Recently I've been studying the greatest trades of all time.
Here's the story of how Paul Tudor Jones tripled his money by predicting one of the biggest stock market crashes of all time and became a legend:
[THREAD 1/11]
Here's the story of how Paul Tudor Jones tripled his money by predicting one of the biggest stock market crashes of all time and became a legend:
[THREAD 1/11]
This is a great story of a contrarian trade from PTJ that utilized a combination of fundamental, technical analysis, and understanding of market infrastructure; solidifying him as a legendary figure on Wall Street.
Leading up to 1987, the stock market has red hot and the S&P 500 had tripled in just 5 years. Valuations were extremely high as euphoria and greed spread across Wall Street -- PTJ recognized this.
Outside of general euphoria and greed, the biggest red flag to Paul Tudor Jones was the resemblance of the chart of the S&P 500 at the time to its chart prior to the great crash of 1929:
The final piece of the puzzle for PTJ was the rise of algorithmic hedging systems, called "portfolio insurance". This involved a system that would sell futures of stocks when certain market criteria were met, (such as percentage declines) to prevent large portfolio declines.
With no circuit breakers at the time, speculative leverage built up in the market, and everyone using similar systems, this left the market susceptible to large sell-off cascades.
On October 19th, the sell-off finally came on a day that would be remembered as "Black Monday".
On October 19th, the sell-off finally came on a day that would be remembered as "Black Monday".
The early stages of the crash began after news that tax advantages to mergers were going to be wiped out & that the US' trade deficit had increased.
The week leading up to Black Monday the S&P declined by 9% -- then over the weekend large quantities of sell-orders built up.
The week leading up to Black Monday the S&P declined by 9% -- then over the weekend large quantities of sell-orders built up.
With this extreme one-sided flow, many market makers decided to stop making markets; thus decreasing liquidity and exacerbating the market impact of the selling. Throughout the morning rumors of trading getting halted and questions around the solvency of the CME increased panic.
The selling frenzy was so crazy that at one point orders took an hour to get confirmed. The panic finally subsided after the Federal Reserve announced it would intervene and trading was briefly halted; After which PTJ covered his shorts -- netting him a whopping $100 million.
An hour-long documentary called "Trader" was created about PTJ including the real-time analysis that led him to believe that the crash was coming -- Trader can be streamed on most major platforms.
I hope you enjoyed this bit of financial history as much as I did. Will continue doing these threads -- let me know what trade you'd like covered next. :)
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