Michael Steinhardt was one of the most successful hedge fund managers of all time. A dollar invested with Steinhardt Partners LP in 1967 was worth $481 when Steinhardt retired in 1995.

The following six rules were pulled out from a speech he gave:

1. Make all your mistakes early in life: The more tough lessons you learn early on, the fewer (bigger) errors you make later. A common mistake of all young investors is to be too trusting with brokers, analysts, and newsletters who are trying to sell you something.

2. Always make your living doing something you enjoy: Devote your full intensity for success over the long-term.

3. Be intellectually competitive: Do constant research on subjects that make you money. Plow through the data so as to be able to sense a major change coming in the macro situation.

4. Make good decisions even with incomplete information: Investors never have all the data they need before they put their money at risk. Investing is all about decision-making with imperfect information. You will never have all the info you need. What matters is what you do with the information you have. Do your homework and focus on the facts that matter most in any investing situation.

5. Always trust your intuition:  Intuition is more than just a hunch — it resembles a hidden supercomputer in the mind that you’re not even aware is there. It can help you do the right thing at the right time if you give it a chance. Over time, your own trading experience will help develop your intuition so that major pitfalls can be avoided.

6. Don’t make small investments: You only have so much time and energy so when you put your money in play. So, if you’re going to put money at risk, make sure the reward is high enough to justify it.

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This report was originally published by The Kirk Report on June 2, 2004.

Category: Apprenticed Investor, Investing, Rules

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11 Responses to “Six Rules of Michael Steinhardt”

  1. VennData says:

    If you believe in some nonsense, like astrology, your “hidden supercomputer” will have programming flaws.

    Being emotionally tied to one political party, an outcome of some kind etc, will also make your “hidden supercomputer” suspect.

    The more nutty stuff you believe, the lower the quality of your intuition.

  2. louis says:

    Plow through the data so as to be able to sense a major change coming – What specific data is one looking for?

    Do your homework and focus on the facts that matter most- What facts do you focus on?

    Is there a consensus on the road that gets to the destination faster?

  3. Dennis the menace says:

    Who ever said “There are no such things as dumb questions” obviously does not read blog comments.

  4. Undoubtedly sage advice for “investing” in the world in which Mr. Steinhardt lived. He retired just about the time investing became day trading, then high-frequency flash trading, such as it is today. His advice in today’s environment is about as resonant as digging up John Kenneth Galbraith for insights into what should be today’s industrial policy.

    There is no way, except luck, for a guy without a massive supercomputer located as close to the supercomputers that run the exchanges as possible such that the electrons will have the shortest distance to travel, to have any hope of giving his money to someone else so that they can make more money with it–the essence of investing, if not trading. Better to just bury it in the back yard. It would have returned more than the S&P over the last decade.

  5. Sage advice is timeless, but may not fit for the times of today. One just need to modify the ideas to adjust for the current environment. For #4 it will always work but easier said than done.

    If you’re right on an idea that is unpopular and non-consensus, you will make money once your idea becomes consensus. For those situations you apply the last point – making a big investment

  6. ToNYC says:

    HFT is the corollary of ZIRP.
    ZIRP is currency invented to usurp the US taxpayers getting a valued return on their stored value wages or services income; the FRS has simply put it Queen in citizen’s face and said “Check!”
    Bernanke invokes Keynes to infer that the holy writ couldn’t have predicted as a la Greedspan…in fact they never replenished the Balance Sheet when Income Statement was in surplus. Half an engine cycle, no va.
    HFT is the “check!” to the day-traders..where once there were nickels to pick in front of the steam roller, now there are milli-cents, and the dark pool makes it all suspect.
    Who was surprised then to find gambling going on in the casino?
    That’s right, Who. And Who’s wife signed and cashed every dollar of his check!
    Onward to serfdom.

  7. [...] of this hedgefund manager, but based on his success he’s worth paying attention to. Thanks to Barry Ritholtz for posting these rules and number 5 particularly resonates with me. Michael Steinhardt was one of [...]

  8. [...] others, who – surprise! – have similar views to mine. Here’s a blog I read often, The Big Picture, with the advice entry called, “Six Rules of Michael Steinhardt.” Steinhardt’s [...]

  9. mathman says:

    Always . ..no wait, Never . . . ah fagetabotit.

  10. WaveCatcher says:

    Wonderful advice, it relates to so much more of LIFE than merely investing or trading.

    As for HFT nullifying the trader’s edge, adapt to the conditions and go find another edge. …an edge that exists in a timeframe other than nano-seconds. In the timeframe where humans play, market inefficiencies will continue to exist.

  11. [...] side of the coin, Barry Ritholtz (who has an outstanding finance blog, The Big Picture) posted the Six Rules of Michael Steinhardt, one of the most successful hedge fund managers in history.  My favorite of the six are [...]