[ssba]Michael Steinhardt: A Charismatic Trader Who Created Hedge Fund History
Michael H. Steinhardt, a graduate of the Wharton School of the University of Pennsylvania, is a pioneer of hedge fund management in America.
A dollar invested with Steinhardt Partners LP in 1967 was worth $481 when Steinhardt retired in 1995.
He founded Steinhardt, Fine, Berkowitz & Co., in 1967
Michael Steinhardt: Background & bio
Early in his career, Michael Steinhardt created a long standing record for making astute investment decisions. Over a 28 year period, Steinhardt Partners, L.P. made 24.5% annualized returns for its clients. This sum when compared to the S&P 500 index over the same period, is almost triple the sum of returns. A veritable investment wizard, Michael Steinhardt employed several investment instruments like stocks, bonds, long and short options, currencies and time horizons ranging from 30 minutes to 30 days.
Born Dec. 7, 1940, Michael Steinhardt may have inherited his father’s betting capabilities, but he chose a different path. While his father Sol “Red” Steinhardt was a gambler who kept company with mobsters – even as other American teenagers were rocking and rolling to Elvis Presley hits – Michael Steinhardt was reading stock charts and hanging around brokerage offices.
Because of his work ethic, it is no wonder he finished high school at age 16 and floated through the Wharton School of Finance in three years, graduating in 1960, still a teen!
In no time, Michael Steinhardt found work with Loeb Rhoades, a precursor to Merrill and Lynch. After seven years Steinhardt left the firm and with some funding help from Billy Salomon of Salomon Brothers and Odyssey’s Jack Nash, he founded the Hedge Fund Steinhardt, Fine, Berkowitz & Co. with partners Harold Berkowitz and Jerrold Fine.
Under Michael Steinhardt’s direction, the firm was consistently successful in identifying macro market moves and then fitting its securities and trading strategies into these situations. The title of his company changed to Steinhardt Partners after two partners left the firm 10 years later, in 1979.
When interest rates spiked in 1994, Michael Steinhardt’s $4.4 billion fund lost approximately 30%. However, a year later he had regained 21% and terminated the financing profession. At that point in time, he owned $ 500 million as reported by Forbes.
Michael Steinhardt averaged an annualized return for his clients of 24.5%, after a 1% management fee and a “performance fee” of 15% of all annual gains, realized and unrealized, nearly triple the annualized performance of the S&P 500 Index over the same timeframe.
Michael Steinhardt’s firm went through some rough patches during its bull run. The most publicized was the investigation for allegedly attempting to manipulate the Treasury note market in the early 1990’s by the U.S Securities and Exchange Commission and Department of Justice. Michael Steinhardt was consequently fined $70 million as part of the settlement. Nevertheless, true to form Steinhardt played a straight game and personally paid 75% of the total fine. On the Treasury positions, his firm made $600 million. As quoted in his book ‘No Bull’ Michael Steinhardt states he did nothing wrong, but merely settled the case, to move on.
In 1994 Steinhardt Partners, like other financial institutions showed negative performance; but it recouped with an excellent show the following year, in line with its historical successes. Nevertheless Steinhardt chose to close down the hedge fund, distributed all monies to its limited partners, yet leaving himself quite wealthy and enviably liquid.
In 2004, Michael Steinhardt came out of retirement and joined Index Development Partners, Inc., now known as Wisdom Tree Investments. He is chairperson of Wisdom Tree. In 2010, Steinhardt was hired by IDT Corporation to serve as Chairman of the Board of Israel Energy Initiatives Ltd (IEI), Genie’s Israel-based alternative energy affiliate.
Michael Steinhardt: Investment philosophy
Michael Steinhardt had a long-term investor’s perspective but, for the most part, invested as a short-term strategic trader. He bet on directional moves using an eclectic mix of securities and was backed up by a team of traders and analysts. He emphasized macro-asset allocation type moves from which he harvested his gains.
Charles Kirk, publisher of The Kirk Report, gleaned these “rules of investing” from a Steinhardt speech back in June 2004, which show that even a high-flying hedge fund investor needs to be grounded.
11 key traits of Michael Steinhardt’s investment philosophy:
- When you believe in a concept, take a large position
- The best stocks to buy are the laggards and the low multiple stocks whereas the best shorts are the ones that are Institutional favorites. Coca- Cola, McDonald, Merck and AT&T were his list of the best shorts in the market.
- One should estimate stock returns with their associated risk. It is wrong to expect higher returns from stocks merely because they are risky.
- If the incremental return from equities is very modest investors should focus on bonds.
- Smart investors get smarter with each passing mistake. Once a mistake has been committed and the losses incurred the investor will resist the trap to the same mistake again. He observes “One of the advantages of trading the way I do – being a long term investor, short term trader, individual stock selector, market timer, sector analyst – is that I have made so many decisions and mistakes that it has made me wise beyond my years as an investor”.
- Investors should focus on the longer-term prospects of stocks even if they do not wish to hold the stock for that period. Investors should buy stocks of companies that buy back their shares from the market.
- The maximum potential loss to being short in the market is infinite whereas the maximum potential loss to being long in the market is only 100%.
- A good trader has to have three things: a chronic inability to accept things at face value, to feel continuously unsettled, and to have humility
- Do not make small investments
- Always trust your intuition.
- Make good decisions even with incomplete information.
One visit to the NYU and you can spot the Steinhardt name all over the campus. He earned the honor and prestige for donating over $25 million to NYU over the years.
The Judy his wife and Michael Steinhardt Gallery of 6th Century B.C, Greek art at the Metropolitan museum has received major donations from him as well.
