Subscribe
Share
Share
Embed
Paul Tudor Jones built an empire on one rule: don’t lose money. He never averaged a loser, never fought the tape, and never trusted ego. This is the story of the man who proved that in trading, defence always wins.
What are the world's biggest investors actually saying right now? And what can we learn from the legends who came before them?
Every episode, we go source-by-source through interviews, reports, and predictions from investors like Cathie Wood, Ray Dalio, and Stanley Druckenmiller—plus deep dives into the timeless lessons from trading legends like Jesse Livermore and Paul Tudor Jones.
No speculation. Just verified quotes, specific predictions, and the strategies behind the world's greatest money minds.
This is Money Men.
Okay. So I've got a really exciting episode today about Paul Tudor Jones. So he's someone I've come to respect a lot after reading, watching, and listening to probably about fifty hours of content of him sharing his wisdom and strategies. And the big thing that really stood out to me after studying him is just how durable of a trader this guy is. He has this weird combination of hyper competitiveness with a laid back enthusiasm for life, and I don't know if he would actually admit to this because he does come across as someone who's extremely humble.
Josh Stanton:But what's really odd about his story, and you're gonna find out a little later on, is that he doesn't seem to lose very often. And I think a big reason for that comes back to his upbringing with his mother and father, which we're about to get into. As I said, in preparing for this episode, I must have read, watched, and listened to at least fifty hours of content, but a lot of the insights I'm about to share have come from a short interview in the book Market Wizards by Jack Schwager. And so if you haven't read that book, I highly recommend it. There's a link in the description.
Josh Stanton:Go ahead, check it out, grab a copy, you're gonna love it. I also managed to dig up some rare footage of interviews with Jones from the eighties, which were extremely insightful as well. So before we dive in, just a quick reminder, this podcast is not financial advice. I'm sharing what I'm learning about trading legends like Paul Tudor Jones, but nothing here is a recommendation to buy, sell, or hold any asset. Trading involves risk, and past performance doesn't guarantee future results.
Josh Stanton:Do your own research and consult a professional. Okay. Let's get into the story. So before Paul Tudor Jones became the trader he's today, before the billion dollar calls and the losers average losers mantra, he was a kid growing up in Memphis, Tennessee. He was a southern kid, a kid who attended faith based schools and grew up in a home that likely valued two things above else, faith and responsibility.
Josh Stanton:His father, John Paul Jones or Jack as it called him, he wasn't a Wall Street guy. He was a lawyer and the publisher of the Memphis Daily News, a family paper that had been part of the city's fabric for generations. Jack started in that newsroom as a teenager, typesetting stories, running errands, learning what made a paper matter to a community. It's likely that the rhythm of that newsroom, deadlines, accuracy, responsibility became part of the background of Paul's childhood. The Jones family story wasn't about chasing fortune.
Josh Stanton:It was about service. The newspaper wasn't some national outlet. It was local. It told people what they needed to know about their neighborhoods, their businesses, and their laws. The family didn't just report the news.
Josh Stanton:They participated in the community as well. And in later interviews, Paul hinted that both his parents believed in helping others, that if you had the means or the time to do something good, then you should. Years later, he would say that the moral foundation of his life came from that home environment and from the school that reinforced it. He once said, everything good I have done in my life begins with the religious training I received growing up. Most of my religious training came from my time spent at Presbyterian day school, and that's a rare thing to hear from a billionaire trader.
Josh Stanton:See, he could have credited luck or genius, but he said he credited his childhood faith. Faith wasn't abstract in the Jones household. It was practical, and that influence seemed to come mostly from his mother. He's credited her with a simple phrase that stuck with him. If you can't do something good, don't do it.
Josh Stanton:That's presumably how she lived, and that's the kind of rule that gets under your skin early. You grew up hearing that enough times, and you start to build a filter for decisions. Is this right? Is this useful? Is this good?
Josh Stanton:When you fast forward to Paul in adulthood, the way he trades, the way he leads, you can still see that early wiring. And so I think there's a straight line between a child hearing his mother talk about doing good and a trader later warning himself, don't be a hero, don't have an ego, always question yourself. And that's the same principle just written in market language. So we could assume that his mother gave him conscience and his father gave him process. And together, they gave him a sense that how you do something matters as much as what you do.
Josh Stanton:That combination, faith and fact, morality, and analysis became the two rails his early life ran on. Even when he left Memphis for the University of Virginia, you can feel these roots under everything he's done since, from his defensive style trading to his belief in personal responsibility, which you could say drove him towards philanthropy relatively early in life. I think when you listen to Tudor Jones talk about markets, he doesn't sound like a gambler. He sounds like a journalist, I believe, trying to get the story right. He sounds like a son raised by parents who believe that your reputation, your integrity mattered more than your balance sheet.
Josh Stanton:So you can imagine those family dinners, those paper deadlines, those sermons at Presbyterian Day School, they all seem to lead to the same lesson. If you want to succeed, start by telling yourself the truth. And that's where his story really begins, in a house where faith met curiosity, where words mattered, and where a young boy quietly started training for the mental battles of Wall Street. Okay. So after those early years in Memphis, Paul continued through two schools that would form the backbone of his education.
