Best Quote: “Any one who thinks he can formulate a success in this market 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.”
Steinhardt started poor as a son of a jeweler. His parents were divorced when he was a year old. He thought that hedging compounded problems rather then resolve them. Hedging a position by selling a particular stock because you are long on another increased the problem. The original problem was that you were long a certain position and it is best to look at the trade from that angle rather then go in for a hedge through another stock
The above quote summarizes Steinhardt's basic investment philosophy. Steinhardt's greatest strength was to sit over positions for longer periods of time. While all of us have problems staying with positions for days or weeks Steinhardt could carry over his bets for years at a strech.
He was once short the tobacco stocks when the Industry was facing law suits.He opined that if the plaintiffs won the case he would make a great deal of money and if they lost the case it was already discounted in the price. – Evaluate the risk reward ratio was Steinhardt's favourite mantra.
Steinhardt refuses to attribute his success to any one form or another. He suggests that he made money during the early 1970's because he was short the market as a whole. In the early 1980's he made money being long on the bonds. A great believer in leveraged investing Steinhardt once invested US $250 million out of which US $ 200 million was borrowed money. He went long on bonds expecting interest rates to decline (when interest rates go down bond prices rise). After he had taken a position bond prices kept falling but finally interest rates hit their peak and bond prices started to rise again.
