From Chart of the Day via the always excellent Big Picture:
Like risk? Still looking to make money and invest despite turbulent waters? The Kirk Report pulled six rules for investing from Michael Steinhardt, a famous hedge fund manager. While these rules are for investing, they’re not bad rules for one’s career in general:
- Make all your mistakes early in life. He says the more tough lessons you learn early on, the fewer 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 you bad stocks.
- Always make your living doing something you enjoy. This way, you devote your full intensity to it which is required for success over the long-term.
- Be intellectually competitive. This involves doing constant research on subjects that make you money. The trick, he says, in plowing through such data is to be able to sense a major change coming in a situation before anyone else.
- Make good decisions even with incomplete information. In the real world, he argues, investors never have all the data they need before they put their money at risk. You will never have all the information 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.
- Always trust your intuition. For him, intuition is more than just a hunch. He says intuition 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. In fact, over time your own trading experience will help develop your intuition so that major pitfalls can be avoided.
- Don’t make small investments. You only have so much time and energy so 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.
I like all of these, though I am rather dubious about immediately trusting one’s intuition.
Rule number 6 immediately made me think of Soros’ infamous “Go for the jugular” that broke the Bank of England in the early 90s:
Druckenmiller walked into Soros’s office and told him it was time to move. He had held a $1.5 billion bet against the pound since August, but now the endgame was coming and he would build on the position steadily.
Soros listened and looked puzzled. “That doesn’t make sense,” he objected.
“What do you mean?” Druckenmiller asked.
Well, Soros responded, if the Schlesinger quotes were accurate, why just build steadily? “Go for the jugular,” Soros advised him.
Druckenmiller could see that Soros was right: Indeed, this was the man’s genius. Druckenmiller had done the analysis, understood the politics, and seen the trigger for the trade; but Soros was the one who sensed that this was the moment to go nuclear. When you knew you were right, there was no such thing as betting too much. You piled on as hard as possible.
For the rest of that Tuesday, Druckenmiller and Soros sold sterling to anyone prepared to buy from them.
Easier said than done of course.