Josh Stanton:So he attended the, as I mentioned before, the Presbyterian Day School, a Christian institution in Memphis that it blended academics and religious instruction together. I took a look at the school's mission actually, and it's very much centered on developing both intellect and character. And I think it's reasonable to say that the atmosphere there was probably it probably emphasized faith, discipline, responsibility, and those values are very much aligned closely with his home life as well. And so that environment likely reinforced habits of preparation, structure, and self control. So from there, he went on to Memphis University School or MUS.
Josh Stanton:It was a college preparatory academy known for academic rigor and an emphasis on leadership as well. So MUS, it actually has a reputation for setting very high standards. Students are expected to meet deadlines, think critically, and carry themselves with accountability as well. And there aren't public accounts describing Paul's specific activities or achievements there, so the fairest thing we can say is that he came through an environment that rewarded consistency and effort. And those experiences, that faith at PDS, structure at MUS, it likely complemented each other as well.
Josh Stanton:I I would say that one shaped conscience and the other shaped discipline. Together, they built the kind of foundation that would later show up in his trading life, respect for rules, calm under pressure, and a sense of duty to perform well. So in 1972, he left Memphis for the University of Virginia in Charlottesville. His father, Jack Jones, had also gone to UVA, and he studied law. So there was legacy here for sure and family roots stretching way back from Memphis to Charlottesville.
Josh Stanton:Paul chose to major in economics. It was probably a natural fit for this guy. He later described those years simply by saying, my father went to Virginia law school, so he steered me to the University of Virginia. I went to Virginia from 1972 to 1976, major in economics, had a great time. I really loved UVA.
Josh Stanton:And it's easy to imagine why as well because Charlottesville in the the nineteen seventies had this mix of tradition and ambition, had these old brick buildings, demanding professors, and a quiet competitiveness that hung in the air. We do know that Paul definitely loved being competitive. So if his early years growing up in Memphis had taught him morality, UVA was probably where he learned competition and leadership. And so what we know about him is that he didn't just attend classes. He actually also got very much involved.
Josh Stanton:He joined the fraternity Sigma Alpha Epsilon, which is one of the most active on campus. So I had to look this up because as a non American, I'm not too familiar with how fraternities and sororities work. So what I found was that SAE has about 215 active chapters in The US, and from what I can tell, the thing that makes them slightly different from others are two things. Firstly, they have a big focus on continuous development, which includes leadership development and personal growth activities instead of the traditional pledging process. And then secondly, they make a strong effort with philanthropy, and I'm wondering if this experience is a big part of the reason why he's such an avid philanthropist today.
Josh Stanton:So if you take a look at how much he does, you could make the claim that his identity is much more closely aligned to philanthropy than it is to trading today. And that is something that I think about and wonder if there's something to the idea that maybe generosity plays a huge part in someone achieving success and maybe maybe maintaining success in the business of trading. And it makes a lot of sense because piling up stacks of cash might be fun for a while, but eventually, it might not be enough to drive you to continue moving forward. So if you listen to my previous episode on the legendary speculator, Jesse Livermore, you'll learn that he made money and lost it all several times before eventually committing suicide. So Paul Tudor Jones, he referenced Livermore in the book Market Wizards by Jack Schwager.
Josh Stanton:So what we know is he must have studied him at one point in time, and maybe, just maybe, there's a possibility that he learned from his mistakes and realized that if he was going to stay in the game for a long time, he had to find some type of meaning outside of trading, and being exposed to this in college must have had a big impact in him moving forward. Anyway, eventually, went on to become the president of his fraternity, and that matters a lot because it shows that he chose leadership over sitting in the background. And we can assume that two aspects of his personality were probably developed during this time. Firstly, his people skills. There would have likely been a lot of competing personalities in this fraternity, and his job as president would have been to understand and adapt to every single one of them, and that's not easy to do.
Josh Stanton:And then secondly, emotional control. Taking on that much responsibility, it doesn't come easy and requires a very stable mindset. And maybe it just came natural to him. It's possible for sure. Or maybe it actually was developed during this time at college.
Josh Stanton:The only way to find out would be to ask him one day, which God willing, that's gonna happen. I hope it really does. So that's one side of the UVA story. The other side is his boxing career, and he became the welterweight boxing champion at the University of Virginia. And if you think about that for a second, it's kind of a curious combination.
Josh Stanton:Right? He's studying economics by day, which is rational. It's analytical by nature. And then at night, he's putting on gloves, and he's trading punches with real opponents. It's a hypercompetitive nature.
Josh Stanton:I don't know why, but those two things together caught my attention because you wouldn't normally think of economics majors eventually becoming championship boxers. Right? But then I thought about it more, and I realized that boxing is actually very similar to trading. You win not by brute force, but by discipline, timing, and patience. You study your opponent.
Josh Stanton:You read their patterns. When he said things like, don't be a hero. Don't have an ego. Always question yourself. You can hear the boxer talking right there.
Josh Stanton:He probably learned in the ring that arrogance gets punished very quickly. Just one moment of overconfidence and you're on the floor straight away. Also, in boxing films, how often do you hear the statements like protect yourself or keep your gloves up? Well, we do know that Tudor Jones pays far more attention to being a defensive trader than an offensive trader. And could this have come from his years spent as a boxer?
