Michael Steinhardt
- I have always tended to short stocks that were favorites and backed by a great deal of institutional enthusiasm. Generally speaking, I have tended to short too early and, therefore, have usually started off with losses in my short positions. (this seems like madness, especially nowadays)
- Hedging creates two problems instead of one. Maybe your short stock will go up more; maybe the other stock will go up more. Who knows? If you have made a mistake, deal with the mistake; don’t compound it.
- Doesn’t use charts, doesn’t use stop-loss orders. No rules about buying on weakness/strength. Doesn’t look at breakouts or breakdowns. (when you realize how contrarian some traders are, it becomes apparent that there is something more important than methodology to trading success. Steinhardt is still a billionaire according to Wikipedia.)
- I try to assume that the guy on the other side of a trade knows at least as much as I do.
- If the news was terrible and the stocks were up, I would try to understand why. Sometimes the market has more information and the variant action is really telling you something.
- We in the world of money management do not have the ability to forecast trends in the stock market, which are functions of a host of variables that are largely beyond the consistent ability of individuals to anticipate.
- I think there is a message in the fact that there is no real pattern: Anyone who thinks he can formulate success in this racket 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.
- Contrarian doesn’t imply victory. In order to win as a contrarian, you need the right timing and you have to put on a position in the appropriate size. If you do it too small, it’s not meaningful; if you do it too big, you can get wiped out if your timing is slightly off. The process requires courage, commitment, and an understanding of your own psychology.
- On handling losing positions: There is nothing that can be articulated precisely enough to lead others in a certain direction.
- I feel there is an element of gambling in this business.
- Now there is a lot more competition; the people on the trading desks are much brighter. Another change is that retail buyers and sellers have diminished greatly in importance. The market has become institutionalized. Individuals buy stock through mutual funds. Brokerage firms don’t sell customers stocks so much as they sell those horrible mutual funds and other awful things they call “financial products.”
- Perhaps the most important change is that the world has become much more short term oriented.
- Recognize that this is a very competitive business, and that when you decide to buy or sell a stock, you are competing with people who have devoted a good portion of their lives to this same endeavor. In many instances, these professionals are on the opposite side of your trades and, on balance, they are going to beat you.
- Good trading is a peculiar balance between the conviction to follow your ideas and the flexibility to recognize when you have made a mistake. The balance between confidence and humility is best learned through extensive experience and mistakes. There should be a respect for the person on the other side of the trade. Always ask yourself: Why does he want to sell? What does he know that I don’t?
- You have to be intellectually honest with yourself and others. In my judgment, all great traders are seekers of truth.
- One trait I have noticed among a number of the great traders is their willingness and ability to take on a particularly large position when they perceive a major trading opportunity.
- There are no absolute formulae or fixed patterns.