Wall Street has seen its fair share of legendary traders, but few have matched the foresight and brilliance of Paul Tudor Jones. He didn’t just survive the 1987 Black Monday crash—he predicted it, shorted the market, and walked away with $100 million in profits, while the rest of the financial world was in chaos.
How did he do it? This is the fascinating story of how Paul Tudor Jones combined technical analysis, historical patterns, and disciplined risk management to pull off one of the greatest trades in history.
Early Life and Path to Wall Street
Paul Tudor Jones II was born in 1954 in Memphis, Tennessee. His early years were far from the glamorous world of Wall Street—he was the son of a lawyer and grew up with a love for boxing, even competing in amateur fights.
He later attended the University of Virginia, where he studied economics. After graduation in 1976, he landed his first job as a clerk at E.F. Hutton & Co., a major brokerage firm. His natural talent for trading quickly became evident, and within a few years, he was trading cotton futures at the New York Cotton Exchange.
However, he grew restless and ambitious—trading commodities wasn’t enough. He wanted to master the broader financial markets.
In 1980, at just 26 years old, he founded Tudor Investment Corporation, a hedge fund that would soon become one of the most successful in history.
Building a Trading Empire (1980–1986)
Paul Tudor Jones was a firm believer in technical analysis—the study of price charts, trends, and historical patterns. Unlike many traders who focused on economic indicators and company fundamentals, Jones relied on charts and price action.
His approach involved:
- Momentum Trading – Buying assets that were rising and shorting those that were falling.
- Pattern Recognition – Studying historical crashes to spot similarities with current market behavior.
- Strict Risk Management – Cutting losses quickly and never overexposing himself to a single trade.
Throughout the early 1980s, he built a strong track record, averaging annual returns of double-digit percentages. By 1986, Tudor Investment Corporation had become a powerhouse, and Jones was managing hundreds of millions of dollars.
But his biggest moment was yet to come.
The 1987 Black Monday Prediction
By mid-1987, Paul Tudor Jones started seeing disturbing signals in the market.
He was deeply influenced by the Dow Jones Industrial Average chart from 1929, the year of the Great Depression crash. As he studied it, he realized that the market in 1987 was following an eerily similar trajectory.
Warning Signs: The Parallels to 1929
Rapid Market Surge – The stock market had skyrocketed 40% in the first eight months of 1987, similar to the pre-crash rally in 1929.
Overvaluation – Stocks were trading at record high valuations, with excessive speculation.
Rising Interest Rates – The Federal Reserve was tightening monetary policy, making borrowing more expensive, just as it had before the 1929 crash.
Portfolio Insurance – Many institutional investors were using a new strategy called portfolio insurance, which involved automatically selling stocks when prices dropped—a recipe for disaster in a panic situation.
Jones’ conviction grew stronger: a crash was coming.
The Big Short – Betting Against the Market
By October 1987, Jones had shorted the market heavily. He placed large bets against the S&P 500 using futures contracts, expecting a violent downturn.
Many traders thought he was crazy—after all, the economy was booming, and stocks were at all-time highs. But Jones stuck to his thesis.
And then, it happened.
Black Monday – October 19, 1987
On the morning of Monday, October 19, panic set in. The market opened with heavy selling, and within hours, stocks were in free fall.
By the end of the day:
The Dow Jones Industrial Average crashed 508 points (22.6%), the largest one-day percentage drop in history.
Investors and traders were wiped out—billions of dollars were lost in a single day.
Paul Tudor Jones, however, was on the right side of the trade.
Thanks to his short positions, his hedge fund made over $100 million in a single day. While others were devastated, Tudor Investment Corporation posted a 200% gain for the year.
The Aftermath – How Jones Became a Wall Street Legend
After Black Monday, Paul Tudor Jones became a legend. His ability to predict the crash and profit from it cemented his reputation as one of the greatest traders in history.
But unlike many traders who got lucky once, Jones continued to thrive for decades, adapting to changing markets and consistently delivering strong returns.
Key Lessons from Paul Tudor Jones’ 1987 Success
- History Repeats Itself – Jones saw the parallels between 1929 and 1987 and acted on them. Studying market history can provide a crucial edge.
- Technical Analysis Works – While many traders dismiss chart patterns, Jones used them to make one of the greatest trades ever.
- Risk Management is Everything – He didn’t just bet big—he carefully managed his risk and positioned himself correctly.
- Contrarian Thinking Pays Off – While the world was euphoric, he was betting on a crash. Successful traders go against the crowd.
- React Quickly – He moved fast when the crash began, knowing that panic selling would accelerate the decline.
Paul Tudor Jones Today – Still a Market Giant
Even after more than 40 years in the game, Paul Tudor Jones remains one of the most successful hedge fund managers.
He has amassed a fortune of over $7 billion.
His hedge fund, Tudor Investment Corporation, continues to thrive.
He is a prominent philanthropist, funding education and conservation projects.
His trading philosophy—respect history, manage risk, and adapt to markets—has made him one of the greatest traders of all time.
Final Thought – The Man Who Saw It Coming
In the history of Wall Street, very few traders have been able to predict a market crash and profit massively from it. Paul Tudor Jones not only did it, but he did it with precision, confidence, and discipline.
His 1987 Black Monday trade remains one of the greatest financial moves ever made—a testament to the power of historical analysis, technical trading, and risk management.
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