Jack Schwager Paul Tudor Jones cotton trade story
Jack Schwager recounts the trade that nearly ended Paul Tudor Jones' career. He describes how Paul was on the cotton floor trading the cotton market. The market had been moving sideways for months, then one day it broke to a new low and rallied right back. Paul saw this and thought it was a bottom. He placed an order for a large number of contracts, more than he should have bought given the amount of money he was managing. At that same moment, a broker flew across the pit with his hands raised, shouting 'Sold.' That broker represented the cotton merchant who owned most of the deliverable supply. In that second, Paul knew he was finished, and the rest of the pit knew it too. He tried to sell, but within seconds the market locked limit down. By the time he could get out, he had lost 65% of his investment money. He came close to quitting the business, and that incident instilled in him the importance of money management. Afterward, he questioned his entire approach and whether he would continue, asking himself why he was making his life more about pain than pleasure. From that point on, he became almost religious about money management.
Transcript (en)
So Paul's down in the cotton floor and the cotton market. And just the background for your listeners, cotton, the old crop, last old crop month is July. And October is kind of the beginning of the new crop. And July, because it's the last of the old crop and the stocks that are deliverable are kind of an important, can be an important factor. and what the market had done in that particular situation was for many months it'd be going after the climb to become sideways and then one day it breaks to a new low and bounces right back in so he sees this and he says okay it's a bottom and he he buys he has an order go in for a large number of contracts which is more than he should buy given the amount of money he's managing it represents a a very large portion of his gap, you know, of his investment. And at that same moment from across the pit a broker flies across everybody else with his hands raised saying sold And that broker is the broker for the cotton merchant who owns most of the deliverable supply And in that second, Paul knows he's dead. The rest of the pit knows he's dead. And he tries to sell some, but within seconds, the market locks limit down. And it doesn't trade for the next few days. Every day it opens limit down. and by the time he came it out he's like lost 65 percent of his money uh of his investment money his money his investor money and he came to the brink of quitting the business and that was that was the incident that instilled money management you know after after that uh he kind of questioned so everything about it that whether he would even continue in the business and and said why am i making my life, why do I put myself in this position? Why don't I make my life more matter pleasure than pain? And from that point on, sort of became almost religious about money management.
