An average return of about 24.5% a year
Consistently reported across many sources. It’s an after-fee figure from the fund itself. Over the same period the S&P 500 returned much less
Famous Traders · Global Macro
Michael Steinhardt
Michael Steinhardt / The man who profited from thinking differently, and being right
A son of a middle-class Brooklyn family who set up a hedge fund in 1967 and averaged about 24.5% a year for 28 years. He called his edge Variant Perception. This page lets you trade the news with a variant view, take a call to buy a big block of stock, and see what leverage did to his fund in 1994
QUOTE TERMINAL · SP/1995
- FUNDSTEINHARDT PARTNERS
- SINCEJUL 1967
- CAGR24.5% NET · 28 YRS
- $1 →$481 · S&P $19
- EDGEVARIANT PERCEPTION
- STATUSCLOSED 1995
> READY
Publicly reported figures · a mock 1980s quote terminal
Fund launched1967
Average annual return≈ 24.5%
$1 by 1995≈ $481
Worst year1994
THE EDGEDifferent + rightBig profits come from the gap between what the market expects and what actually happens
THE DESKBlockBuying big blocks of stock from institutions at a discount, in exchange for carrying the risk yourself
THE FALL≈ −30%In 1994, bonds bought with borrowed money gave the fund its worst loss in 28 years
01
ProfileQuick facts
Full nameMichael H. Steinhardt
NationalityAmerican, born in New York, raised in Brooklyn
Born7 December 1940
EducationWharton School, University of Pennsylvania, graduated in 1960 at 19
FundSteinhardt, Fine, Berkowitz & Co. (1967), later Steinhardt Partners, closed in 1995
StyleLong/short equities, block trading, and later bonds and Global Macro
Best known forAn average of about 24.5% a year after fees over 28 years, according to widely reported figures
NoteSettled a 1994 case over squeezing the US Treasury market, and agreed to hand over 180 antiquities in 2021
02
Early lifeFrom Brooklyn to an early hedge fund
Steinhardt was born in New York in 1940 and grew up in Brooklyn. As he tells it in his autobiography, his father gave him shares as a bar mitzvah gift, so at 13 the boy began visiting a brokerage office to watch his stock prices
He was a fast learner, graduating from Wharton at 19 and starting as an analyst. In 1967 he set up a fund with Jerrold Fine and Howard Berkowitz, when the term hedge fund was still new on Wall Street
CAREER TAPE · 1940–2004Tap each stage for details
Born 7 Dec 1940 in New York, he grew up in a lower-middle-class family in Brooklyn. As he tells it, his father gave him shares for his bar mitzvah at 13, sparking his interest in the stock market
1 / 8
Steinhardt’s thinkingThe key question isn’t whether this stock is good, but what we see that differs from what the market thinks, and why we are right
Paraphrased from his Market Wizards interview, not a direct quote
03
Variant perception labLab: trade the news with a variant view
Steinhardt said big profits don’t come from guessing whether news will be good or bad, but from seeing things differently from what the market expects and being right. Use the US Non-Farm Payrolls (NFP) figure: adjust the market’s expectation, your view and the actual number, then see what EUR/USD and your trade do
NFP · made-up figures (thousands of jobs)
> ORDER —
> SURPRISE —
> EUR/USD —
> P/L —
Same as market · rightThe price already reflects expectations, so profits are usually small or nothing
Different · rightThis is Variant Perception: the market has to reprice toward reality, and that’s where the big profit is
Same as market · wrongWrong along with the crowd, and often unable to get out in time because everyone rushes out together
Different · wrongYou lose alone, so you must know in advance how wrong you’re willing to be, and have a stop loss
Assume EUR/USD moves about 0.5 pip per 1,000-job surprise and you hold 1 lot (1 pip = $10). If your view differs from the market by less than 20K, you have no edge and don’t trade. In reality the price depends on many other factors, such as wages and revisions to the previous month
> REBATE1TRADER · MSG 01
The cost of every lot is the spread you can control. Open an XM account through 1TRADER and get up to 90% of the IB commission back
1TRADER is a partner (IB) and earns a commission when you open an account through our link · % is the share of IB commission returned to you · How to get rebates
04
The block deskThe block trading desk: buying big blocks of stock
In the 1970s, institutions that needed to sell a large block of stock right away would often call someone ready to take the whole block at a discount. Steinhardt’s fund was one of the main players in this market. The discount is the cushion, but the question you always have to answer is: does the seller know something we don’t?
Incoming call · 10:42 · made-up example“A pension fund needs to sell XYZ urgently. The market price is $40. At what price will you take the whole block?”
TRADE TICKETBUY · BLOCK
- Your bid
- —
- Value of the block
- —
- Cushion
- —
What could the price be a week later?
Selling exhaustedPrice back to $40
—
Drifting a little lowerPrice at −3%
—
The seller knew bad newsPrice falls −12%
—
All figures are made up and exclude commissions and the cost of selling out. In reality the buyer has to resell without pushing down the price, and relationships with brokers decide who gets the call first
05
The recordThe 28-year record: what did $1 become?
The commonly cited figure is that $1 put in the fund in 1967 grew to about $481 by 1995, while the S&P 500 over the same period grew to about $19. Move the year slider to see the power of compounding at a gap of about 13% a year
Log scale · average compounding line$1 in the fund vs the S&P 500
Fund $1 → $481S&P 500 $1 → $19
Scroll the chart left and right →
Fund—
S&P 500—
Gap—
The lines show average compounding to compare the overall picture, not actual annual returns, which swung far more, such as about −30% in 1994. Some sources put the final figure at $462
DRAWDOWN MATHAfter a loss, how much must you gain to break even?
