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

0:02 And welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money. If you enjoy these conversations and want to go deeper, check out Colossus, our quarterly publication with in-depth profiles of the people shaping business and investing. You can find Colossus along with all of our podcasts at Colossus.com. Mm-hmm. Chick O'Shaughnessy is the CEO of Postive Sum. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Some.

0:36 This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of positive sum may maintain positions in the securities discussed in this podcast. To learn more, visit psum.vc. Mm. My guest today is Paul Tudor Jones. I've been excited to do this episode for many years. I think Paul is one of the most legendary traders in market history. He's also just one of the most entertaining and interesting guys that I've ever met. Paul is so full of stories, it seems as though he's lived five lifetimes in just one. And all of the amazing lessons that he shares with us in this conversation, I think will leave you searching to be as passionate about what you do as he is about what he does. This conversation was recorded in mid-February twenty twenty six, weeks before the geopolitical conflicts now shaping the global economy.

1:26 Please enjoy this great conversation with Paul Tater Jones. was something that we talked about when we last met that made me laugh. I thought it'd be a fun place to begin our conversation today. And it was about the difference between being an investor and being a trader. And you mentioned something basically saying you wished you could be an investor. Life would be so easy. I'd love you to describe the difference between the two and the life of a trader.

1:51 I promise I'll do that. And we'll talk about markets and AI and everything. And at the end. I'll say Were you not entertained? And I bet you'll say yes, but Of all the

2:04 Things that you do in your podcast. The one that I think's the most important. If you don't mind, I'd love to start with that one, which is that question you ask everyone at the end. I'm in. I love it. And the reason why Is because it's so funny, I gave this commencement address one time to what is now Rhodes College in Memphis.

2:24 I remember when I was riding it, I was sitting there thinking Damn. Who gave my commencement address? I couldn't remember. No one remembers. Can you remember who gave your commencement? You're so young, you might. It was the president of Ireland at the time to Notre Dame. And you're Irish.

2:40 But it was so funny because no one remembers who gave their commencement address. I'm getting ready to do this for Fifteen or twenty minutes and no one's gonna remember a damn thing. How do I make it special. And so on this podcast I'm assuming People listen to millions of podcasts.

2:59 And they probably Can't really remember but fractions of them. There's anything they remember from this, I hope it's this part. All right, so everyone that listens knows. Question is, what is the kindest thing that anyone's ever done for you? It's such a great question because

3:15 The kindest thing was also my very, very, very first. Childhood memory. I was probably Two and a half or three. It's probably nineteen fifty seven.

3:28 And I was with my mother. at this place called the Curb Market. I got separated from my mother. And But you can imagine.

3:37 Being Two and a half years old, separated from your mother, you're terror stricken. This Elderly Black gentlemen.

3:45 Came up. And I was sitting there bawling my eyes out'cause I thought my mother had left me. And said, What's the matter, little boy? Yeah, I said I I lost my mama.

3:54 And he said, Well here, don't you worry. We're gonna find her and he grabbed my hand. We started walking up and down the aisles. It was a outdoor vegetable market. Gosh, I can almost still smell fruits and vegetables. We come around the corner finally.

4:10 And I see my mother and I was so Happy and my mother Saw me and first She just started laughing, and I remember her she was. Laughing so hard.

4:22 She comes and she gets me and she says to that man, she tries to give him. Five dollars, which was nineteen fifty seven, a huge amount of money. And he said, No, ma'am. I know you'd do that for my child too. And it was such a simple act.

4:38 Of kindness. But it was so profound to me at the time. So that night I had a prayer list with my mother that she used to go through with me every night. Sir B, God bless Mama, Daddy, Peter, Paul. Alberta, Grand Day, Pete and J Lennon.

4:55 And said and then We added, I said, what was that man's name? She goes, I never got his name. For the next one. Ten to twelve years. right in that prayer list would be that man.

5:07 Probably five thousand reps. Every night for that man. Fast forward. Two nineteen. Eighty six.

5:17 I'm living in New York City. I'm lying on my couch. Thirty two years old. And I'm watching Sixty Minutes and Harry Riesner's interviewing this guy. Ugine Lang and Ugine Lang was a businessman.

5:31 who had gone back to give the commencement address. to his elementary school up in Harlem. Бич овкурс о інтервени Сісті є. had completely transformed from a gentrified area into uh

5:47 African American Hispanic community with almost a Population entirely consisting of people of color. Jean asked the principal, how many of these kids? These twelve year olds. We're gonna go to college. The guy said

5:59 Mm statistically maybe I don't know, eight or nine percent, something like that. He could not believe that because obviously he had graduated from that school, gone on to college, and then done very well. So Right there on the spot he decided I'm gonna promise every one of those kids They graduate from high school, I'll put'em through college. And that

6:21 Resonated with me so much. And he adopted that class and he created something called the I Have a Dream program. I said I can do that. The next day I called him up.

6:33 And he said, you know, it's funny, three or four other people have called me and we're all meeting at my apartment. On Tuesday night, I got there late. I was seeing myself up in Harlem. Or somewhere on the lower east side of Manhattan, I got bedside the highest crime ridden community in New York at that time, even higher than the Bronx. And that began this journey.

6:55 I put my heart and soul into it. I'd go over there every Tuesday. Went to the commencement address of this elementary school. Did the same thing that he did. Told them that they graduate from high school. Upprunted college.

7:09 course everybody was jubilant. It was a big surprise. Parents were so happy. That began this big journey. for really the next fourteen years'cause I kept adopt success in classes. Ahead.

7:22 Tremendous passion. We're doing after school programs where Playing sports, teaching life skills. Абат три єрзина реаліз These kids aren't doing that great.

