Institutional Investor's Alpha Magazine - June 2008 - (Page 64)

AUL TUDOR JONES II ALPHA HALL OF FAME P What’s so special about macro hedge fund managers? aul Tudor Jones II founded Tudor Investment Corp. in 1980 at the age of 25. Since then this extraordinary investor has never suffered a losing year. His old-school macro approach is built on what he calls tape-reading, which involves analyzing price trends and riding momentum — with an uncanny knack for balancing risk and return — rather than obsessing over the fundamentals, as less intuitive or less self-conﬁdent traders might. Jones’s core belief is that often prices move and trends unfold only because of investor behavior (in this he and George Soros are similar). Business schools, Jones laments, are sometimes too steeped in teaching economic postulates and market theory. Through his Robin Hood Foundation, he pours millions of dollars into antipoverty and education programs in New York City. The Memphis-born manager, who began his career as a cotton trader, ﬁrst made a name for himself in 1987, when he called the market crash and rode a heavy short position in stock index futures to a 201 percent gain. Today he oversees more than $18 billion in assets. Tudor’s ﬂagship BVI Global Fund has returned roughly 23 percent annually since its 1986 inception. I love trading macro. If trading is like chess, then macro is like three-dimensional chess. It is just hard to ﬁ nd a great macro trader. When trading macro, you never have a complete information set or information edge the way analysts can have when trading individual securities. It’s a hell of a lot easier to get an information edge on one stock than it is on the S&P 500. When it comes to trading macro, you cannot rely solely on fundamentals; you have to be a tape reader, which is something of a lost art form. The inability to read a tape and spot trends is also why so many in the relative-value space who rely solely on fundamentals have been annihilated in the past decade. Markets have consistently experienced “100-year events” every ﬁve years. While I spend a signiﬁcant amount of my time on analytics and collecting fundamental information, at the end of the day, I am a slave to the tape and proud of it. Is it possible to teach someone to be a tape reader — what some might call a trend follower or technical analyst? Certain people have a greater proclivity for it because they don’t have the need to feel intellectually superior to the crowd. It’s a personality thing. But a lot of it is environmental. Many of the successful macro guys today, they’re all kind of in my age range. They came from that period of crazy volatility of the late ’70s and early ’80s, when the amount of fundamental information available on assets was so limited and the volatility so extreme that one had to be a technician. It’s very hard to ﬁnd a pure fundamentalist who’s also a very successful macro trader because it is so hard to have a hit rate north of 50 percent. The exceptions are in trading the very front end of interest rate curves or in specializing in just a few commodities or assets. What’s your take on the next generation of managers? “In this business there will always be that top 10 or 20 percent of managers who will outperform P AUL TUDOR everyone JONES II else.” Photographed by Chad Batka for Alpha on May 29, 2007, in Greenwich, Connecticut. I see the younger generation hampered by the need to understand and rationalize why something should go up or down. Usually, by the time that becomes self-evident, the move is already over. When I got into the business, there was so little information on fundamentals, and what little information one could get was largely imperfect. We learned just to go with the chart. Why work when Mr. Market can do it for you? These days, there are many more deep intellectuals in the business, and that, coupled with the explosion of information on the Internet, creates the illusion that there is an explanation for everything and that the primary task is simply to ﬁ nd that explanation. As a result, technical analysis is at the bottom of the study list for many of the younger generation, particularly since the skill often requires them to close their eyes and trust the price action. The pain of gain is just too overwhelming for all of us to bear! You’re not necessarily a fan of hiring people straight out of business school. Today there are young men and women graduating from col64 • INSTITUTIONAL INVESTOR’S ALPHA • JUNE 2008

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - June 2008

Investor's Alpha Magazine - June 2008 Contents Letter From the Editor Longs & Shorts Cover Story: Alpha Hall of Fame Bruce Kovner Michael Steinhardt Kenneth Griffin Louis Bacon Steven Cohen George Soros James Simons Seth Klarman Julian Robertson Jr. Jack Nash Leon Levy Paul Tudor Jones II Alfred Winslow Jones David Swensen Looking Ahead: Back to the Future Research Center: Europe Hedge Fund 50 Unhedged: Let the Sunshine In

Institutional Investor's Alpha Magazine - June 2008

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