Josh Stanton:Maybe. We don't know. What I do know is that's the exact kind of mindset that separates traders like him from everyone else. Boxing also likely showed him that he could endure pain and still stay composed, and that's not something you read in a textbook at all. That's something you have to earn.
Josh Stanton:It's likely those fights did more than build toughness. They built pattern recognition. They built instinct. They built self control. These are the same kind of traits that would later make him one of the sharpest market readers on Wall Street.
Josh Stanton:But college wasn't all about fighting. It was thinking as well. See, economics would have given him that framework that he needed to make sense of the chaos around him. And even back then, the subject probably appealed to him because it explained why things happened, why people make the decisions they make, why cycles keep repeating themselves, Why confidence and fear move through systems like electricity? You can see how those lessons would stick out.
Josh Stanton:Right? Because what is trading really, if not applied economics in real time? It's human behavior on a chart. It's incentives meeting emotion. It's decision making under pressure, the same way a boxer decides when to punch, when to block, when to wait.
Josh Stanton:And so by the final years at UVA, Jones had likely built three kinds of confidence, intellectual, physical, and social. So he could think, fight, and lead. And I think that's a really rare combination if you think about it. You can almost see the blueprint of the trader he's about to become. Analytical like an economist, instinctive like a fighter, and composed like a leader.
Josh Stanton:It's not an exaggeration to say that the foundation for his future success was probably already becoming visible. I don't think he would have known exactly where he was going to apply it yet, but he already had the how. So when you zoom out, this is the part of his life where you start to see the pattern form, that quiet confidence that follows him everywhere into the future. He's not known for being loud if you listen him in interviews. He's definitely not bogeful as well.
Josh Stanton:So in every interview I've seen him in, it feels like he carries himself with a sense of calm certainty, and I think that many of the ingredients from that were collected during his early years and college. So by that, I mean the faith from home, the structure from school, the leadership, and the fight from UVA. All of it converges at this point. So by the time he graduates in 1976 with a degree in economics, he's very much ready for the next chapter. He's already wired to compete, to analyze, and to adapt.
Josh Stanton:He's already built for the long game as well, and all that's missing is the spark that will turn this foundation into a calling. So in 1976 he graduates from the University of Virginia with a degree in economics, and I think like a lot of people finishing college he probably didn't have his life fully mapped out yet. So you can kind of picture this 22 year old Tudor Jones, degree in hand, he's coming from a good family, and probably asking that same question we all ask at some point. Alright. Now what do I do?
Josh Stanton:And as far as I'm aware, he didn't actually have any Wall Street connections, at least not initially, and he wasn't a part of the New York financial scene yet. But what I can definitely say he had after doing the research was drive and a lot of it as well. So somewhere in that period, he must have come across a story that would change the course of his life. In the book Market Wizards, he tells Jack Schwager, when I was in college, I read an article about Richard Dennis, and I thought he had the greatest job in the world. And so Richard Dennis was a commodities trader known for borrowing $1,600 in the seventies and reportedly turning into $350,000,000.
Josh Stanton:He was known at that time as the prince of the pit. I couldn't find the actual article he referenced, but clearly, it had a big impact on him, and he must have decided then and there that he wanted to be a trader. It's one of those moments that you can't plan for, you just stumble across something that grabs you by the collar and it won't let go, and that's exactly what happened to Tudor Jones. And I love that as well because it's just a reminder that sometimes your direction in life doesn't start with a plan, it starts with curiosity. And I think this can happen at any time in life as well.
Josh Stanton:There are plenty of stories like Dan Zanger, for example, who started trading at the age of 46. He was working in pool construction when he decided to learn technical analysis. He would then go on to turn $16,000 into $40,000,000 over the period of eighteen months during the .com bubble. And so for Jones, this was his moment. And after reading that article, Paul decides he wants in.
Josh Stanton:He probably doesn't know how yet, but he knows he has to find a way. And this is where family ties come into play. See, his uncle Billy Donovan was already a big name in the cotton business. He was a successful trader in Memphis. And so Paul calls him to ask how he can get into the business, and Billy connects him with Eli Tullis.
Josh Stanton:And this is a really important person in Jones' life. He's actually at the time one of the top cotton traders in New Orleans. And so by the way, he actually goes on he credits Eli Tullis a lot throughout his career. In Market Wizzes, when Jack Swager asked him if he learned a lot about trading from Eli, he said, absolutely. Working with Eli was a fabulous experience.
Josh Stanton:He would trade position sizes of 3,000 contracts when the entire market open interest was only 30,000. He would trade more volume than any cotton trader off the floor. He was a true sight to behold. He also said about him that he was the toughest son of a bitch I ever knew. He taught me that trading is very competitive, and you have to be able to handle getting your butt kicked.
Josh Stanton:And that line right there, I think that's such an important line right there. It tells you everything about what's coming next because the market's about to do exactly that to him. So at this point, he's now in New Orleans. He's 22 years old and about to start learning from a man his uncle called the best trader I know. Again, that man, as I mentioned before, Eli Tullis.
Josh Stanton:He's one of the most respected cotton traders in the country at the time. By all accounts, Talas was known for his intensity, his size, and his composure as well. And we're gonna mention the composure in a second with a really cool story. He wasn't a mentor in the traditional sense. He was just a professional trader running a serious operation.