7:34 Now they've gone on to different Junior highs are not doing that great. So I started hiring some tutors, figured that out. And then probably four years in I've had one kid who got killed. Had a bunch of girls become teenage moms.

7:50 So now all of a sudden I'm dealing Not just with the academic challenges, but also with the social challenges to boot. Of which there are many. Along the way, I learned so much. By failing.

8:03 I learned so much about What it takes to actually be poverty. And by the way, nineteen eighty seven, the year after that was when Robin Hood started And then that informed

8:16 Me through Certainly was extraordinarily instructive. And as we built Robin Hood out. and began applying metrics and making sure we had goals and standards and a variety of things. It also led me ultimately to start

8:31 One of the first charter skulls in the late naніs. In Bedsty, right next to that spot actually. I started char school called The best uh Char School of Excellence. The first one started out as an all boys school.

8:46 We named it Excellence because I wanted These boys to know that We were gonna demand excellence of them, and we completely totally crushed it. We hired the

8:57 Absolutely dream team of educators to do it. And within about four or five years we were number one out of five hundred and forty three elementary schools. In New York City. The point being That you can have all the passion in the world, but you have to have

9:13 a plan. There has to be a great pedagogy in what it is that you're trying to do. When educating a kid. Why is all this relevant? To me, just think about this. So Here was this one simple act of kindness.

9:28 Um this elderly man helping this young child in that case a black man helping this young White boy. And so when I saw Harry Riesner I saw that.

9:40 elderly man helping those young kids. There's the photo negative. of what had happened to me and I thought It just was instinctive. The point here is that

9:52 One simple act of kindness. Can have waves of betterment. It can be so transformative and so multiplicative. There's no doubt in my mind. They had four thousand reps. of thanking that elderly man to help me as a child.

10:08 Inspired me when I saw Harry Riesner interviewing Gene Lang to emulate that in a sense. I keep thinking. How instructive it would be. If intentionally

10:19 We just all start every day. With a goal of One simple Act of kindness. It doesn't have to be anything big, it can be a something.

10:29 As small as what happened to me when I was three. And look. At the possibilities that come from it. Just imagine if three hundred and fifty million Americans intentionally sat out every day. For one simple act.

10:44 Of kindness. What I will say, particularly the young people who might be listening to this I'll tell you, before two thousand, I would say two thousand was kind of a turning point. All this demonization and criticism and the attack that we seem to be in was that it didn't exist.

11:01 It's not the way, by the way, that this generation that's perpetrating it and promoting it was raised is not the way. of the seventies, eighties, nineties, you didn't have these vitriolic attacks. There's a much higher level of civility and respect. And I think

11:18 Down the road we'll get back to it. So I would just say to young people you don't have to accept Today. is what this country historically's been about. Because it wasn't that way. when I grow up. Certainly wasn't that way. And it's not gonna be that way in the future.

11:36 Absolutely incredible story. Maybe my favorite. version of this answer that I've ever had. First time I've ever done it at the beginning of the episode, which makes it fun too. What was your message in the commencement speech that you ultimately gave? What did you decide was the Message to leave them with. So I got up there and I looked on the dais and I was like

11:54 twenty people over fifty or sixty. How many of you remember your College commencement address. None of'em, not one of them could remember. I love to hunt and fish. So I go through and I talk about

12:07 The normal Challenge they're gonna face in life. And I also talked about How Going through this process, I wanted to make sure I was gonna say something that's memorable.

12:17 So right there at the end I said, So whatever you do and I pulled out my bow. And I knocked an arrow. I said, So whatever you do Aim high and shoot straight. And when it went like this the whole crowd Aim high and shoot straight and I had an apple. On a table over here. Smash. I don't know whether they still remember or not, but I know when everybody was duck and I thought, Oh, they're gonna remember that. Absolutely love it.

12:46 It's an excuse for me to ask my other question about this difference between investing and trading. So I'd love you to explain the life of a trader in contrast to that of an investor. If I just think about When I started I started nineteen seventy six, inflation was raging. I started on the floor of the commodity pit.

13:06 Stuff was literally going up and doubling and cutting in half every year. The volatility was insane. To give an example. Of how crazy Things got Bunker Hunt

13:19 Was Squeezing silver at the time. And he bought About two hundred million ounces at an average price of about three and a half bucks.

13:29 And between nineteen seventy six and nineteen eighty we had crazy monetary policy. Inflation started ripping. And silver went. Literally through the roof. Ultimately I started out in the fourth of con exchange about a membership on Comex, which was a metals exchange at that time. I got in a pit.

13:46 And was executing some orders for them sometimes along the way. And The bottom line was it was just the most amazing bull run and I wanna say by like seventy nine. Silver was around thirty bucks an ounce and all of a sudden He was worth about five or six billion, which made him

14:05 Worth three times The next closest person in the world. Bunker says, Well I think this silver here's the most valuable asset and resource on earth. Someone asked him what are you gonna do with all that silver? And he goes, I'm gonna bury it.

14:21 I'm gonna bury it. Fact what I'm gonna do is I'm gonna buy twenty million more ounces and then we'll bury that too. So he buys twenty million ounces at thirty five bucks and when that happened It just Ooh. It just roofed.

14:35 Goes to fifty bucks, so at fifty bucks now. He's worth about eleven billion and he's got a multiple of five or six on the next closest guy. I just couldn't even believe what I'd seen and how much money that this guy had made anyway. So that was when Comex decided the commercials had been just eradicated because they're sitting there holding physicals and having to put up this margin every day and their bankers going, Yeah, I can't do it. So anyway

15:03 I mean liquidation only. Silver collapsed. Went from fifty bucks to under ten bucks. in the space about eight weeks. And that had a shearing impact on me. To see him go from

15:16 The richest guy to virtually bankrupt. in this short space of six or seven weeks. Right then there. I would never own anything. Or trust anything for the rest of my life.

