The Hindu Business Line : Investment Nuggets

Michael Steinhardt was a prominent hedge fund manager of the 1970s. There were few investment instruments over which he did not wield mastery. He formed a hedge fund company along with Howard Berkowitz and Jerrold Fine. Under Steinhardt’s direction, the firm was consistently successful in identifying macro market moves and then fitting its securities trading strategies into these situations. Steinhardt and his partners achieved a performance track record that still stands out on Wall Street: 24 per cent compound average annual returns — more than double the S&P 500 — over a 28-year period. What is more amazing is that Steinhardt accomplished this record with stocks, bonds, long and short options, currencies and time horizons ranging from 30 minutes to 30 days.

Below are his few quotable quotes:

“One dollar invested with me in 1967 would have been worth $481 on the day I closed the firm in 1995, versus $19 if it had been invested in a Standard & Poor’s index fund.”

“I always used fundamentals. But the fact is that often, the time frame of my investments was short-term.”

“I do an enormous amount of trading, not necessarily just for profit, but also because it opens up other opportunities. I get a chance to smell a lot of things. Trading is a catalyst.”

“One of the advantages of trading the way I do — being a long-term investor, short-term trader, individual stock selector, market timer, sector analyst — is that I have made so many decisions and mistakes that it has made me wise beyond my years as an investor”.

“Anyone who thinks he can formulate a success in this market is deluding himself because it changes too quickly. As soon as a formula is right for any length of time, its own success carries the weight of its inevitable failure.”

Michael Steinhardt’s top investment tenets are:

Make all your mistakes early in life. The more tough lessons early on, the fewer errors you make later.

Always make your living doing something you enjoy.

Be intellectually competitive. The key to research is to assimilate as much data as possible in order to be to the first to sense a major change.

Make good decisions even with incomplete information. You will never have all the information you need. What matters is what you do with the information you have.

Always trust your intuition, which resembles a hidden supercomputer in the mind. It can help you do the right thing at the right time if you give it a chance.

Don’t make small investments. If you’re going to put money at risk, make sure the reward is high enough to justify the time and effort you put into the investment decision.

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