Josh Stanton:And that's where Paul got his start. So in market wizards, he said that working with Eli was a fabulous experience. He described watching him trade position sizes that were enormous relative to the market's total open interest. As I mentioned before, thousands of contracts where most traders were just working in hundreds. And that's the kind of exposure most young traders never actually get.
Josh Stanton:It's fully hands on, it's real, and it's happening fast. Paul later said he learned a few key lessons from watching Eli work. One of them was about humility. He said the market is gonna go where it's going to go. That sounds really simple.
Josh Stanton:Right? But I promise you it's not. See that sentence, it tells you that he learned early on that control is an illusion, that no matter how good you are, the market decides the outcome. That perspective probably came from moments like the one he describes in Market Wizards where Eli was losing a large amount of money, but show complete calm. And I actually really love this story.
Josh Stanton:So Paul said that Eli he once hosted this meeting with some of his clients' wives while he was down heavily. And instead of panicking or acting anxious during that meeting, Eli sat there calmly having a really polite conversation, and he had no visible stress. He wasn't angry. He was just fully composed. And that made a deep impression on Paul, because think about what that teaches a young trader.
Josh Stanton:You're watching someone lose big and still act with a sense of dignity and calm. It's like watching a masterclass in emotional control at a very young age. Remember, he's only 22 years old here. Paul would later say that trading is one of the most competitive things you can do and that you have to be able to handle getting hit. And I think this story about Eli shows where that belief came from.
Josh Stanton:It's not about avoiding losses. It's about how you behave when they happen. And maybe that's why he admired Tullow so much because what he was seeing every day wasn't just trading, it was temperament. Eli showed him what it looks like to take pressure and still stay level. He also showed him something else, which was the importance of thinking independently.
Josh Stanton:Paul said that by watching Eli, he learned that markets can look strongest right before they turn. That even when everything looks bullish, that can sometimes be the best time to sell. And that right there, that's a contrarian insight, and it became part of how Paul thinks well into the future as well. I think you could actually say that in fact he's built his entire career around that idea that the crowd is usually wrong at the extremes, and I think that mindset traces way back to this apprenticeship to watching Eli operate when most traders would have folded. It's also possible that this is where he learned patience as well.
Josh Stanton:And there's no evidence Eli was a fast impulsive trader. Everything you read about him suggests that he was deliberate, methodical, and confident in his read of the market. And Paul probably absorbed that too, because years later, when you hear him talk about managing risk and saying defensive, it's hard not to think of this period. He's seeing someone take large bets, but manage them with discipline and self control. And as far as I can tell, that combination of aggression and restraint is one of the main things that separates professionals from gamblers, and that's what Eli represented.
Josh Stanton:I'm sure looking back on that time, Paul would see this time as the real beginning of his trading education. He wasn't yet learning about portfolio theory or macroeconomics or anything like that. He was learning about behavior, his own behavior, and everyone else's. What people do when they're winning, what they do when they're losing, and how the best traders stay the same in both situations. So by the time he left New Orleans, he definitely was not a master trader at this point, but he had something more valuable, I believe.
Josh Stanton:He had a real understanding of what mastery looks like from basically just being around Eli twenty four seven. He's seen calm in chaos. He's seen strength without ego, and he's seen that survival comes before success. And so those lessons, they would stay with him for the rest of his career. So after his time in New Orleans with Eli Tullis, Jones decides to try something new.
Josh Stanton:He moves to New York, and he takes a job at EF Hutton, which at the time was one of the biggest brokerage firms on Wall Street. And by the way, he was really good at it. He later said in Market Wizards, I was a broker for about two and a half years, and I was successful at it. But then on the flip side, being a broker seemed to rub him the wrong way, and he once said, I realized that what I was doing was immoral. And he went on to explain, if a client lost money, it was not my money.
Josh Stanton:If he made money, it was not my money. So there was no real emotional involvement and therefore no real accountability. I couldn't handle that. Now here's what I think. I think this is the morality that he learned from his childhood, and that's what's talking right here.
Josh Stanton:It sounds like he didn't like the idea of making money without sharing the risk and responsibility, and maybe that the idea of his incentives not aligning with his clients just didn't feel right to him. And I'm guessing therefore that he wanted skin in the game. He wanted to feel it, know, he wanted to know that if he was wrong it would actually cost him, and for what I can tell that's something he's carried with him for the rest of his life, which is that sense of accountability. Because if you look at his story from here moving forward, he never outsources risk. He actually does the opposite, and he owns it.
Josh Stanton:And I think that says a lot about who he is, about his character, about how he was raised. Remember, his father, he ran that local newspaper, right, which is a family business that reported the truth to its community. So accountability was probably built into the family's DNA, and now you can see this moral thread is starting to run straight from Memphis now through to Wall Street. And so when Paul leaves EF Hutton, it's likely not because he couldn't do the job. It's probably just because he didn't believe in the way the system rewarded it.
Josh Stanton:He later said, I decided I wanted to trade my own money to be accountable for my own results. And I mean, this is a big decision to make, because remember he was very successful as a broker, and so he was giving up a sure thing by doing this, And now he's about to be accountable not just for his own money, but also for others as well. And he mentioned that he actually allows some of his friends and family to invest initially with him when he was first started trading, and this is around 1978, 1979. And at this time, inflation's still really high, commodities are volatile, and The US economy is going through some wild swings, but it's probably the perfect environment to learn in as well. And if you can handle that pressure, then you're definitely gonna do very well.