15:27 My grandfather, when I was really young, said son You're only worth what you can write a check for tomorrow. really deep impression on me. So liquidity's always been something that's been In my DNA as a child'cause that was my Grandfall's favorite saying all the time. And then also just my early training days'cause

15:48 Marlin training days had ten thousand dollar cow. I'd run that thing to a hundred, run it back down zero. Also living in my early twenties. I had this friend He's such a character. He could take

16:02 twenty five hundred bucks for five grand and run into two million Of course the market moves in were crazy like no one I'd ever seen. We were rogers at that time at E F Hunting. And we called him the mortician'cause he'd get in a cow. With ten thousand. Sure and about a hundred thousand dollars commissions, take it to a million bucks and then

16:21 Have it in deficit. So you learned. That liquidity was really important because the volatility was so huge. We're all living on the edge. So that had a real impact on me. The idea of

16:35 Owning something. For the long run. was laughable. Because look how much money you could make by trading in the short run because uh the volatility profile was off the chart. One of my mentors who got me into trading. was teaching a class on investments in Virginia.

16:52 And asked me to come. be a guest lecture and I started in eighty two and I've been doing it every semester since I remember one of my favorite stories to tell that class. is I would go through How all the greatest fortunes in the world were made.

17:07 I always ask him, Who's the richest guy in the world? Back then it was Bill Gates and Warren Buffett. How'd they get there? And my point to them would be they got there by riding a trend for the long run. And that would be my Big lesson to them.

17:21 I'd always have two or three bullet points. My number one bullet point is you're gonna make your money. By riding a trend. For the very, very longest time. I said there are many different ways to achieve it. You can own a company like Bill Gates. Or Steve Jobs, whatever, or

17:38 You can be like Warren Buffett. You can be one of those value investors. Who won't spin a nickel. And I used to sit there and rail on Warren Buffett year after year after year. And

17:49 I would congratulate myself. for trash and goes, you know, he just happened to be in the right place at the right time and caught This bull market, if that guy had been in Japan, forget it, never would have happened. If it started nineteen eighty nine and the Nicky, forget it, never would have happened, different story, right place, right time, bull market genius. Guess this will be my fiftieth year. The difference between

18:12 My training in investing is If I just take our fund Which B the iPhone. For forty years it has a minus point one two. correlation with the S P five hundred. So you can see

18:25 The difference between Investing. And trading so a hundred percent of our returns. Or Alpha. A hundred percent. And I was just thinking, oh my God, why couldn't I be Warren Buffett? Just believe in America. And just waving you down fifty percent. Who cares? Cause America's gonna bring you through.

18:44 And not that he doesn't w he works as hard as any human being, but It's that belief system. That's so fantastic as opposed to I feel like I'm Like a right guard. But I've Ryguard in the NFL for fifty years where I'm just

18:58 Every day just Fighting in the frickin' trenches every day. And every time someone says to me, Gee, I want to go to training, I said Going along short. Go on the equity side.

19:10 Go do it. I've always envied that belief system. And it's worked so well for so long. I would have huge difficulty. Tibet and Warren Shees. in two thousand eight, nine have a fifty percent drawdown, they would have had

19:25 a really material impact on me. I don't think I have his Calm and patience and fortitude. to be able to do what he does. So anyway, I was listening.

19:36 to the acquired podcast on Berkshire. And for the first time I learned that at nine years old, nine years old. He understood the power of compound interest. And actually when I listened to that podcast, I just went Oh My God.

19:55 This guy. is a genius. And I have been the true fool. I've always wanted to write a book called What I realize now what you go through the success of mistakes. of beliefs that I've had my lifetime. What I realise now is what an Idiot I was.

20:15 is a flipping genius'cause he understood the power of compound interest, which I somehow managed brilliantly to avoid My entire career. He understood it nine. He went out. Seventeen went to Columbia and sought out Benjamin Graham. What A genius.

20:32 Now the great thing from that podcast is that he was also so smart that he partnered With Charlie Munger. Charlie was clearly Clearly. a tremendous genius in his own right because whereas Warren would buy fifty cent dollars.

20:48 Charlie understood the power of compounding. for companies that were growing all the time. And I think the two of them together Man, what a combination. But anyway. Warren, if you happen to hear this, um Deeply apologetic.

21:02 You are the OG Of compound interest. And I wish I was one tenth as smart as you are. Didn't you talk to him about what he thought about AI sitting there after when we first talked about? What was that conversation like? You cannot be a trader investor, whatever term we use, and not be

21:21 A really good risk manager. Anyone that's really succeeded investing or training is first and foremost a great risk manager and I went to a conference about eighteen months ago and I just was so alarmed by what I heard. And then I mentioned on C and B C and he watches CNBC every day and sent me a note and said, I agree with you a hundred percent, but the genie's out of the bottle. I don't know if we can get it back in. I think he's completely on board. with the belief that we have some real threats from AI. Problem with AI is that the news

21:51 I don't like in the last Twelve hours. The news that keeps coming out is just more disturbing. The biggest problem with AI is that if you think about The way AI is being

22:04 practiced and deployed right now. It's the bill break iterate model. Build it. Break it. Fix it and iterate. That's been

22:12 the invention model since the beginning of man. Build, break, iterate. But we've never been in a situation. We're the tail of it. could be hundreds of millions, if not billions. of lives. What's so scary when I was at this conference, which is only about

22:29 thirty five or forty people with One modeler. From the four biggest model companies. When

22:35 I was able to ask them pointedly. How do you think? That AI safety gets resolved. Pretty much the consensus answer is I think we'll finally do something about when fifty or hundred million people die in an accident. It's crazy. My big problems with a uh

22:50 Are the one There's no Plebiside on this. There's no vote. There's no way for the public to say yay or nay on the pace.

