Michael Steinhardt is a world-class short-term trading expert, the godfather of hedge funds, an investment genius, and one of the most successful fund managers in the history of Wall Street.
In April 2021, Forbes released the Global Rich List, and Michael Steinhardt ranked 2378th on the list with a fortune of US$1.2 billion.
Chinese name: Michael Steinhardt Foreign name: Michael Steinhardt
Nationality: American Date of Birth: 1940
Birthplace: Brooklyn, New York Gender: Male
If we talk about long-term investment, everyone will subconsciously think of "stock god" Buffett. If we talk about short-term trading, who will you think of? Today we will introduce to you the Wall Street billionaire trader and short-term trading master Michael Steinhardt.
After more than thirty years on Wall Street, Steinhardt transformed from an unknown investor to a globally renowned billionaire, being honored as the "father of modern hedge funds" and the "world's king of short-term trading." In the investment trading circle, Steinhardt is known as the "world's king of short-term trading" because, unlike long-term value investors like Buffett, he is not interested in in-depth research reports on companies or industries but focuses on short-term operations.
Between 1967 and 1995, the average annual return of his hedge fund was nearly 27%, making Steinhardt a billionaire. After earning substantial profits, he closed his fund in 1995 and chose retirement. A decade later, he became a major shareholder of WisdomTree Investments and assisted in managing the investment company.
As early as 1993, he made it to Forbes' list of the 400 richest people. According to Forbes' real-time billionaire rankings, as of January 29, 2024, the 82-year-old Steinhardt has a net worth of $1.2 billion.
Steinhardt owned stocks at the age of one
Steinhardt can be considered a genius investor, with experiences and IQ that are exceptional. He owned stocks at the age of one, started trading stocks at thirteen based on his research, and by sixteen, while other teenagers were still in high school, the gifted Steinhardt was admitted to the Wharton School of Finance at the University of Pennsylvania, graduating early at nineteen.
It is reported that Steinhardt was born in 1940 into a jeweler's family in New York. When Steinhardt was just one year old, his parents divorced. His father gave him 100 shares of Philadelphia Dixie Cement Company and 100 shares of Columbia Gas as compensation.
Growing up, at the age of 13, Steinhardt began studying trading reports and tracking stock prices published in World Telecommunications in Brooklyn. However, at that time, he knew nothing about stocks and couldn't consult anyone because none of his acquaintances understood the stock market. Steinhardt frequently visited the offices of Merrill, a financial management and advisory company, watching the screens with elder gentlemen smoking cigars. It was then that he became fascinated with stocks. Soon after, he began trading stocks.
Partnering to start a business and becoming a millionaire
In 1960, after graduating, Steinhardt began his legendary investment career on Wall Street. First, he found a job in securities research at the Calvin Bullock Mutual Fund, then worked as a reporter for Financial World magazine, later becoming the chief analyst at a brokerage firm.
During his time as chief analyst, he met Fain and Bekos, and the three hit it off, co-funding $7.7 million to establish the hedge fund Steinhardt Partners in 1967. The new company experienced explosive growth, making a profit of 31% in its first year and an astounding 84% the following year, while the S&P 500 index only rose by 6.5% and 9.3% during the same period. If investors had purchased Steinhardt's fund in 1967, they would have seen their wealth increase 100-fold after 20 years, with an average annual growth rate of 27%. By 1969, the company's capital exceeded $30 million, and all three partners became millionaires, while Steinhardt was only 29 at the time!
Later, Fain and Bekos left successively to start new funds, while Steinhardt continued to manage the arbitrage fund with impressive results, becoming a billionaire by the time he was not yet 50.
According to Forbes Magazine's billionaire rankings, in 2023, Steinhardt ranked 2324th with a net worth of $1.2 billion.
Why is Steinhardt called a world-class short-term killer?
1. Steinhardt focuses on short-term investments
Steinhardt leans towards short-term investments; he believes that the returns from long-term investments are relatively illusory, feeling that a 10% or 15% return accumulated is much more reliable than hoarding stocks and waiting for a price increase. He once said, "By the time long-term investment stocks make money, the short-term profits have already been sitting there for a year." Moreover, Steinhardt has a very accurate judgment on directional movements; when he learns that interest rates may be lowered, he immediately buys bonds.