Josh Stanton:And so that's exactly what he does. He begins trading futures to begin with, cotton, currencies, commodities, the same instruments, the exact same instruments he watched Talos trade, but now it's all on him. He has no clients to blame. He has no manager to fall back on. It's just his decisions, his own money, and his own results.
Josh Stanton:And this is where I think his trading philosophy really starts to form and possibly where he develops his defensive mindset as well. He later said in Market Wizards, don't focus on making money, focus on protecting what you have. And I think that sounds like something you probably internalize from Tullis, but now he's having to live it all himself as well. So every trade he now does has consequences. Every mistake he makes is gonna sting a lot harder, but he's building calluses at this point.
Josh Stanton:And it's not just those mental ones, but emotional ones as well. And I imagine these years right now, they were both extremely humbling, but also really exciting as well. And there are reports that during this period, he enjoyed the freedom that came with early success in the the city life of New York as well. And so it was not just financial freedom. It wasn't just about that.
Josh Stanton:It was also his emotional restlessness as well. And so he's free now, but freedom also means exposure. It means that every single tick matters. It means that discipline isn't optional anymore. It's survival.
Josh Stanton:He once said, every day I assume every position I have is wrong. That's gonna be a theme throughout the rest of this episode. And I think that right there is a very powerful line that needs to sink in for every single trader out there. It tells you that his approach to trading was through humility and not confidence. He also said in Market Wizards, don't ever feel that you are good.
Josh Stanton:The second you do, you are dead. And so I imagine he likes to start every day expecting to be wrong, and he builds from that point moving forward. And so that kind of thinking probably came from this period. And so at this point, he's still relatively young, and he's already seeing what ego can do in the market. Actually, he told a story about a friend of his who made $10,000,000,000 in the stock market one year and lost most of it the following year.
Josh Stanton:And so he has examples around him of what it looks like to lose everything, and my guess is that he wants to protect himself from experiencing just that. But at the same time, he's learning to live with uncertainty because you cannot avoid that in this game. It's not about being right though, it's about managing risk when you're not. And this is probably a good time to mention one of his personal rules, which is he never allows himself to lose more than 10% of his equity in a single month. And here's what he said in Market Wizards about this.
Josh Stanton:He said, don't focus on making money, focus on protecting what you have. Every day, I make a mental stop loss. I don't allow myself to lose more than a certain amount of equity in a month, 10%. If I lose more than that, I stop trading. And so by 1980, he decides to formalize what he's doing.
Josh Stanton:He launches Tudor Investment Corporation, a small firm that would eventually become one of the most successful hedge funds in the world. But in this moment, I can imagine he's just this young guy who wants to prove that he can survive by his own decisions at this point. And that's what I love about this part of the story. I don't think it's about the money yet. I think it's about integrity.
Josh Stanton:He's not trying to build a fund to impress anyone. He's just trying to build a system that aligns with who he is as a person. He's likely just doing what feels right as well, and I think that's why this chapter matters so much. Because every major decision he makes in life later, every big trade, every act of generosity, every piece of risk management advice, it all goes back to this, to accountability and to ownership, to having skin in the game. And I believe strongly that this period is where Paul Tudor Jones stops being influenced by others and starts becoming himself.
Josh Stanton:So at this point, he's starting to make money. He's trading his own account. He's developing a rhythm, and it's working. And actually, in a bit, I'm gonna share exactly how successful he was in the eighties because I promise you it's stuff of legends. But at this point, he's still young, maybe late twenties.
Josh Stanton:He's already starting to get attention, and you can imagine the confidence at this point is starting to build. But in markets, confidence has a half life as we all know. Remember his quote from earlier? Don't ever feel that you are good. The second you do, you are dead.
Josh Stanton:Because right around this time after those first early wins, he experiences his first serious loss. It happens in cotton, which is the same market he was he first learned under with Eli Talison. At this point, he was still technically a broker. He was managing a handful of speculative client accounts, but he was also trading them like they were his own as well. Functionally, he was already a trader.
Josh Stanton:So in Market Wizzes, he describes it as the worst trade of his life. He said, one learns the most from mistakes, not successes. I was a broker back then, we had a lot of speculative accounts, and I was long about 400 contracts of July cotton. So he'd be buying it every single time the market dipped. It was convinced that it was going to hold, but then the market broke, and it broke really hard as well.
Josh Stanton:The market had been trading in a range between 82 and 86¢, and I was buying it every time it came down to the low end of that range. One day the market broke to new lows. It took out the stops and immediately rebounded about 30 or 40 points. And thinking that the selling pressure was done, he doubled down, even add another 200 contracts in what he called a macho trade. I told my floor broker to bid $82.90 for a 100 July, which at the time was a very big order.
Josh Stanton:Refco owned most of the certified stock at the time. In an instant, I realized they intended to deliver against the July contract. That's when he knew he was wrong. Instantly and completely, he said, I saw immediately the market was going straight down to 78¢, and that it was my blood that was going to carry it there. And he said, the trader next to him actually took one look at him and said, if you want to go to the bathroom, do it right here.
