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Ten Principles of a Money Master

The Wisdom of Paul Tudor Jones

Unlike many areas of business, in TRADING and INVESTING we have an advantage. We can learn from the wisdom of many great investors who came before us.

One of those is Paul Tudor Jones.

Jones was born in Memphis, TN in 1952 and attended the University of Virginia. 

His cousin was the CEO of one of the world’s largest cotton trading merchants and helped him get a job trading cotton futures at the New York Cotton Exchange. A job he actually got fired from for falling asleep at his desk after a night partying in New Orleans!

Eventually he joined famed broker E.F. Hutton and a few years later founded his own asset management company called Tudor Investment Corporation. Amongst his first investors was the guy who fired him…

As of a few years ago, his firm manages more than $12 billion and he has put together one of the best TRADING track records of all time.

Here are 10 principles that have been KEY to his success…

1. He Works Hard and Loves What He Does

“The secret to being successful from a trading perspective is to have an indefatigable and an undying and unquenchable thirst for information and knowledge.”

This is true of all of the great investors. They have an incredible curiosity and love the game. If you are reading this newsletter, it is probably true of you too!

2. Follow Price Not Fundamentals

“At the end of the day, your job is to buy what goes up and to sell what goes down.”

Jones is more of a TRADER than INVESTOR. This style of money making can be very successful and work in any environment. The key is to focus on the data and results. Focus on the “is” and don’t worry so much about the “how” and “why”.

3. Humility and Flexibility

“Every day I assume every position I have is wrong.”

The goal is to make money. Being right intellectually but wrong on making money is just losing.

4. Don’t Add to Losers

“Losers average losers.”

This isn’t true for all styles of money making but it is for Jones and he has done very well.

Winning can make you rich. Losing can put you out of business. You can’t get rich if you are out of business.

5. Adapt, Evolve, Compete or Die

“You adapt, evolve, compete or die.”

We don’t think this quote needs a lot of explanation!

6. Learn from Failure

“Failure was a key element to my life’s journey.”

Early in his career he made many mistakes. He took those mistakes and figured how to eliminate those actions from his process and also make himself a better trader.

It is impossible to become a great money maker without making mistakes and learning from them.

7. Rule One – Manage Risk

“At the end of the day, the most important thing is how good are you at risk control.”

As we said above, you can’t make money if you go out of business. Manage your risk to be able to stay in the game.

8. Cut Losses and Move On

“If I have positions going against me, I get right out; if they are going for me, I keep them… Risk control is the most important thing in trading. If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in.”

The psychology of cutting losing positions is one of the most powerful aspects of trading. Relieving yourself of the stress and pre-occupation is much more important than any money you may have lost.

9. Trade Small When Losing

“When I am trading poorly, I keep reducing my position size. That way, I will be trading my smallest position size when my trading is worst.“

We have used the analogy that your investment process is a dance step and the markets are the music. Sometimes you are off the beat and then it is time to sit one out. Come back on the next tune and start slow…

10. Look for Only the Best Trades

“I look for opportunities with tremendously skewed reward-risk opportunities. Don’t ever let them get into your pocket – that means there’s no reason to leverage substantially. There’s no reason to take substantial amounts of financial risk ever, because you should always be able to find something where you can skew the reward risk relationship so greatly in your favor that you can take a variety of small investments with great reward risk opportunities that should give you minimum draw down pain and maximum upside opportunities”

We emphasize this at HX Research. You have limitless opportunities in the markets. You should pull the trigger on only the very best of them!

Which of the quotes above resonates the most with your own strategy?  Or which do you think you should adopt?  Let us know your thoughts in the comments section online or email us at [email protected].

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