Paul Tudor Jones, Analogs, and Jeff Bezos

More Money Than God by Sebastian Mallaby is one of the most entertaining finance books I’ve ever read. It’s like the Market Wizards series, only in story form. I found myself scribbling notes all over the place and wanted to share a few pieces that I found particularly interesting, emphasis mine.


  • “A story in the Atlantic Monthly at the time was headlined “The 1929 Parallel,” and the Wall Street Journal ran a piece on the morning of Black Monday superimposing a graph of the market’s recent decline on a graph of the market of the 1920s.”
  • “In late June of that year, Jones got himself convinced that the trend was downward. The S&P 500 index had jumped sharply in April and kept rising in May, but Jones thought this was a sucker’s rally. The United States was in the grip of the greatest credit bubble of all time, and Jones studied every precedent there was—Japan in 1989, the United States in the late 1920s, Sweden in the 1990s. He pored over the price patterns in these historical analogues, hunting for hints about how the market might behave. Then on Saturday, June 28, at 3:05 a.m., he fired off a eureka e-mail to colleagues. ‘I hate being an alarmist, really,” began the subject line. “But the current weekly S&P against the daily DJIA back in 1987 is really alarming to me.”

Masterful Performance

  • “By 1968 he (A.W. Jones) had racked up a cumulative return of just under 5,000 percent, meaning that the investor who had given $10,000 in 1949 was now worth a tidy $480,000.”
  • “A dollar invested with Steinhardt in 1967 would have been worth $480 on the day he closed the firm, twenty-six times more than the $18 it would have been worth if it had been invested in the S&P 500 index.”
  • “In 1977 Michael Marcus placed an ad in the financial press for an assistant trader. It was answered by an unlikely character who had dropped out of a Harvard PhD program and was now working part-time as a cab driver. When the candidate presented himself, it was love at first sight. Marcus picked up the phone and called Weymar. “Helmut,” he said eagerly, I have in my office the next president of Commodities Corp. The candidate was Bruce Kovner…Over the next decade, Kovner racked up gains averaging some 80 percent per year.
  • “Between its inception in May 1980 and its peak in August 1998, Tiger earned an average of 31.7 percent per year after subtracting fees, trouncing the 12.7 percent annual return on the S&P 500 index.”
  • “Farrallon’s consistency was legendary: Between 1990 and 1997, there was not a single month in which the fund lost money.”
  • “Over a ten-year period at Commodities Corporation, Michael Marcus increased the value of his trading account by 2,500 percent.”
  • “Druckenmiller was up 31.5 percent in 1989, followed by 29.6 percent, 53.4 percent, 68.8 percent, and 63.2 percent in the next four years.”