Josh Stanton:Within a minute, the market was limit down. By the next morning, it was locked limit down again. By the time it was over, his accounts had lost 60 to 70% of their equity, and he said that cotton trade was almost a deal breaker for me. I was totally demoralized. I said, I am not cut out for this business.
Josh Stanton:I don't think I can hack it much longer. But he didn't quit. And he said, that was when I first decided at that point. I had to learn discipline and money management. It was a cathartic experience in the sense that I went to the edge, questioned my variability as a trader, and decided that I was not going to quit.
Josh Stanton:And I think at this point, this is a very critical point, this is where the upgraded version of Paul Tudor Jones begins. He said, now I spend my day trying to make myself as happy and relaxed as I can be. If I have positions going against me, I get right out. If they're going for me, I keep them. He said that trade changed everything for him.
Josh Stanton:His position sizing, his pace, and his mindset. He said he became quicker and more defensive. I'm always thinking about losing money as opposed to making money. And this is where his famous philosophy starts to take shape, which is my guiding philosophy, he says, is to be a defensive trader. Don't focus on making money.
Josh Stanton:Focus on protecting what you have. And that's exactly what he did. So from that point moving forward, he set hard limits on how much he could lose. So that rule that he set that he mentioned back in 1989 was to never lose more than 10% of equity in a month, and if he hits that number, he stops trading. I couldn't find anything that confirms he still uses that rule today, but I would imagine that he does because he continues till today to reinforce the importance of being a defensive trader.
Josh Stanton:So after the cotton debacle, Porto De Jones, he recommits, and he starts to rebuild himself from the ground up. He decides to become more measured and more business like, and I I love what he said about himself. This is quoting from Market Wizzes where he said, mister stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain? And I think right there, that's a very contrarian idea in the world of trading where you have to stare at a chart all day and experience massive amounts of pain all throughout your career.
Josh Stanton:I don't know if you actually have to do that according to Paul Tudor Jones, but what I can tell after that loss in cotton, this idea became a cornerstone of his strategy as he went into his next venture, which is opening the Tudor Investment Corporation. So he launches it in 1980, just quietly as well, with his own money and a small pool from friends and family. His guiding principle from that point moving forward is simple, play great defense, not great offense. And so I can imagine that he's learned if you protect the downside, the upside takes care of itself. And I think that philosophy right there, it starts to compound literally.
Josh Stanton:So in Market Wizards, Jack Schwager a $1,000 investment with Tudor Jones in 1980 would have been worth more than $17,000 by the end of 1988. That's a 17 fold return in less than a decade. But what's really fascinating is that he wasn't swinging for the fences just to get there. He was just applying structure and discipline, plus, of course, a little help from the 1987 crash, which we're gonna get to in a minute. But Schrager asked Jones about his change in trading style after the foul cotton trade saying, I guess you not only started trading smaller, but also quicker.
Josh Stanton:And Jones replied, quicker and more defensive. I'm always thinking about losing money as opposed to making money. Back then in that cotton trade, I had a vision of July going to 89¢, and I thought about it all the money I was going to to make on 400 contracts. I didn't think about what I could lose, and I think this is where that process starts to define him in the lead up to 1987. He developed a style that traders still study today.
Josh Stanton:It's a mix of short term macro trading, technical awareness, and psychological discipline. Here, I think it's important to repeat that quote from earlier. Every day I assume every position I have is wrong. And I think this is such a great line because you can imagine him walking into the office every morning preparing himself by thinking that every trade could go against him that day. That is likely how he keeps bias out of the equation.
Josh Stanton:It's also how he keeps fear out as well. And if you start each day expecting to be wrong, there's nothing left to fear, only to manage. Okay? So the other thing that starts to happen during the nineteen eighties is that his journalistic background starts to come out. So he starts zooming out and investigating larger trends, and that investigative instinct leads him to one of the most remarkable insights of his career.
Josh Stanton:So in the 1987 documentary called traders, Paul explains that he and his chief analyst Peter Borysh studying the nineteen twenty nine market crash, not as history, but as a potential road map for what might happen next. So what they did was they overlaid the 1929 chart on top of the nineteen eighties Dow Jones and found that the two markets were moving almost tick for tick. He said, Peter and I overlay the 1929 chart on top of the present market, and they're identical. Then he went on to say, it's amazing how history repeats itself. Human nature doesn't change.
Josh Stanton:And in the documentary, you can tell that both he and Peter are quite committed to this idea, which leads them to believe that a market downturn is about to happen. And we now know that they were right, and we're gonna get to that shortly. So by the mid nineteen eighties, he's built not just a fund, but more so a framework for how to live inside the chaos of markets. And what we know is that he's managing risk across commodities, currencies, and equities. He's balancing technicals and instinct, short term trades, and macro themes.
Josh Stanton:When you look at photos or interviews from that era, you can see that he's really starting to form his trading identity. You can see the boxer, the competitor as he shouts orders at his brokers on the floor, but we can also see a remnants of Eli Talison him during interviews where he speaks really calmly with his southern draw, and I think at this point, all the stars are about to align because what we know about the best traders in the world is that they don't make a name for themselves during the bull, but rather during the bear, and the market is about to break. Okay. So now it's 1987, and stocks have been climbing for years, almost straight up. Interest rates are falling, credit is loose, and optimism is absolutely everywhere.