22:59 And that's the way that most innovation occurs. Again, this one has a tail event on it. That's so large. I go back to When the nuclear bomb was dropped, eight months later, our congress. And our administration was smart enough in forward thinking to create the Atomic Energy Commission. to begin to try to regulate something that had huge tails. Here we are.

23:21 We're three years in and regulate. What are you talking about? If there ever was a leadership position that needs to be taken. By any president is on AI regulation right now, not just in the United States. But convening With

23:36 China with all the other Orbeas to make sure. That we don't do something. That has catastrophic consequences, and that's just on the safety side. Not even. what's gonna happen to social disruption and Matt Schumer came out.

23:51 with a very lengthy essay on how the two new models that were released six days ago. are gonna 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

24:07 Inside Tudor would this thing would have been so contained so long ago. I mean, that's what a good risk manager does and yet there's zero risk management here. So your point about great investors and traders are great risk managers. In the face of AI, how do you think about This exogenous

24:24 Variable lurking. 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.

24:34 That all AI is watermarked. That's The single most transformative thing That we could possibly do. For the country, for the world.

24:45 Make it a felony. If someone knowingly violates that three times, Put him in jail. I wanna know what's authentically human and what's not.

24:56 In When that happens, talk about restoring trust. In the country, which I think is one of the biggest problems. I would say Two time since this year began.

25:07 I've had Very serious people call up and say, Did you see XYZ? And of course it turned out to be a deep fake. I think just so we can get back to some truth and honor in a normal discourse. I think we've got to do that. And the reason why it's so important is if I go back to that conference eighteen months ago, I would say a significant portion of the scientists there. Envision a future.

25:34 Where humanity is going to have a chip. In our brain. It's going to allow us to access so much knowledge, power, et cetera. So I'm just kinda looking down the road and thinking, okay. We really need to know what we're reading, what we're looking at.

25:51 Because Again that group without having any feedback from the rest of America thinks that A blended human with a machine is perfectly acceptable, is the future, should have inalienable rights. For me

26:07 I don't think that's the case. I'd vote no. I think most humans would vote no. 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? Yeah, he was so strong.

26:34 He was really good at executing. At the maximum apogee of fear. As well as greed. He was so good

26:47 And 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.

26:59 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 week in

27:10 And There was a great drought. Spectacular drought. And of course it rained. all through the belt over the weekend, walk in, market was limited down.

27:20 Head gun. Absolutely smashed. I thought, oh my God, that's over. That day for lunch, his wife brought in four friends. He had the most beautiful office I've ever seen my life. And he came out and just, oh my God, he had a smile on his face, all ladies. And flirting with the wives. I mean, I was in there going, Are you kidding me? This guy's broke.

27:45 And he's acting like he's Rock Hudson or something. Boy, I'll 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.

27:59 Hugely important. 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.

28:25 Oh, let's 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. There's a couple of metaphors that come to mind.

28:37 Let's start with boxing,'cause 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.

28:49 And I'm thinking. more of a classic one as opposed to a Mike Tyson one. But You're kind of Pairing.

28:57 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.

29:08 If I think about big shots. Bitcoin two thousand twenty. A knockout. Two year rates, two thousand twenty-two knockout. You have these incredible opportunities at times.

29:21 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.

29:34 But there'll be those few opportunities where you can do something really material. I love the boxing analogy. In the examples you gave Bitcoin to your rates, precious metals. So many things you've been through.

29:46 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, like what is the literal nature of one of these windows that opens every so often? If you think about All the really big moves.

30:04 It's probably because The market has Gotten too carried away, or there's been some imbalance that's gone on for too long. Or a central bank does something.

30:17 that they shouldn't be doing or a government does something they shouldn't be doing. So that's I think the genesis of most of the big moves, typically it's gonna be inspired by central bank or central government. A good one right now in the making. It's gonna be interesting, I think, is dollar yen. The yen's grossly undervalued, has been for some time. What's the catalytic moment? That's really the point you've got to ask in that catalytic moment. In this case

30:45 Was this New Primus that was just elected. And she has all the characteristics of uh Ronald Reagan. Or a Margaret Thatcher.

30:55 Or Donald Trump when he got elected the second time and if you look at what those local currencies did. They all appreciate pretty quickly ten percent off the bat. I wanna say Japan has four and a half trillion dollars.

31:10 A four and a half trillion dollar Net international. Investment position. to the good with the rest the world probably sixty percent of that's in the US And most of that

31:21 Is unhedged. So they just had this massive dollar liability. And all of a sudden. We've now got the most dynamic leader. And

31:31 Certainly a half a century in Japan, who's Japan first. is gonna have a very entrepreneurial way that she is going to remake that economy. So you're looking for something. That's

31:45 Under owned, undervalued. Way out of whack. People have gotten complacent on it. And you're looking for that catalytic moment. In the case of the two year rates in twenty two

31:57 We had way too much фіскости. And then pal, he overstayed being easy way too long because he wanted bond to reappointing. So as soon as Biden reappointing, it was go time. to get short two year notes'cause you knew the Fed was gonna normalize. And then in two thousand twenty You saw again all the interventions both on the central bank and the treasury.

32:21 You just knew that the inflation trades We're gonna take off and Of all of them what was the best one at that point in time. It was Bitcoin. Bitcoin is unequivocally.

32:33 The best Inflation hedge. That there is. More than gold because bitcoin is finite. There's only

32:42 So much bitcoin that can be mine. The problem. with it is inflation hedge is if you got into kinetic exchange, there's clearly gonna be cyber warfare. Anything that you have to deal with electronically is going down, including Bitcoin. So strike one. And then secondly quantum computing, who knows if and when.

