July 17, 2008
A Slave to the Tape
I haven’t worked my way through all these interviews with various hedge fund managers, but here are the bits I liked from the one with Paul Tudor Jones:
“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.
[I come] from that period of crazy volatility [in] 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 … 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.
There is no training — classroom or otherwise — that can prepare for trading the last third of a move, whether it’s the end of a bull market or the end of a bear market. There’s typically no logic to it; irrationality reigns supreme, and no class can teach what to do during that brief, volatile reign. The only way to learn how to trade during that last, exquisite third of a move is to do it, or, more precisely, live it — a sort of baptism by fire. One has to experience both the elation and fear as markets move five and six standard deviations from conventional definitions of value.
Fundamentals might be good for the first third or first 50 or 60 percent of a move, but the last third of a great bull market is typically a blow-off, where the mania runs wild and prices go parabolic.”
July 17th, 2008 at 12:41 pm
Nice find, great interviews. Rare to see Steven Cohen answering questions.
July 17th, 2008 at 4:16 pm
Brian: Yes, I liked this bit best from the Cohen interview:
“Part of being successful in the markets is being in control of your emotions and making decisions for the right reasons, not the wrong reasons. And the more you can stay in touch with that and what’s going on in your head, then I think the more successful you can be.”
July 17th, 2008 at 5:24 pm
I’m glad that you like “year 1908.” link, it was just as one of great links that you provide us daily so I got to send it to you. :)))
July 17th, 2008 at 5:42 pm
Chairman,
thanks for the great link!
I read one book of Ari Kiev (Trading in the Zone)and it was an awful aglgomeration of platitudes and idle talk, but perhaps he is a magic healer/heeler for the SAC trader (through hypnosis ;-).
I like this of Steven Cohen one more:
“Can traders and investors get better over time?
Yes, I think so. But the real question is, Are they wired to adapt? The ones who can adapt are probably the ones who are going to end up being successful, because markets change. I think one of the reasons SAC has been successful over the years is because I’ve been very flexible.”
Cheers,
Markus
July 17th, 2008 at 6:20 pm
@FX: My greatest links all have something to do with titties or beer (cue Zappa).
@Markus: I haven’t read Kiev’s book but I bet I’d agree with you … probably beats having a rabbi on staff anyway (and cheaper!).
July 17th, 2008 at 10:37 pm
check out louis bacon’s interview as well, as he and ptj are very similar and friends even
July 18th, 2008 at 6:46 am
@marketfolly: I did read the Bacon interview as well and liked this bit best:
“Paul Tudor Jones wasn’t worried about small stuff. He taught me to think in points, not dollars, and he always used to say, “It’s just points, it is not money.” He gave me an ongoing tutorial in disassociating oneself from the result of the trade, yet still having passion about it.”
Thanks again for your post to these interviews, which I originally saw via Twitter.
July 19th, 2008 at 12:51 am
It’s good to hear something again from the great cotton trader, Tudor Jones. What I learned from some great futures traders was the last 1/4 to 1/3 of successful trades are often based on very simple-minded Gann targets. It seems that many do this the same way, so they often work very well in parabolas where little else does work. An example is the recent crude oil high (I won’t yet say “top”). On a constant forward futures basis, 147.55 was exactly four times the October 1990 high.
By the way, Tudor Jones wrote a Barrons article in 1990 at about that time which nailed the low in SP futures. I’ll bet he was closing out crude oil positions last week. ;)