Josh Stanton:And so from 1982 to 1987, the Dow went from 777 points to over 2,500, which is about a 250% gain in five years, and a lot of it was actually driven by margin. And what triggered the beginning of the crash was a larger than expected trade deficit announced on October 14, plus rumors of anti takeover laws that threatened the merger boom at the time. Institutional investments were also using computer driven model insurance that were selling futures to hedge stock drops. This paired also with program trading at the time, which essentially just automated stock sales to arbitrage futures, created a feedback loop. So what happened was is that selling triggered more selling, which just amplified the decline, and roughly 60 to $100,000,000,000 in assets were under portfolio insurance, and program trading spiked over 50% of New York Stock Exchange volume on crash day, which, of course, was October 19 being Black Monday, where the Dow plunged to 22 and a half percent.
Josh Stanton:Fortunately, Jones knows something is coming. In the documentary Trader from 1987, filmed just months before the crash, he and his analyst Peter Borysh are shown sitting in their office comparing the nineteen eighties Dow Jones chart to the 1929 market. They literally lay one over the other week by week, peak by peak. This is where Jones says in the documentary, Peter and I overlaid the 1929 chart on top of the present market, and they're identical. Boorish nods at this point, and he points out that even the emotional tone of the two markets, the speculation, the leverage, the overconfidence, it's the exact same.
Josh Stanton:And then Paul says something profound at this point. He says, there's no question it's going to break. I don't know when, but it's going to break. And it's important to note, he doesn't know exactly when it's gonna happen. He only knows what will happen if the pattern holds, and it's going to be big.
Josh Stanton:Then mid October comes, and as you can imagine, the panic starts to creep into Wall Street with the when the Dow starts to fall. Some funds are actually wiped out entirely, but Jones and his team, they're calm at this point. So maybe not fully calm, but at least better prepared because they started this process back in mid nineteen eighty six. So by the time October 19 rolls around, they're ready. The Tudor investment team has been expecting a major break for more than a year ever since they started comparing the 1929 and 1987 market structures.
Josh Stanton:They'd built their strategy carefully. They were shorting index futures, which is mainly the S and P 500 as the market moved higher and signs of exhaustion appeared. They weren't short individual stocks, just the index. So as the market opened that morning, selling pressure hit immediately. So it likely wasn't panic at first, maybe just a fast slide initially, but by midday it was clear that something bigger was happening.
Josh Stanton:Program trading had taken over at this point. Every time stocks dropped, computers automatically sold more futures to hedge, which drove the index down even faster. And from what we can tell, Jones and his team they stayed focused. They didn't try to pick a bottom or fight the tape that already built their positions, and now they were simply managing them. Throughout the day, they monitored the futures markets as they fell limit down multiple times, and this is where Jones shows his experience.
Josh Stanton:Instead of trying to hold through the chaos, he starts to lock in profits, remembering what Eli Talas had taught him many years ago. And by late in the day, Tudor covers most of his short positions, and that decision to close out at the end of the move ends up being one of the smartest trades of his career. Because by the next morning, the market rebounds sharply. A lot of those paper gains would have actually disappeared, and then at this point, while the dust is still settling, they do something that almost no one else is thinking about in that moment. They go long bonds.
Josh Stanton:See, Jones and Borys, they understood that the Fed would have to inject liquidity back into the system to restore confidence, and so they put on one of the largest long bond positions in the firm's history expecting rates to fall as the Fed intervenes. And they're right again. Bond prices surge. That single two part strategy, short stocks, long bonds, turns the worst day in modern market history into the best trade of their careers, and their numbers are absolutely staggering. The Tudor futures fund gains roughly 62% in October 1987 alone, and for the full year, the fund returns approximately 200% growth or about 126% net after fees, and that's one of the highest returns ever recorded for a hedge fund in a year that devastated nearly everyone else.
Josh Stanton:And to put it in perspective, most major funds lost money that year. Even with the rebound later in 1987, the S and P 500 finished up only about 5% for the year, meaning that while most of Wall Street clawed its way back to even, Tudor was up triple digits. And the key thing to remember here is that Jones didn't make that money because of one lucky bet. It was preparation. He was studying.
Josh Stanton:He was testing. He was preparing for multiple outcomes to occur. He didn't know the exact timing of the crash, but he knew what the environment looks like when risk was completely misplaced, and I think this is where his journalistic curiosity and analytical discipline actually intersect at this point. He wasn't predicting, he was just observing, and that's something I think every trader can really learn from. He didn't try to be the hero who bought the bottom, he was the realist who planned for what others didn't want to see.
Josh Stanton:And remember what he said that he always assumes every position he has is wrong, and that mindset is what kept him in control when everyone else lost theirs. So while others are panicking, Tudor investment was executing. While others were frozen, he was adjusting. And while others were hoping, he was just managing risk. And that's how Paul Tudor Jones turned the crash of nineteen eighty seven into the defining moment of his career, and it's also where his reputation at this point is truly sealed.
Josh Stanton:So now it's to the nineties. The crash is behind him, and Jones is running one of the most respected hedge funds in the world at this stage. And I would imagine this is the part where he could have just easily coasted and gone on autopilot, but he doesn't. Instead, he keeps learning, he keeps refining, and he keeps asking questions. He once said, the secret to being successful from a trading perspective is to have an an indefatigable and unquenchable thirst for information and knowledge, and I think that quote captures exactly what made him different.