33:01 With AI advancing as fast as it is that we may actually have quantum computing. Yeah, quantum computing someone can come in. And can hack any bank and hack anything they want to. So in terms of it being a great inflation hedge. Gold. Increasing supply every year by a couple of percent.

33:19 Bitcoin has a finite amount that can be mined. It's decentralized. And so in that It's has the greatest scarcity value of anything. If you think about the big ones that you've lived through, eighty seven. The global financial crisis

33:34 Covid, etcetera. various bubbles, asset bubbles through history. Maybe say a little bit about those general experiences. You're very famous for what happened in nineteen eighty seven, of course. I'm curious about those ones because I'm curious what you think about today's environment.

33:47 Are we in a bubble is a very popular question. Mostly that's answered by investors, less so by traders. And so I would love your perspective on the big ones that you've experienced historically and how those lessons apply to today. If I think of So really, really big

34:02 Accidents. Most of them have The same underlying reason. Same underlying foundation, which is Too much leverage somewhere. Most leverage.

34:13 Most of the time if I think of the big ones. Were derivative inspired. Either futures or options. Nineteen eighty seven, that crash was one hundred percent portfolio insurance. Hundred percent. Had they had limits, which they didn't, it would have been uh ten percent, maybe fifteen percent max, but

34:32 That was a hundred percent derivative if I think about nineteen ninety eight, long term capital. big derivatives and a huge balance sheet with a lot of derivatives they were off sides on. Two thousand was a little different. Two thousand was the easiest bear market I've ever seen my whole life. It's got so many similarities to right now.

34:52 In the sense that The bear market of two thousand one and two thousand two were A consequence Of all the IPOs, the ninety nine two thousand. And then as they unlocked?

35:04 Uh you just had this never ending. Cascade of cell. Cascade of selling. That's a great way of putting it. And we're getting ready. I wanna say that the contemplated IPOs of next year are gonna be Five, six percent of market cap. So

35:19 Why are we where we are right now?'Cause we've been retiring. two or three percent of market cap. Probably a little less than two percent market every year without fail for the past. 10 years. Through buybacks and things like this. Through buybacks. Yeah. And so now all of a sudden you're gonna completely reverse that math. And so I don't think it's necessarily happens instantaneously with the appo, but then there'll be the unlocks. So you can see a situation where Okay, maybe go through some kind of rolling top.

35:48 And then Eighteen months from now. Six months. We'll have to look at the unlock schedule. But you're gonna wanna watch those because that'll just be adding equity supply. And you've already gonna be diminishing the buybacks.

36:02 Because of all the commitment to capex from the hyper scalers, they're already gonna be eating into their cash flow. So I think that's why tech has dogged it and why it will continue to dog it because All the funding, much of the funding for these appo's is gonna get it's gonna come out of existing tech stock. When you say are we in a bubble, I don't know. If we're necessary in the bubble, we're clearly so

36:25 Lavaged. in equities in this country were so Dependent. Upon firm equity prices at this point in time.

36:35 And when I say leveraged, we're two hundred and fifty two percent. Of Stock market cap the GDP. So nineteen twenty nine. We were

36:45 I think at the top we were sixty five percent. And then In eighty seven we got to about eighty five or ninety percent. In two thousand We got to a hundred and seventy percent. And now we're at two fifty two, so

36:58 You can just imagine. If you think about the periodicity of significant bear markets. Since nineteen seventy we get kind of a mean reversion. About

37:10 On average every ten years. When I say mean reversion, let's say mean revert to the past. twenty five or thirty year PE. So if we did that Here. That would be and again, these are elevated Ps, way elevated beyond the twentieth century.

37:26 That would be a say a thirty, thirty five percent decline. Well, thirty five percent. on two hundred and fifty percent of GDP is eighty nine percent of GDP the reverse wealth effect. Oh my gosh. Ten percent of our tax revenues or capital gains, they go to zero. So you can see the budget deficit blowing up.

37:45 Can see the bond market getting smoked. You can see this kind of negative self reinforcing effect. And so It's troubling. It's troubling. So Are we in a bubble? We're clearly in a sovereign

37:58 Dead bubble? In the stock market where Over equitized as a country. Had the highest individual equity. Waitings.

38:07 In the history of the country and then The real problem is is that we're also If you look at private equity in two thousand seven, two thousand eight, that was about Seven percent of Institutional portfolios.

38:19 Now it's about sixteen percent of the institutional portfolios. Real estate's gone up. infrastructure beds have gone up. We're so much more liquid. than we were in two thousand and eight. So You have to be cognizant of that fact when you think about how you have your money deployed. I had a friend ask me.

38:38 He was a wealth manager and he hates hedge fund because of fees. He just says, We just need to put mine in the SP five hundred. He said, If you were investing for twenty years. What would you tell somebody? 'Cause he knows that I'm supposed to say you just buy the S and P close your eyes. Well the problem is that if you buy the S P at this current valuation, the ten year forward returns

39:00 Negative. when you buy with the S P P of twenty two, that's what history shows. So yes, the S P is a spectacular. Long term. If you have a hundred year view.

39:12 But that's because That's an average of a hundred years, including times when the S P five hundred P E was six and seven and A or one third of what it is right now. So Valuation matters a lot. And the stock market's really high and it's gonna be really hard to make money from here, I think, with any kind of long term view.

39:32 If I came and shattered you on a given day today. How does it go? What are you doing? What does a day look like? Today. I know you have a system that you can be heard by all times and by your execution traders. I know it's intense. But walk us through a day in the life.

