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I have noticed that everyone who has ever told me that the markets are efficient is poor.
He argued that if I could develop a winning system on a computer, so could others, and we would all cancel each other out.
People don’t change. That is why this whole game works.
if you use sufficiently rigorous methods to avoid hindsight, you can test a system and see how it would have done in the past and get a fairly good idea of how that system will perform in the future. That is our
concept of using holding periods as a measure of system performance.
“You record your first impression
What makes this business so fabulous is that, while you may not know what will happen tomorrow, you can have a very good idea what will happen over the long run.
actuaries.
“I don’t trade for excitement; I trade to win.”
you know what the worst possible outcome is, it gives you tremendous freedom. The truth is that, while you can’t quantify reward, you can quantify risk. I will give you an example how important this advice is.
Five times he asked me what I did, and
If you argue with the market, you will lose.
and his loss of that huge house had an enormous emotional impact on me. He had it and lost it all! And all because of one trade. The irony is that if he had followed his system, he would have made a fortune on that trade.
don’t see markets; I see risks, rewards, and money.”
“It is incredible how rich you can get by not being perfect.”
Right, because I don’t know of too many people who get rich by taking small profits.
I knew that if you traded across the board, controlled your risk, and went with the trend, it just had to work. I could see it absolutely clearly.
efficient trading of the nifty
have two basic rules about winning in trading as well as in life: (1) If you don’t bet, you can’t win. (2) If you lose all your chips, you can’t bet.
“It is a happy circumstance that when nature gives us true burning desires, it also gives us the means to satisfy them.”
During that time, Steinhardt Partners has realized a compounded annual growth rate of over 30 percent (just under 25 percent after subtracting a 20 percent profit incentive fee). In comparison, the S&P 500 index registered only an 8.9 percent compounded annual growth rate (dividends included) during the same period. One
Steinhardt’s track record also demonstrates admirable consistency. Steinhardt Partners has only witnessed two losing years. In both cases, the net loss was under 2 percent before profit incentive fee adjustments.
myriad of approaches. He is both a long-term investor and a short-term trader; he is as comfortable shorting stocks as buying them; he will shift major chunks of the firm’s capital into other investment vehicles, such as treasury securities, if he feels that is the best investment choice.
toughness is probably a virtue in managing a group
buy Texaco at $52 and it suddenly goes down to $50. Whoever sold Texaco at $52 had a perception that was dramatically different from mine. It is incumbent on me to find out what his perception was.
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. But, what we as money managers can do, through careful analysis, is to make accurate judgments as to which companies are doing well versus those that are not. So, if one balanced long positions in stocks that were perceived to be relatively strong with short positions in stocks expected to act poorly, the market risk would be totally eliminated.
So, the original concept of a hedge fund totally emphasized the ability to pick stocks.
today, the term hedge fund is somewhat of a misnomer. The term now refers to a limited partnership in which the general partner is typically paid on a performance basis, as opposed to more traditional money managers who are paid on assets managed. Typically, the manager of a hedge fund has a great deal more flexibility than a traditional money manager, and that is really the key element. That flexibility could include being able to short stocks as well as buy stocks, use options, futures, and so on. That is what a hedge fund is in general terms, but the variations on the theme cover a very
So they started using the term [he adopts a tone of mock pomposity] private partnership.
related entity requires using a lot of dollars ineffectively. How different are Ford and General Motors going to be? They are both affected by the same macroeconomic factors. If you have to put up some dollars for the long and some dollars for the short, you may be lucky to realize a 10 percent difference over a period of a year—
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.
Yes, and that is as much as you can hope for, because when they are all in place, it is too late.
Perhaps the most important change is that the world has become much more short term oriented.
They believed in America and steady growth. Today, stocks don’t lend themselves to the same type of secular analysis.
The implication of secular growth trend analysis not having worked in the 1970s and 1980s relates to the question of trading. In the 1950s and 1960s, the heroes were the long-term investors; today, the heroes are the wise guys. There
One of the allures of this business is that sometimes the greatest ignoramus can do very well. That is unfortunate because it creates the impression that you don’t necessarily need any professionalism to do well, and that is a great trap. So the major advice I would give anybody is: 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.
The term professionally managed implies a credit I am not sure I would give the average professional in this business. My
They are more risky; therefore, you have to be convinced that you are going to get a higher rate of return in order to play the game.
Don’t assume that by investing in some mutual fund, you are going to get a higher rate of return.
Good trading is a peculiar balance between the conviction to follow your ideas and the flexibility to recognize when you have made a mistake. You need to believe in something, but at the same time, you are going to be wrong a considerable number of times. 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? Finally, you have to be intellectually honest with yourself and others. In my judgment,
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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. The nerve and skill required to step on the accelerator at the right time is certainly one of the elements that separates good traders from exceptional traders. Steinhardt’s heavy position in treasury notes during 1981 and 1982 is a perfect example of this characteristic.
Steinhardt also stresses that there are no absolute formulae or fixed patterns.
traders who try to find fixed approaches will be doomed to failure sooner or later.
You will find that little acorns can grow into giant oaks.
During 1962–1963, by pyramiding the profits in three exceptional back-to-back trades—short Korvette, long Chrysler, and long Syntex—he managed to parlay an initial $5,000 investment into $200,000.
The firm’s data base contains 120 different statistics on each of 7,500 securities.
O’Neil combined his concepts in the book How to Make Money in Stocks, published by McGraw-Hill. The book
I found that theories like buying low-priced stocks or stocks with low price/earnings (P/E) ratios were not very sound.
So I got copies of their prospectus and quarterly reports and plotted on charts precisely where they had purchased each of their stocks. There