Presently Jewish causes are the major recipients of his generosity. As co-founder of the Steinhardt Foundation for Jewish Life, along with Charles Bronfman he helped create Birthright Israel. This organization is responsible for organizing educational trips for young Americans to Israel.
In addition, Steinhardt has also donated to the Israel Museum and Tel Aviv University.
A seemingly eccentric cause he supports, in partnership with an old hedge fund colleague Bruce Kovner, is towards money losing daily newspaper New York Sun, owned by Seth Lipsky.
Rarely can one find a hedge fund manager who can boast of an excellent collection of art including works by Jackson Pollock, Picasso, Paul Cezanne, Paul Klee, Max Beckman and Jean Dubuffet among others.
His collection also includes a remarkable collection of Greek and Roman antiquities as well as a rare collection of Judaica. A medley assortment that Steinhardt and his family have so passionately gathered over the years is estimated at over $200 million.
In 2001 Michael Steinhardt’s autobiography, No Bull: My life in and out of markets was published with too much acclaim. Steinhardt is possibly the first hedge fund manager to assemble an excellent collection of art; he owns works by Jackson Pollock, Picasso, Paul Cezanne, Paul Klee, Max Beckman and Jean Dubuffet, among others. He also owns one of the most renowned collection of Greek and Roman antiquities and a priceless collection of ancient Judaica. Steinhardt estimates he has spent $200 million investing in his collection over the years.
Michael Steinhardt: Quotes
- “Make all your mistakes early in life. The more tough lessons early on, the fewer errors you make later.”
- “Always make your living doing something you enjoy.”
- “Be intellectually competitive. The key to research is to assimilate as much data as possible in order to be to the first to sense a major change.”
- “Make good decisions even with incomplete information. You will never have all the information you need. What matters is what you do with the information you have.”
- “Always trust your intuition, which resembles a hidden supercomputer in the mind. It can help you do the right thing at the right time if you give it a chance.”
- “Do not make small investments. If you are going to put money at risk, make sure the reward is high enough to justify the time and effort you put into the investment decision.”
- “I was always anxious that my fees were egregious and that I had to have the best performance in the world to justify them.”
- “Now people are charging much fancier fees, and they do not make the same demands on themselves. I was always anxious that my fees were egregious and that I had to have the best performance in the world to justify them.”
- “I hope he has the breadth to do it”
- “Anyone 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.”
- “One dollar invested with me in 1967 would have been worth $481 on the day I closed the firm in 1995, versus $19 if it had been invested in a Standard & Poor’s index fund.”
- “I always used fundamentals. Nevertheless, the fact is that often, the period of my investments was short-term.”
- “I do an enormous amount of trading, not necessarily just for profit, but also because it opens up other opportunities. I get a chance to smell many things. Trading is a catalyst.”
- “Somehow, in a business [securities trading] so ephemeral, the notion of going home each day, for as many days as possible, having made a profit – that’s what was so satisfying tome.”
Michael Steinhardt: Books
- Not Enough Guts, Not Enough Glory And Changes
- Wall Street Bulls Playing With Fire . – Google News
- Investor May Seek Control Of Us Air
- Usair Undervalued?
- Just Call It The ‘ghoul Factor’
- Amex Most Actives
- Published Report Boosts Usair Stock
- Soros Highest Paid Manager; Income Doubles
- Why Strong Economy Has Sent Financial Markets
- Wall Streeter Earns Billion
- Book Cuts Dunlap Down To Size
Michael Steinhardt: Articles
- Steinhardt Talks of Buffett’s ‘Snow Job’
- Street Scene; A Maverick Investor and Giver
- New Republic’s Longtime Owner Sells Control to 2 Big Financiers
- The Markets Are Back. But More Problems Await.
- Round Table: The New Challenges for Wall Street
- A Wall Street Wizard Tends to His Garden
- Top Manager To Close Shop On Hedge Funds
- Integrated Out Of Bankruptcy
- TWO SHAREHOLDERS PLAN TO SELL 14% OF SUNBEAM-OSTER
- Ex-Chief of Sunbeam Files $3.2 Billion Suit
- Stake Is Increased In Semiconductor
- Investment Group Raises USAir Stake
- Commodity Invester to Join Steinhardt Fund’s Founder
- Changes Seen At a Top Fund
- USAir Stock Rises Sharply, But a Profit Slump Is Seen
- Steinhardt Reports Bag Maker Stake
- Steinhardt Raises Stake in USAir
- Money Manager Cuts Robins Stake
- Investor Buying Texas Air Stock
- Rorer Backed In Robins Bid
- For Financier, a Year’s Sabbatical at Home Yields Rewards
- MICHAEL STEINHARDT BLASTS WARREN BUFFETT 4-5-2011
- Michael Steinhardt – how he foresaw the crash of 2008
- Michael Steinhardt: A Father’s Influence – Benzinga Exclusive
- Michael Steinhardt “Profiles in Leadership”
- Michael Steinhardt Speaks to Birthright Israel Alumni
- Michael Steinhardt: The Practical Joker – Benzinga Exclusive
- Michael Steinhardt on Jewish Life
- Steinhardt Speech vs. Jewish Organizational Leadership
- “Rabbi Shmuley Debates Michael Steinhardt on Gd”
- Michael Steinhardt Keynote Part 1-GIJP 7th Camp Conference
- Hedge fund manager Michael Steinhardt Interview (07/08/2008)
- Economy To Remain Weak – Bloomberg
- Michael Steinhardt
- Steinberg, Steinhardt on WisdomTree’s Nasdaq Listing
- WisdomTree Siegel & Steinhardt :60 TV Spot