39:47 I get up at Six fifteen. I work till seven o'clock. I go work out. Till seven forty five I try to do forty five minutes of hard cardio every day. I get in front of the screens for the opening.

40:00 I typically won't have any meetings till ten o'clock and then I'll probably do meetings till about Twelve o'clock. Typically have lunch with someone. Have a meeting after lunch. try to make sure that I've got an hour before the close and an hour after the close to be able to map out.

40:18 What I want to do the next day. 'Cause again I wanna have a plan. As well as think what's gonna happen that night and Tokyo, Hong Kong. I'll go home around five.

40:30 Walk with my wife for an hour. Go upward for an hour. Come back down and eat. I've normally watch the news in the most mindless entertainment that I possibly can. I used to read a book and a half a week. And then once the internet came, forget it. I'm so tired of reading by the nighttime. I've read one book in the last year, which is gonna be, by the way, I recommend everyone read it. It's David Wood.

40:56 He's a newsletter writer, but he's written what's gonna be a spectacular bestseller on globalization markets is fantastic. And I'll bet you gets made in Netflix series and I'll bet you it's gonna be banger. Anyway, I'll try to watch Something on Netflix. Then I'll Work from say nine thirty to ten fifteen and then go to bed. Then I'll wake up at

41:19 Six fifteen and different things. I wake up at probably two thirty or three and I'll work for half an hour, watch line open for forty five minutes, half an hour. Yeah, I'll do a lot of analytical work then. It's a quiet time, it's good. Then I'll go back to sleep and wake up to six fifteen. Wow. And you've been doing that for fifty years. Yeah, I've been doing that for certainly since the eighties. I feel like I worked so much harder than I did. Forty years ago, thirty years ago.'Cause there's more information. Oh my God. I get

41:46 eight hundred or a thousand emails a day. If I think about when I was a pit trader I think about even the eighties when there was so much less information. I can spend more of my time. Intently focusing

42:00 on what the highs lows were gonna be in the day, which are really important for execution, doing what my boss Eli did. Just waiting. Paying attention. Focusing Are we at point of maximum pain?

42:15 is there's so much fear right now, which is a great time to buy. Does it look like it's gonna go up forever? A great time to sell. You have to be intentional. to be able to pick those points in a day. And when you're training twenty five different instruments, instrument by instrument by instrument, a lot of times it'll be correlated.

42:32 Sometimes or not. You have to be very intentional about that. So If while you're doing that There's forty eight emails coming in at the same time, all of which

42:42 Could be actionable information. I think today For me at least. It's just a lot lot harder, I think, because the information overload. distracts me.

42:54 From Exquisite execution. What does that mean, exquisite execution? Am I buying? when there's blood on the ground and am I selling when there's complete elation.

43:05 Let's take last Friday. We had the largest damn day. In the history of gold and silver. So You have to be paying attention.

43:16 Every minute. Because when you have a thirty three percent move in silver in one day You just Have to be so focused. On

43:27 that day's activity what you're gonna do that Um opening what you're gonna do if the price moves to a certain price. That you weren't anticipating that day. It gets back to well learning bad stuff. You better have a plan. You better have a plan ahead of time and it better be self executing.

43:44 And you better have thought through that. And I hear it from my other friends who are macro traders. I think oh, God darn it, I just feel like I'm Two hours late. Three hours late. Last Friday was a great example. Can be so material.

43:59 If I think about what's required to do that day in, day out, there's got to be just like an enormous amount of passion for markets and what you do. Can you just talk about the notion of finding, nurturing The importance of passion in a life's Work. So funny when we talk about Traders, great traders. And again, I'm

44:19 Talking about people who are alpha generators. Not investing. We had a Dinner. About

44:26 I guess it was a year ago Christmas. And I had Four or five. of my best risk takers at dinner and we Had a debate.

44:34 A great trainer's born or made. I'd say it was unanimous agreement at the table that seventy percent of it is Nature. And when I say born with it. By the time I was twenty one, I loved games.

44:48 I love chess. Backhammon Parcheese Monopoly. Battle Jinrame. You name it. I played it.

44:57 Then I started gambling in college. I had a degree in probability theory. And had never taken a math course on it, but I knew it. I was such a game fanatic and I loved it so much. Find it, pick out the number one traits.

45:12 Type A personality. Incredibly curious and inquisitive. And Loves. Loves competition, loves games.

45:21 Because again, our whole business. It's just Another form probability theory. And I still love the day. I play bridge with my friends all the time. I can't get enough of that.

45:32 I love any kind of game of chance. And I love trading. And the other reason that I love trading, I'll never forget My wife's Australian. And when you first got married back in nineteen eighty nine, she said, Well

45:45 I know you gotta live in New York. But I came from the beach. So when our last child graduates from college, you're taking me to the beach. So sure enough My son turns eighteen, my fourth child. Two thousand fourteen.

45:58 We're going. So we Ended up down here in Palm Beach. She gives me a G P. The GP a general practitioner. She makes me go in. I see the guy.

46:09 This guy's eighty three years old. And I say to him, You're living here in the land of the walking dead. Everyone here is basically fossilized. От із скрет. to longevity. And he goes, It's real simple.

46:23 You retire, you die. That had a really profound impact on me. 'Cause I realise as I get older, and maybe when you get older you will too. If you don't use it, you're gonna lose it. And that's why I try to work out

46:37 Two hours a day. Another reason that I enjoy trading is I wanna keep my mind sharp'cause there are too many things. That I wanna do when I'm My father lived to be a hundred when I'm in my nineties that I wanna do. So

46:50 I think training is great therapy for me. The other reason that I really enjoyed trading is I'd like to make An absolute Pot of money.