Josh Stanton:I don't think he was ever driven by greed. I believe he was more driven by curiosity, and maybe this is the journalist expressing itself. I don't know. What we do know is that he starts expanding his macro lens at this point. He starts looking at currencies, interest rates, geopolitical shifts.
Josh Stanton:He's no longer just trading price. He's studying cause and effect on a planetary scale, and watching capital move like weather systems, seeing where pressure is building before anyone else feels it. So by this point, I would imagine he's also starting to think a lot about longevity. I mentioned the legendary speculator Jesse Livermore earlier, who we know Jones definitely studied because he's referenced his name often in interviews. If you want to know more about Jesse and hear his story, it's actually in episode number one.
Josh Stanton:Now Jesse's story is basically he made and lost everything multiple times throughout his career, and he likely had a very turbulent life because of it. I think that Jones pays special attention to Livermore's story because he didn't want to end up the same. Remember his quote from earlier when he lost big on cotton? He said, why not make your life a pursuit of happiness rather than pain? And I really think he took this to heart because as he enters the nineties, he starts to diversify a lot.
Josh Stanton:And I've heard him mention this in interviews saying that it's much easier to get big gains on a small fund than a larger one, and that's why in the eighties when he's small, his funds were an estimated average return of 80 to a 100%. Right? That's pretty crazy. 80 to a 100% average annual return, while in the nineties that dropped down to somewhere between 20 to 25%. That's something Livermore never did was to diversify and manage his risk as he went on to lose everything after his big win in the crash in 1929.
Josh Stanton:Jones doesn't want to make the same mistake. Again, remember what he said. Why not make your life a pursuit of happiness rather than pain? I think he also starts to become more selective about what risk means to him. See, back in the early days, risk was about losing money.
Josh Stanton:Now risk is about losing focus, losing alignment, losing the reason you started in the first place, and this is where he starts talking publicly about purpose. He once said, and this is a slight paraphrase by the way, you cannot have significance in this life if it is all about you. You get your significance, you find your joy in life through service and sacrifice It's pure and simple, and I think this moment is quite unique in the sense that most traders get addicted and actually stay addicted to the rush of winning and losing, and I believe the values instilled upon him during his early years are what enabled him to make this shift after winning big in the eighties. See, most traders who saw an 80 to a 100% average annual return, they wouldn't want that to end. It's too addictive.
Josh Stanton:It's too exciting. Actually, there's this great line in Market Wizards where he quotes Jesse Livermore saying that in the long run, you can't ever win trading markets. Jones then goes on to say, that was a devastating quote for someone like me just getting into this business. The idea that you can't beat the markets is a frightening prospect. That is why my guiding philosophy is playing great defense.
Josh Stanton:And now here's the thing. I still believe he's the same competitor, but now he's more so competing against time. He's trying to stay sharp, relevant, and useful in a game that never stops changing, and in that sense, the nineties and the February become a bit of a master class in sustainability. By averaging a rough roughly 25% annual return in the nineties, he proves that staying power isn't about being the smartest trader in the room. It's about having the emotional maturity to keep reinventing yourself.
Josh Stanton:I mean, if you think about it, by now he's seen it all in the space of less than twenty years. He's seen booms, busts, bubbles, panics. He's seen brilliant people blow up from arrogance and fear. He's seen cycles destroy certainty, and through it all, he remains consistent. And I think this is a far greater accomplishment than his wins from the eighties, making the transition from volatility into sustainability.
Josh Stanton:And all of this is because he's defense first philosophy. He once told a room full of traders, there is no training, classroom, or otherwise that could prepare you for trading the last third of a move, whether it's the end of a bull market or the end of a bear market, And that's such an interesting observation right there, because it's not really about markets at all, it's just about emotion. And you can read every book, you can back test every strategy, but when you're sitting there at the end of a big cycle watching prices go parabolic, nothing can prepare you for how that feels. It's that humility, the awareness that even experience can't save you from human nature that I believe keeps him grounded. And by this point in his life, I think he's starting to see trading less as a way to win and more as a way to understand himself.
Josh Stanton:And this right here actually makes me think about a great line in the book Trading in the Zone by Mark Douglas, which is a fantastic book, by the way. Link is again in the description as well. Here's what he says. He says, trading is an activity that offers the individual unlimited freedom of creative expression, a freedom of expression that has been denied by most of us for most of our lives. And I think that right there that right there is exactly what Jones had figured out by this point, and all he wants to do now is sustain it for the rest of his life.
Josh Stanton:Okay. So that about wraps up this episode of Paul Tudor Jones. All the links to the books and other resources will be in the description. I'll probably record another episode about him in the future about his life beyond the eighties and nineties, and just from what I can tell, his life seems to be split into two parts, and I wanted to cover the upstart trader part first where he made all of his money. If I ever do a second episode, it's gonna be about the lessons he's learned over the past twenty five years.
Josh Stanton:So if you got something out of this episode, please share it with someone who really needs to hear it. Also, get in touch with me on x at traders show, and I'll be back soon with another story. Until then, keep studying, keep evolving, protect your money, and stay in the game.