Friday, February 4, 2011

Paul Tudor Jones On The 1987 Crash

"The one on a percentage basis that's been the most profitable for me was the crash of 1987. There was a tremendous embedded derivatives accident waiting to happen in the crash of '87 because there was something in the market that time called portfolio insurance that essentially meant that when stocks started to go down it was going to create more selling because the people who had written these derivatives would be forced to sell on every down-tick. So it was a situation where you knew that if you ever got to a point where the market started to go down that the selling would actually cascade instead of dry up because of the measure of these derivative instruments that had been written. And in the crash of '87 you had an overvalued market and you also finally had a situation where every down-tick would create more selling and I think I understood the dynamics of that. The crash was something that was imminently forecastable to somebody that understood the measure of derivatives and how large they had grown in such a relatively short period of time and the impact that it would have on a relatively unknowing and na'e market. And the same exact thing happened in 1990 in Japan."

Paul Tudor Jones


  1. Once the QE2 rug gets pulled out from under the market, we will finally see a real correction. There is no valid fundamental reason to buy the indices at these lofty levels. Risk/Reward ratio is too high up here.

  2. You may have to stay on the sideline for another year. I can not wait to make more money on this market. Good Luck.

  3. Be fearful when others are greedy.

  4. Pretty sure this is BS from PTJ about the '87 correction and I don't buy the Japanese market assertion at all. AFTER the Japanese market crash was when the derivative sales took off. Indeed, a lot of them were long term and the losses have yet to be realized...which explains the yen.

    The structure of your blog is very valuable because it provides a quick tour of just how wrong many of these so-called gurus actually are.