Tough times

  • “By September 1994, investors had pulled roughly $900 million out of hedge funds, and the withdrawals were still coming. Financial magazines pointed out indignantly that hedge funds were not actually hedged, and Forbes magazine proclaimed, not for the first time, “The hedge fund party is over.”…Paul Tudor Jones handed back a third of his capital to investors, while Bruce Kovner decided in June 1995 to give back two thirds; both cited the difficulty of maneuvering in and out of markets with too much capital.”
  • “By around 10:00 A.M. on October 8, 1998, Japan’s currency had appreciated by an astonishing 12 percent since the previous morning. More than $2 billion of Tiger’s equity had gone up in smoke; in the space of just over a day, the firm had lost two hundred times more capital than the $8.8 million with which it had been founded. Years later, in April 2009, the news that Morgan Stanley had lost $578 million in the space of three months was shocking enough to make the front page of the Financial Times. But in just over twenty-four hours, Robertson had watched four times more than that vanish.”
  • “In one respect at least, Robertson had been vindicated. His contention that Tiger was different from super leveraged LTCM was right; Tiger’s debt-to-equity ratio was around five to one, which gave it the muscle to hold on to its yen short rather than getting squeezed out of the position.4 But this vindication was scant comfort to Tiger’s partners. During the course of October, Robertson managed to lose $3.1 billion in currencies, primarily from his bet against the yen; and his excuses were not persuasive. “The yen, which was as liquid as water, suddenly dried up like the Sahara,” he pleaded to his investors, failing to add that liquidity had evaporated not least because of Tiger’s recklessness.5 Tiger had been short an astonishing $18 billion worth of the currency—a position almost twice as large as Druckenmiller’s famous bet against sterling.6 By trading currencies even more ambitiously than his rivals at Quantum, Robertson had baked his own Sahara.”
  • “Tiger lost 17 percent in the third quarter, even as momentum surfers were reaping extraordinary profits. The hemorrhaging of investors continued: When the window for redemptions opened at the end of September, a net $1.3 billion was yanked away from Robertson. Tiger had gone from a peak of $21 billion in assets in August 1998 to $9.5 billion just over a year on, and some $5 billion of the decline was due to clients voting with their wallets.”
  • “The day of reckoning did come, shortly after Robertson predicted it. On March 10, 2000, the NASDAQ crested, and over the next weeks the air whooshed out of one of history’s great bubbles. But the turn had come too late. By the time the NASDAQ began to fall, Robertson had made his decision to get out, and he was too beaten up to change it. On March 30, with the NASDAQ already 15 percent off its peak, Robertson broke the news to his investors. After months of assuring them that there would be light at the end of the tunnel, he confessed that he was sick of waiting for it. Rational measures of valuation had taken a backseat to “mouse clicks and momentum,” as Robertson put it, and he had no stomach for more punishment. Because of capital withdrawals by his investors, the market had stayed irrational longer than he had stayed solvent, just as Keynes had warned. It was time to bring the curtain down on Tiger.”
  • “Soros’s decision to go to cash that ay was perhaps the worst call of his career, costing his fund about $200 million. It capped a cataclysmic run: In roughly a week, Quantum had gone from being up 60 percent for the year to being some 10 percent down.; $840 million had vanished.”
  • “At the start of 1999, Stan Druckenmiller, Quantum’s supremo, had shared Robertson’s conviction that tech stocks were too high; but he had acted differently. Undeterred by the market’s momentum, Druckenmiller had placed an unhedged, outright bet against the tech bubble, picking a dozen particularly overvalued start-ups and shorting $200 million worth of them. Immediately, all of them shot up with a violence that made it impossible to escape: “They’d close one day at a hundred and open at one forty,” Druckenmiller remembered with a shudder.17 Within a few weeks the position had cost Quantum $600 million. By May 1999, Druckenmiller found himself 18 percent down. For the first time in his long career, he faced the prospect of a year with significant negative performance.”
  • “On April 28, Soros convened a press conference. He announced that Quantum was down 21 percent for the year and that assets at Soros Fund Management had fallen by $7.6 billion since August 1998, when they had reached their high-water mark of $22 billion. He explained that Stan Druckenmiller was leaving after a dozen years; Quantum would henceforth be managed as a sedate, low-risk endowment. Within the space of just one month, the two largest and most storied hedge funds had pulled down the shutters. “We have come to realize that a large hedge fund like Quantum Fund is no longer the best way to manage money,” Soros said sadly.”
  • For the next several weeks, Citadel’s losses continued. By the end of the year its two flagship funds were down a stunning 55 percent.

Renaissance Technologies

  • “Many of the patterns that Renaissance discovered were individually modest; to a first approximation, after all, markets are efficient. But by discovering a large number of minor inefficiencies and blending them into a single trading program, Renaissance built a system that racked up profits year after year, especially during periods of turbulence. In 1994, the year Michael Steinhardt lost billions in the bond-market meltdown, Medallion returned 71 percent after subtracting fees. In the crash of 2008, it was up 80 percent after fees—and almost 160 percent before them. By the time Simons retired, in 2009, he had become a billionaire many times over. In 2006 alone, his personal earnings reportedly came to $1.5 billion, as much as the corporate profits generated by the 115,000 employees of Starbucks and the 118,000 employees of Costco put together.”
  • “Again, this presents a contrast with Renaissance. Whereas D. E. Shaw grew out of statistical arbitrage in equities, with strong roots in fundamental intuitions about stocks, Renaissance grew out of technical trading in commodities, a tradition that treats price data as paramount.28 Whereas D. E. Shaw hired quants of all varieties, usually recruiting them in their twenties, the crucial early years at Renaissance were largely shaped by established cryptographers and translation programmers—experts who specialized in distinguishing fake ghosts from real ones. Robert Mercer echoes some of Wepsic’s wariness about false correlations: “If somebody came with a theory about how the phases of Venus influence markets, we would want a lot of evidence.” But he adds that “some signals that make no intuitive sense do indeed work.” Indeed, it is the nonintuitive signals that often prove the most lucrative for Renaissance. “The signals that we have been trading without interruption for fifteen years make no sense,” Mercer explains. “Otherwise someone else would have found them.”
  • “Medallion therefore closed to new outside investors in 1993, and by the 2000s the $6 billion or so in the fund consisted almost entirely of employees’ money.”


