Wednesday, September 29, 2010

Steinhardt's six rules for successful investing.

Post 564 - Michael Steinhardt was one of the first, and most successful, hedge fund managers. From the late '60s through the mid-'90s, Steinhardt's hedge fund compounded money at 24 percent annually after fees. Here are Steinhardt's six rules of success:

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 them something.

2. Always make your living doing something you enjoy: Then you can 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. Learn to 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 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.

Peter Lynch says: "I've always believed that searching for companies is like looking for grubs under rocks: if you turn over 10 rocks you'll likely find one grub; if you turn over 20 rocks you'll find two. During [some market stretches], I’ve had to turn over thousands of rocks ..."

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