Paul Tudor Jones Defines “Best Investor”. Use These Measures To Beat Billionaires.

June 3, 2022

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“…at the end of the day, the most important thing is how good are you at risk control. Ninety-percent of any great trader is going to be the risk control.” Paul Tudor Jones.

“Making friends with bears through math? You make friends with bears by understanding them, and by avoiding behavior that will get you eaten.John Hussman

“That hurricane is right out there down the road coming our way.” Jamie Dimon, JPMorgan CEO 

No doubt Investors are hoping for a better environment. The combination of persistently high inflation, declining world growth and tightening central banks is a hostile set of conditions. The downcycle is clear from the direction of new orders, retail sales and inventories.

The economic cycles will always turn but, for now, patience and risk management are the order of the day.

Jamie Dimon’s statement should not be ignored and speaks powerfully about how challenging conditions could get.

https://twitter.com/business/status/1532023162610720769

Make sure you have a robust full cycle strategy in place. This week the focus is on Paul Tudor Jones, the Best Investor system for outperforming Billionaires, and understanding John Hussmans’s long term road map.

John Hussman’s latest analysis provides great long term perspective on US equities. It speaks to the danger of assuming that the post 2008 economic experience is any kind of “normal”. Investors should guard against any automatic assumption that this kind of market behavior will repeat.

Despite the year-to-date decline in the S&P 500, the most reliable valuation measures we monitor remain at levels never observed in market history prior to August 2020. Meanwhile, market internals remain ragged and divergent, suggesting risk-aversion among investors. That combination creates what I’ve often described as a “trap door” situation. I get that it’s just arithmetic, but the implications are downright scary – particularly if we’re still at valuations that were never observed prior to August 2020.John Hussman

John Hussman’s analysis is much more robust than valution estimates that use forward earnings guesses and make no adjustment for variability from record high profit margins embedded in so many common valution metrics.

What use are p/e ratios when profit margins are exceptional?

The chart below shows that however you look at it profit margins have a long way to mean revert, particularly given more hostile conditions.

Best Investors have seen it all and prospered anyway

I invite you to explore the remarkable investment record of Paul Tudor Jones. Even better, Jones describes in his own words exactly what a Best Investor really is. It fits to a tee the Best Investor metrics I prioritize and measure in my investment management objectives and assessments, and outlined in my book, Invest Like The Best.

I recommend you read the “lessons from a trading great“, but here are some key statements:

“Like Seykota said, “The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can follow these three rules, you may have a chance.” For some reason, this is a platitude repeated by many but understood by very few.”

I’d say that my investment philosophy is that I don’t take a lot of risk, I look for opportunities with tremendously skewed reward-risk opportunities…

I know from studying history that credit eventually kills all great societies. We have essentially taken out our American Express card and said we are going to have a great time…

From a recent Weekly Insight and taken from my book, you can see that those first two statements above are deeply embedded in my investment objectives and assessments:

How to outperform the Billionaires

Once these Best Investor metrics are deeply understood they provide an executable set of parameters to set investors on a reliable path to capital preservation and compounding.

Not everyone can match the alpha generation of the very best traders in the best investment conditions, but these parameters remain reliable and durable for outperformance through any investment conditions. There are systematic methodologies that can be optimized to stay on track. Inevitably, the power of the Best Investor metrics soon emerges.

TradeSmith have software systems that have been optimized to fit these key parameters and allow investor the mechanics for developing a range of full cycle robust systems.

Warren Buffett once said, “It’s not necessary to do extraordinary things to get extraordinary results.” The results we’ve discussed today are proof of that. By following the Best of the Billionaire’s Strategy, we saw gains well above the S&P 500’s total return. And, by following the techniques available in TradeSmith, it’s even possible to beat the billionaires at their own game. Buffett’s quote then holds true. You don’t need to go to extreme measures to succeed in the market. You simply need a rules-based approach with the research to back it up. The Best of the Billionaires strategy can help you do just that.TradeSmith

What have the results been?

Our Best of the Billionaires strategy finds the best ideas from tracked Billionaires that:

1. Are at the beginning of a new up-trend or ready to continue an up-trend

2. Have the newest entry signal

3. Are held by the most billionaires

We can compare the Best of the Billionaires performance against the S&P 500.

The Best of the Billionaires outperformed the S&P 500 substantially. Even during market crashes, the technique would have helped you preserve your capital and mitigate losses. It’s inspiring to see what is possible with discipline, patience, and a little bit of research, once you understand Best Investor methodology.

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