47:00 So I can give it away. I got so many causes. That I wanna give it to you that I actually feel like this is pursuit of nobility. I feel it's a privilege to wake up and I just hope I Frickin' kill it. So I can give it away.

47:13 Can you tell us the story of starting Robin Hood? You talked to us earlier about the charter school work and everything in bed style. Robin that started the year after It's a really important part of your Life and legacy.

47:24 Robinhood happened the day after the crash. Maybe the worst macro call of my life. Was thinking we were gonna go into depression. I thought For sure. I've been looking at the parallels in nineteen twenty nine for a year.

47:38 All of a sudden it happens. I think, oh my God, this is a perfect replay, a perfect analog. So I called up My friends And we began it. It was just been

47:49 The most marvelous journey. I can't recommend Anything more highly Then getting involved with some cause that you believe in. The best part of

48:02 philanthropy and charitable giving. Is The people you meet. Oh my gosh. I've met The greatest, most wonderful, most giving

48:13 It just brightens every aspect of your life to be associated with The best people who embody The best ideals. We say we gotta do something, so

48:26 The only alternative to that there really weren't any charities focused. on fighting poverty, which I thought was gonna be rampant at the time. So I've always believed you want to do something, you're better off doing it yourself. So we started out Very small. And we just applied basic business principles.

48:46 to Finding The most efficacious way Um Helping people in need.

48:52 Again, along the way I'm learning by doing and making all these mistakes along the way. And I'm learning so much. And then I realize Boy, this is a science. And then we just started hiring

49:06 the very best people that we could. As our staff and then recruited. It was so easy. to recruit people from the financial world to help. The nineties were a special time.

49:18 Everyone wanted to participate and give back and help. I I don't know what it was, but my gosh, we created so many fantastic philanthropists. In that era. In the eighties it was completely different. Everyone wanted to be associated. With the Philharmonic

49:35 And these are all great. But they wanted to be with the name social charities. And I'd say after the crash everyone found their significance by helping others.

49:48 Maybe it was just because that was when really started to accumulate these big fortunes, individual fortions for people. And they were just really, really wonderful about One to give back and the whole financial community supporting Robin Hood. Such a spectacular way. The whole hedge fund community in New York it was

50:07 Really still is a joy. If you think about the whole broad world. What feels the healthiest to you today about the system that is the world? that makes you the most optimistic. And where does it feel the most fragile?

50:20 I'm trying to fast forward. To the workless world. To where AI does so much for us. That we don't have to work. And

50:30 I used to have a really negative outlook. on what that would be like'cause if you think about it. So many of us define our significance through our work. Imagine a world.

50:42 Where now The significance that huge incredibly important component. Of human happiness is now taken away from us. Because of the fact.

50:53 That we don't have to work. I used to really despair about that. Because as someone who works all the time and finds my significant, what am I gonna do? But I've become more optimistic. recently because as I

51:07 Think through. How Athletes find significance in the sports they do. How? I play bridge with my friends and find so much significance in competing with them.

51:19 I think maybe humans are adaptable enough that we'll find a different way to find significant. Maybe it's gonna be in finding that intentional simple act of kindness every day. I'm not sure What it is, but I do think that as a race we're so unbelievably adaptable, so smart. That we might be able to find out a way to find happiness.

51:44 I think that's gonna be The biggest challenge. Potentially in four or five years. Is What do we do when so many of our jobs have been replaced by AI?

51:55 So many young people are trying to figure out What to do. What their careers are gonna be. You've talked and written a lot about the power of communication, like great communication. It's like such an essential skill. Journalism is an interesting way of learning that. Can you talk just about that power as a message to young people trying to figure it out why they should maybe focus on that? I have

52:15 long maintained that better than a business school degree. Journalism one oh one should be a mandatory subject in every college, which is newspaper running in particular. And it was so important to my development. Some I follow the hand are really small. Trade finance legal paper in Memphis twenty five hundred person subscription.

52:35 I would be the copy out of the front page editor and then I would write for it. And took journalism classes and what newspaper writing does is it teaches you you have to write. Where the conclusion comes first.

52:49 So unlike Right something. And then at the end we get the story. Here The end comes first. You have to ride it.

52:57 With this incredibly Rigid discipline. So that Every Succeeding

53:04 thing that you write. The most important part Is in the first sentence. of the first paragraph, the first paragraph's not more than two sentences. Who w where when and why and how?

53:16 That's the first one. Then the next most important thing. That's the second paragraph. No more than two sentences. Then the next one. Same thing. What is that really? It's a principal component analysis of taking whatever event may have transpired. And putting it in this cogent way.

53:33 where the most important stuff starts, the beginning, and you work your way down through it. Particularly where Today's world. The tension spans are this short. And time clearly is money.

53:45 You wanna be able T. Communicate. In the quickest and most concise fashion you can where you get Your entire point across.

53:54 in the shortest amount of time. There's that old saying if you can't Tell your story. In fifteen seconds or less, no one's gonna listen. Never been more true than right now. 'Cause again, if you're getting a thousand emails a day.

54:06 I wanna know. In the first paragraph, whether I want to keep reading or not. As a macro thinker, man, it helped me so much. Frame. Every potential training decision.

54:18 Every single action I could just again very quickly because I had learned how to do it. Do Matt. Principal component analysis and hierarchy the most important things.

54:30 And in trading There there's so many different variables that come into play. So many different variables that come in in making a train decision. Let's say that there's Ten really important things.

54:42 Every one of those will have its day. it'll rotate through in terms of importance. Again. The yen's a great example. It's been completely undervalued for the past. Twenty four months way off sides. It's so ripe.

54:56 to rally sharply, but it needed a catalytic moment. And that catalytic moment. Was this New Prime Minister was just elected. So if you take valuation Which everyone's ignored now.

