relative to the S&P. We have arrangements in place for deferrals and carryforwards that will prevent see-saw performance being met by undeserved payments. The hedge-fund world has witnessed some terrible behavior by general partners who have received huge payouts on the upside and who then, when bad results occurred, have walked away rich, with their limited partners losing back their earlier gains. Sometimes these same general partners thereafter quickly started another fund so that they could immediately participate in future profits without having to overcome their past losses. Investors who put money with such managers should be labeled patsies, not partners. (more…)

Was Benjamin Graham Skillful or Lucky?

Last weekend’s Intelligent Investor column looked at the extreme difficulties of disentangling skill from luck when you are evaluating investment performance. It’s the topic of an excellent new book by Michael Mauboussin and a subject of endless fascination – and frustration – to investors.

We tend to think of the greatest investors – say, Peter LynchGeorge Soros, John Templeton, Warren Buffett, Benjamin Graham – as being mostly or entirely skillful.

Graham, of course, was the founder of security analysis as a profession, Buffett’s professor and first boss, and the author of the classic book The Intelligent Investor. He is universally regarded as one of the best investors of the 20th century.

But Graham, who outperformed the stock market by an annual average of at least 2.5 percentage points for more than two decades, coyly admitted that much of his remarkable track record may have been due to luck.

In the Postscript chapter of The Intelligent Investor, Graham described “two partners” of an investment firm who put roughly 20% of the assets they managed into a single stock – a highly unusual departure for the conservative managers, who normally diversified widely and seldom invested more than 5% or so in any one holding. (more…)