Invest Like the Best with Patrick O'Shaughnessy
· Paul Tudor Jones, Patrick O'Shaughnessy
Matt Shumer came out with a very lengthy essay on how the two new models that were released six days ago are going to be so unbelievably disruptive to the workforce. So, the news in my mind keeps getting more alarming. I can tell you, if this was anything to do inside Tudor, this thing would've been so contained so long ago. I mean, that's what a good risk manager does. And yet there's zero risk management here. [00:00:00] S0: To your point about great investors and traders are great risk managers, in the face of AI, how do you think about this exogenous variable lurking?
· Paul Tudor Jones
[00:00:00] S1: The one thing that I think should be part of this next election – the simplest, most important thing that we can do is we can demand that at all AI is watermarked. That's the single most transformative thing that we could possibly do for the country, for the world. Make it a felony. If someone knowingly violates that three times, then put them in jail. I want to know what's authentically human and what's not. And when that happens – talk about restoring trust in the country, which I think is one of the biggest problems. I would say two times since this year began, I've had very serious people call up and say, “Did you see XYZ?” And of course it turned out to be a deepfake. I think just so we can get back to some truth and honor and normal discourse, I think we've gotta do that. And the reason why it's so important is, if I go back to that conference 18 months ago, I would say a significant portion of the scientists there envision a future where humanity is going to have a chip in our brain that's going to allow us to access so much knowledge, power, et cetera. So I'm just kind of looking down the road and thinking, “Okay, we really need to know what we're reading, what we're looking at.” Because again, that group, without having any feedback from the rest of America, thinks that a blended human with the machine is perfectly acceptable, is the future, should have inalienable rights. For me, I don't think that's the case. I'd vote no. I think most humans would vote no.
· Patrick O'Shaughnessy
[00:00:00] S0: So, coming back to some of these themes of investor versus trader, risk management, et cetera. I know you learned a lot from this guy, Eli Tullis. I love these lessons that were formative for you for what became the trading legend that you now are. What did he teach you and was there any specific episode from your time with him that taught you the biggest or most important lesson?
· Paul Tudor Jones
[00:00:00] S1: God, he was so strong. He was really good at executing at the maximum apogee of fear as well as greed. He was so good at smelling that. Because he traded hardly anything but cotton, he would just sit there and he would just focus. He was just so good at waiting for exactly when there was just too much elation or when there was too much fear. And so that was really helpful. And then I would say the number one thing I learned from him was – we were so long cotton one weekend, and there was a great drought, spectacular drought. And of course it rained all through the belt over the weekend. Walked in, market was limit down. He had gotten absolutely smashed. I thought, oh my God, it's over. That day for lunch, his wife brought in four of her friends. He had the most beautiful office I've ever seen in my life. And he came out and just – oh my God, he had a smile on his face. “Oh, ladies!” And flirting with the wives. I was sitting there going, are you kidding me? This guy's broke, and he's acting like he's Rock Hudson or something. Wow! Boy, I tell you what, I'll never forget that one to this day. When the going gets tough, the tough get going. You wear it here and you have that confidence, you're gonna come back. Hugely important.
· Patrick O'Shaughnessy, Paul Tudor Jones
[00:00:00] S0: Feels like the right time to ask you just what trading means to you. You've said before that the whole world is just this interconnected series of capital flows and part of the job is being on top of that and taking positions based on what's going on in the world. But mostly I interview investors who buy stakes in companies. I very rarely interview someone that is moving and putting on major positions in any sort of asset class or trading instrument. And so I would love to just hear you describe like what, to you, trading is? Like, what is the literal act that you are doing every day with such excellence for decades? [00:00:00] S1: There's a couple of metaphors that come to mind. Let's start with boxing, because you have an opponent – in this case, it's the market. You know, you're going into the ring with this opponent who's after you the whole time. And I'm thinking more of a classic one as opposed to a Mike Tyson one. But you're kind of parrying, jabbing, feeling each other out, looking for an opening. And then every now and then you'll have a great opening, and you take a big shot. And you may land one. If I think about big shots – Bitcoin 2020, a knockout. Two year rates in 2022, knockout. You have these incredible opportunities at times if you just sit and wait. The whole time in the interim, some of it you're just gathering information, looking for those openings. You're always trying to make progress, you're always trying to win the round, but there'll be those few opportunities where you can do something really material.
· Paul Tudor Jones, Patrick O'Shaughnessy
[00:00:00] S1: There's a couple of metaphors that come to mind. Let's start with boxing, because you have an opponent – in this case, it's the market. You know, you're going into the ring with this opponent who's after you the whole time. And I'm thinking more of a classic one as opposed to a Mike Tyson one. But you're kind of parrying, jabbing, feeling each other out, looking for an opening. And then every now and then you'll have a great opening, and you take a big shot. And you may land one. If I think about big shots – Bitcoin 2020, a knockout. Two year rates in 2022, knockout. You have these incredible opportunities at times if you just sit and wait. The whole time in the interim, some of it you're just gathering information, looking for those openings. You're always trying to make progress, you're always trying to win the round, but there'll be those few opportunities where you can do something really material. [00:00:00] S0: I love the boxing analogy. In the examples you gave – Bitcoin, two-year rates, precious metals – so many things you've been through. What is going on in one of those? Like maybe pick one and I'm literally curious what you are doing in the moments – what you're looking at, what you're studying, what supply-demand imbalances you see. What is the literal nature of one of these windows that opens every so often?