55:09 for the past. Two years in the end. All of a sudden. This moment takes it from here. And puts it at the very top.

55:18 So newspaper style, hugely important in developing any logic framework. What's the most important thing? that's actionable at this second in that particular instrument. What's my checklist? And how to hierarchical. And that's literally what training's all about. If I were to ask you to do that.

55:37 on the topic of the principal components of a great life. How would that read? God Family. Friends

55:47 When I think of friends, I think of fun. God, family, friends and fun. Service. I mean my significance. is not gonna be from

55:58 Being a trader. I don't think that's where my significance is gonna be. My significance is gonna be First and foremost. gonna be my family every now and then, like I actually get joy.

56:09 out of thinking about My funeral. 'Cause I'm so excited about the songs that I've chosen that'll be sung. I almost wish I was gonna be alive for that,'cause it's gonna be such a great time. I know my family and friends will enjoy it. I'm thinking of family'cause if I think about the end of my life and I look back

56:29 I'm not gonna be thinking about the eighty seven crash. Um Bitcoin. I'm gonna be thinking about. Who I loved and who loved me. That's what I'm gonna be thinking about.

56:39 And what kinda relationships we had and what kinda Times we had. I think the professional aspects Are these great tools. That allow you

56:49 to do more meaningful things. And the things that count. Which is What have you done with your family? What have you done with your friends? How you served others.

57:00 What have you done? To leave a legacy of happiness embitterment. And goodness. to the people that you've been privileged enough to come in contact with. And when I say

57:13 Legacy. I don't mean Words, I mean deeds. So what have you Done. And his

57:20 Allowed other people to enjoy And better their station in life, their happiness in life. For me, that's the most significant thing by far and away. Do you always believe in God?

57:33 I have trouble at times. I mean, yes, I do. My faith is tested like I think anybody. Faith is test and I wish I could say Well the hundred percent certainly I know I'm going to heaven. I certainly

57:45 Pray every night. The most important Aspect. Is and the reason why I think it's so important. For

57:55 Us all to have God in our lives is You gotta have S set some code by which you live. I think Christianity

58:05 Judaism. a variety these had these wonderful doctrine ways. of bringing stability and order and goodness in people's lives. They give you something. that you can lead a productive life with and in in a way that's very sustainable.

58:25 And allows you to Again, engage with everyone around you with great happiness and joy. What about Africa? What does it tell you? I love Africa so much'cause I love the outdoors. Can I just say this? It's taken me seventy years to get this point.

58:40 My new new thing. I love to find Pink Spring. And Pigfall. It doesn't have to be Africa. You can find that day.

58:51 In a neighborhood. And in Pink Spring when the colors are vibrant and when the Fragrance. It's just overwhelming. You can find it to the minute in the right place. And I've never felt so loud in my life.

59:04 And I look for that. I now travel. United States for that moment'cause I know when Peak Spring is in Georgia. I know when Peak Spring is In Tennessee and I know when it is in New York City and I know when it is north of New York City'cause New York City's normally a week behind. Um, this place I go to in upstate. Same thing in fall. There'll be a day

59:26 Where you get the intersection. And the North East is the best'cause it has the greatest biodiversity where you see the greatest color. And you can see those color changes by day by tree. You find that day with that intersection of color change, I'm telling you, if you find that, you can feel the energy. I never felt so like you feel God at those moments.

59:47 It's such a wondrous moment. As you go through how life is changing so fast. In case of spring, obviously. It's blooming in the case of fall, it's transitioning. into a more dormant period, but they are

1:00:00 So energetic and so exciting. And I highly recommend people try to in their neighborhood. Find that day. Boy, make sure walking that afternoon before sunset. Oh my Gosh, it's a joy.

1:00:15 You've lived so much life in the years that you've been with us. And I never asked the question of general advice. I think it's kind of a lame question. But I'm tempted to close the conversation there with What you would just tell people listening that This audience is passionate, they're curious.

1:00:31 They're searching for their thing or they're trying to get to be the greatest at their thing, they're competitive. What would you tell them? It's done. The sum total of all your amazing life and experience. My mother

1:00:44 Used to always Say. And I think this is what this country really needs right now. You just Gotta kill him with kindness. You're gonna wake up.

1:00:55 Some days gonna be terrible. You're gonna be in a bad mood. There's gonna be something on T V that's gonna make you angry. particularly in these times right now, my gosh, when Everyone wants to demonize the opposition. I think we've gotta Realize it doesn't have to be that way.

1:01:12 We can humbly Devote ourselves to finding the kindness within ourselves and the goodness within ourselves and transmit that to somebody else during that day. I think that's the secret to happiness. You don't have to worry about yourself. You have to worry about

1:01:31 How am I going? To brighten someone else's day. And with that attitude, one You'll always be happy. I'm just gonna spend this one day doing this one hour to act. And if you repeat it enough, again

1:01:44 Everything is about the reps. Pretty soon. You take uh should And they will become I ams. So if you take that

1:01:54 mentality. That I want to Do this wonderful act of kindness for someone else. Pretty soon. You become an incredibly kind person. It becomes natural.

1:02:07 it becomes instinctive and organic. And it just it's gonna brighten. Your day. And you'll have just such a positive outlook on life. And I think that's what we need to intentionally begin to do every single person.

1:02:22 For sure it'll be a much better world. Paul, thank you so much for your time. Thank you. If you enjoyed this episode, visit Colossus.com. You'll find every episode of this podcast complete with hand edit transcripts. You can also subscribe to Colossus, our quarterly print, digital, and private audio publication featuring in-depth profiles of the founders, investors, and companies that we admire most. Learn at Colossus.com/subscribe.

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