2. Steinhardt is a master of going long and short
Steinhardt is very skilled at going long and short, especially at shorting. For a period, his fund was consistently shorting, achieving a return of 30% to 40%. When going long, Steinhardt tends to choose stocks with low P/E ratios but stagnant movements, while he shorts the most famous and hottest stocks.
In 1972, he shorted Polaroid, Electrostatic Industries, and Avon Products; in 1973, he shorted Kaufman and Brode's stocks, obtaining substantial returns.
Steinhardt often goes long and short at the same time, resulting in substantial profits. In 1983, he bought 800,000 shares of IBM stock at $117. This stock slowly rose, gaining 15 points. Most investors would notice this trend but would be unwilling to close their positions, thus taking no action.
Later, the stock fell back to $120, wiping out most of the gains. Steinhardt used borrowed $100 million to buy at $117 per share and sold near $132, netting over $10 million. Then, at the stock's peak, he shorted 250,000 shares, closing out when the price fell to $120, making a few million dollars again. Steinhardt admitted that IBM stock could indeed yield long-term profits, but he did not just wait for the stock to reach his price; he did more and gained more.
To obtain market information as quickly as possible, Steinhardt spends $35 million each year to purchase all available data on Wall Street. He has four to five traders responsible for dealing with 80-90 brokers who constantly receive calls from Wall Street to offer him potentially profitable trade information.
3. Steinhardt never believes brokers' opinions
Although Steinhardt spends large sums on Wall Street information, he never believes in brokers' opinions. "If a broker could earn huge profits, he wouldn't sell his opinions because the returns are too low." He always believes those people just follow the crowd. Steinhardt prefers to think independently and diversify his investments. He invests in various sectors of the stock market, where stocks may seem chaotic without intrinsic logic, but this can combine into one of the most powerful investment portfolios.
Besides being cautious about other intelligence, Steinhardt also mentioned that the secret to success is: "Courage is more important than knowledge, and timing is more important than direction."
Steinhardt Fund lost $1.3 billion overnight
Even geniuses can have moments of failure, including Steinhardt. During the 1994 bond market crisis, many hedge funds estimated that some European countries would lower interest rates to stimulate their weak economies, leading Steinhardt to buy a large number of bonds, waiting for appreciation.
Of course, as usual, he used a significant amount of leverage. Steinhardt and his fund only held $30 billion in bond positions, but the Federal Reserve raised interest rates by 25 basis points due to strong domestic economic performance, forcing Europe to follow suit. This led to Steinhardt's biggest investment failure, resulting in a $1.3 billion loss for his hedge fund overnight. However, Steinhardt quickly returned to a 25% annual compound growth in 1995.
Steinhardt grew tired of buying and selling and retired.
In 1995, Steinhardt stated that he was tired of the market's buy and sell fluctuations and claimed that he had enough money, so he decided to retire and seek other thrills. At that time, the company had total assets of $2.6 billion. Since then, he has been actively engaged in philanthropic activities, such as donating to New York University, the Wildlife Conservation Society, and more.
In addition, Steinhardt has purchased many properties, which are surrounded by tree-lined streets, reservoirs, and large swimming pools. He even bought many animals, creating a wildlife park and feeding them daily.
Returning to the investment world
Steinhardt returned to the investment market in 2004. He worked for Index Development Partners, Inc., now known as WisdomTree Investments. He is the chairman of WisdomTree, which offers dividend and income-based index funds rather than traditional market capitalization-based index funds. As of September 2022, WisdomTree managed $74.55 billion in assets.
Steinhardt's 6 Investment Principles
Steinhardt shares his investment principles with the investing public, and it is these principles that have led to his investment success.
Principle 1: Make mistakes early
Make a decision and implement it immediately, continuously adjusting that decision.
Principle 2: Do what you love
Following this path, your dedication can ensure a long-term sense of success and happiness, rather than the emptiness following short-term speculation.
Principle 3: Stay relatively alert
One must constantly study all fields that could bring wealth and perceive changes in trends earlier than others.
Principle 4: Make full use of information
Many pieces of information are useless; the key is how to grasp the available information and focus on the most important issues.
Principle 5: Trust your intuition
Experience is a form of wealth, and it must be acknowledged that intuition is also a accumulation of experience; the key is how to balance intuition and experience.
Principle 6: Do not make small investments
Human time and energy are limited; when making risky investments, ensure that the returns are sufficient to compensate for the expenses.
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