  • “Jones was even more enamored of Elliot wave analysis, as expounded by an investment guru named Robert Prechter.”
  • “I attribute a lot of my own success to the Elliot Wave approach.”
  • “Jones’s script for Japan soon played out in reality. The Nikkei 225 index fell 7 percent in February and 13 percent in March; and by the end of the year it had lost two fifths of its value, crippling what had previously been the world’s biggest stock market. But Jones did not merely get the big call right. With almost uncanny accuracy, he anticipated Tokyo’s fluctuations on the way to its final destination. Based on his knowledge of the patterns in previous bear markets, he predicted in January that Nikkei’s fall would be followed by a weak rally; and when the Nikkei stabilized in the spring, he duly switched from a heavy short position to a mild long one. The maneuver underlined the difference between the flexible style of a commodities trader and the dogged persistence of a value investor such as Julian Robertson, who never traded in and out of his position. Sure enough, the Nikkei rose 8 percent in May and Jones profited again, even though he was firmly convinced that the rally was temporary.”
  • “To this day, Jones maintains that he anticipated the 1987 crash because his red-suspendered, twentysomething colleague, Peter Borish, had mapped the 1980s market against the charts leading up to 1929; seeing that the two lines looked the same, Jones realized that the break was coming. But this explanation of Jones’s brilliant market timing is inadequate, to say the least. For one thing, Borish admitted to massaging the data to make the two lines fir. For another, he predicted that the crash would hit in the spring of 1988; if Jones had really followed Borish’s counsel, he would have been wiped out when the crash arrived the previous October. In short, Jones succeeded for reasons that we will explore later, not for the reasons that he cites. The lesson is that genius does not always understand itself.”
  • “This insight- christened “the limits of arbitrage” by the economists Andrei Shleifer and Robert Vishny- points to an opportunity that Jones could sense intuitively. Markets can move away from fundamental value because speculators lack the muscle to challenge the consensus; trend can keep going far beyond the point at which it ceases to be rational. But if you are a trader with more ammunition and courage than the rest, you can ambush the market and jolt it out of it’s sleepwalk. And because you will have started a new trend, you will be the first to profit from it. Jolting the market was something of a Jones specialty…. I can go into any market at just the right moment, by giving it a little gas on the upside, I can create the illusion of a bull market.”


  • “Druckenmiller understood the stock market better than the economists and understood economics better than the stock pickers.”
  • “In the last months of 1999, Druckenmiller made more from surfing tech stocks than he had made from shorting sterling eight years earlier. Quantum went from down 18 percent in the first five months of the year to up 35 percent by the end of it. Druckenmiller had pulled off one of the great comebacks in the story of hedge funds.”


  • “It is easier to focus if you don’t go home,” explained a young employee named Jeffrey Bezos, who went on to found the Internet retailing giant Amazon.” (Working at D.E. Shaw)

Other Nuggets

  • “He (A.W. Jones) told people that his profit share was modeled after Phoenician merchants, who kept a fifth of the profits from successful voyages, distributing the rest to their investors.”
  • “Then the age of the manufacturer arrived and Citadel took off, so that its assets swelled to $13 billion by 2007. The firm found it could charge clients almost anything it pleased: It billed them for expenses amounting to more than 5 percent of their capital before slapping on the 20 percent performance fee.”
  • “As leverage multiplied investors’ buying power, the sheer size of the bond market had been transformed. In 1981, according to Securities Data Company, new public issues of bonds and notes (excluding Treasury securities) totaled $96 billion. By 1993 those offerings had multiplied thirteenfold to $1.27 trillion.”
  • “In November 1998, for example, a plodding bookseller named Books-A-Million announced it was improving its Web site; within three days of this unremarkable news, its share price jumped tenfold. The following March a start-up called gained 425 percent on its first day of trading, which meant that this untested Web site for selling airline tickets was deemed to be worth more than United Airlines, Continental Airlines, and Northwest Airlines combined.”

From Soros and Simons to Asness and Griffin, Mallaby takes readers on an amazing journey through the history of the most accomplished investors of all time. Order the book now.

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  1. Gil Meriken commented on Aug 18

    Looked at from a certain angle, all of this activity looks like pure luck, where the winners can create any narrative to explain their success, and who is going to argue with success?