Paul Tudor Jones - Lessons From 50 Years in Markets - [Invest Like the Best, EP.470]

Paul Tudor Jones warns of a bubble and unmanaged AI

Paul Tudor Jones warns that US markets look like a bubble and that risk management is the first job of any investor. Valuations are stretched and past crashes shared excess leverage. He applies the same test to AI, where he says development has no risk management.

Takeaways

• US stocks look like a bubble. US market capitalisation is 252% of GDP against 65% in 1929. Buybacks that retired capital will give way to IPOs and lock-up expiries, and Jones sees a rolling top in six to 18 months. A 30 to 35% fall could hit tax revenues and bonds.
• Excess leverage, usually derivatives, drives big crashes. Portfolio insurance in 1987 and Long-Term Capital in 1998 fit the pattern. Jones also calls the US clearly in a sovereign debt bubble, and says buying the S&P 500 at a P/E of 22 has historically produced negative 10-year returns.
• Great investors are risk managers first. His grandfather taught him that you are only worth what you can write a check for tomorrow. Bunker Hunt went from richest man to virtually bankrupt in six or seven weeks after COMEX moved to liquidation-only trading.
• AI development has no risk management. At a conference of 35 to 40 people, experts expected action only after tens of millions died in an accident. Jones wants a public say on pace, US-China leadership from the next president, and mandatory watermarking, with a felony for knowing violations.
• Trading means waiting for extreme openings. Eli Tullis, his cotton boss, was good at waiting for peaks of fear and greed. Jones likens trading to boxing, and calls Bitcoin in 2020 and two-year rates in 2022 knockouts. He now sees the yen as undervalued and Bitcoin as the best inflation hedge.
• Investing and trading demand different temperaments. Jones envies Buffett's belief in America but says he could not have endured a 50% drawdown in 2008-9. Early volatile markets made long-term holding laughable, since short-term trading paid far more. He credits Munger with compounding growing companies.
• One act of kindness can compound. A stranger helped three-year-old Jones find his mother in Harlem in 1957. After seeing Eugene Lang on 60 Minutes in 1986, Jones adopted school classes, then founded the Bed-Stuy Charter School, which he says ranked first of 543 New York elementary schools.

Jones's working day

• Up at 6:15 with a daily workout, then screens at the open.
• Wakes again around 2:30 or 3 a.m. to watch the London open.
• Receives 800 to 1000 emails a day, and says information overload distracts him from exquisite execution.
• Goes home around five and walks for an hour with his wife.