six rules

Michael Steinhardt

Saw this post this morning, Six Rules by Michael Steinhardt,  successful hedge fund manager. One dollar invested with Steinhardt Partners LP, his flagship hedge fund, at its launch in 1967 would have been worth $481 when Steinhardt retired in 1995.

Although this focuses on money, I think it may pertain to many other aspects of our lives.  Alas, too late for me for the first! I never listened to anybody, and, later, I thought that might be the reason why I got into trouble. Hmmm. If Steinhardt is right, does this mean I would have done even worse?! For #2, although I now do what I love, I found that some of the jobs that I didn’t like actually taught me some really important lessons that were, in fact, building blocks or stepping stones. Life is very strange!

Anyway, here goes with Steinhardt’s Six Rules:

  1. Make all your mistakes early in life. The more tough lessons you learn early on, the fewer 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 bad stocks.)
  2. Always make your living doing something you enjoy. This way, you devote your full intensity to it which is required for success over the long-term.
  3. Be intellectually competitive. This involves doing constant research on subjects that make you money. The trick, he says, in plowing through such data is to be able to sense a major change coming in a situation before anyone else.
  4. Make good decisions even with incomplete information. In the real world, he argues, investors never have all the data they need before they put their money at risk. You will never have all the information 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. For Steinhardt, intuition is more than just a hunch. He says intuition 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. In fact, 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.

* This report was originally published by The Kirk Report on June 2, 2004. I pulled it today from Barry Ritholtz’s blog.

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