BLOCK DESK · REBATEA discount on every trade, no need to wait for anyone to callTrade with XM through 1TRADER and get up to 90% of the IB commission on every lot
Open account ↗1TRADER is a partner (IB) and earns a commission when you open an account through our link · % is the share of IB commission returned to you · How to get rebates
06
19941994: when bonds and borrowed money became a trap
Government bonds are often seen as safe, but when bought with borrowed money, a price drop of a few percent becomes a big loss for the portfolio. 1994 was the most expensive lesson of Steinhardt’s career
- 4 Feb 1994 The Fed raised rates from 3.00% to 3.25%, its first hike in about 5 years. The bond market wasn’t ready
- Feb–May US and European bonds sold off together. Holders using borrowed money were forced to sell, pushing prices lower still
- All of 1994 Steinhardt’s fund lost about 29–31%. Many sources say most of the damage came from European bonds
- 1995 Made back about 20%, then announced the fund’s closure at 54
“The pain in 1994 was far greater than the pleasure of 1993.”
LEVERAGE LAB · made-up exampleIf you hold bonds with leverage, how much does the portfolio lose?
0%−50%−100%
Compare with Forex: a $1,000 account opening 0.1 lot of EUR/USD (a contract worth about €10,000) has real leverage of about 10–11x, so a 1% price move means about a 10% move in the account. It’s calculated from the contract value, not the broker’s maximum leverage
07
The ledgerThe fact file: record, cases and controversies
Steinhardt’s reputation includes both an outstanding record and matters that have been questioned. We sort each by the weight of the evidence, and state clearly which are legal settlements and which are only allegations
$1 became about $462–481
Time magazine reported $462 in 1995, while later sources usually use $481, depending on the cut-off date
A loss of about 30% in 1994
Time reported 29%; some sources use about 30–31%, but all agree it was the worst year, mostly from European bonds
Settled the Treasury market squeeze case
His fund was investigated over squeezing the market in 2-year US Treasury notes auctioned in 1991, and settled in 1994 for about $70 million in total; reportedly he paid about 75% himself. It was a settlement, not a court finding of guilt
Agreed to hand over 180 antiquities
In December 2021, under an agreement with the Manhattan District Attorney, he handed over 180 antiquities worth about $70 million and accepted a lifetime ban on acquiring antiquities, in exchange for not facing criminal charges
Allegations of sexual harassment
Major media reported allegations from several women who had approached him about charity work. These are allegations from news reports, not court rulings
Variant Perception = always betting against the market
The key is a view that is different and right. Going against the market without better information or reasoning is just another kind of guess
WHILE YOU WERE OUTURGENT ☐ PLEASE CALL ☑
- FROM
- 1TRADER REBATE DESK
- MESSAGE
- Open an XM account through our link and get up to 90% of the IB commission on every lot you trade
1TRADER is a partner (IB) and earns a commission when you open an account through our link · % is the share of IB commission returned to you · How to get rebates
08
LessonsLessons for Forex and gold traders
Your checklist
0/4
Know the market’s expectation before the news
Before news like NFP, CPI or a Fed meeting, always check the consensus forecast first. Prices move on the gap between the actual figure and the forecast, not on whether the figure is simply good or bad
Write your variant view in one sentence
Steinhardt asked himself what we know that the market doesn’t. If you can’t answer, there’s no reason for the price to move your way. Write down your reasoning before every trade
Leverage magnifies both profits and mistakes
In 1994 bonds moving just a few percent became a loss of about 30% because of borrowed money. Calculate your lot size so the loss per trade is acceptable before entering
Stay in your field
Many sources see the 1994 damage as coming from expanding into bonds and foreign markets outside his original expertise. Gold or major-pair traders should master a few instruments before expanding
09
Quiz5-question quiz
Question 1 / 5
What does Variant Perception mean?
The key is being different and right. Simply going against the market is not an edge
If the market expects NFP of 180K but the actual figure is 70K, what does the USD usually do?
Prices react to the surprise versus expectations; a worse-than-expected number usually weighs on the dollar
What was the block trading Steinhardt did?
Institutions wanting to sell a big block give a discount in exchange for selling immediately
In 1994, what caused Steinhardt’s fund its heavy losses?
A surprise Fed rate hike sent bond prices down worldwide, and leverage magnified the losses
After a 30% loss, how much must you gain to break even?
70 × 1.43 ≈ 100. The deeper the loss, the bigger the gain you need to recover
0/5
10
Trade like SteinhardtFollow in Steinhardt’s footsteps: know the expectations, think differently with reason, control leverage
What you can use right away is the habit of checking what the market expects before deciding, and never letting borrowed money magnify a mistake beyond recovery. Here are tools on 1TRADER that help
REBATE · 1TRADER
Trade like a pro: control your costs
Open an account through 1TRADER and get cash back on every lot you trade, lowering your spread and commission costs over time.
How to get rebates, step by step →Leveraged trading carries high risk. Study the broker’s terms and the risk disclosure before opening an account.
11
Further readingFurther reading
- No Bull: My Life In and Out of MarketsMichael Steinhardt · 2001His autobiography, from Brooklyn and launching the fund through 1994 to closing the fund and his charity work
- Market WizardsJack D. Schwager · 1989The interview chapter The Art of Variant Perception, the source of the phrase he’s remembered for
- More Money Than GodSebastian Mallaby · 2010A history of hedge funds, with a chapter on Steinhardt and the block trading era
Sources for this article
- Wikipedia: Michael Steinhardt
- Hedge Fund Alpha: Michael Steinhardt Resource Page
- TIME: A Farewell to Hedges (1995)
- Knowledge at Wharton: Jerrold Fine on co-founding Steinhardt, Fine, Berkowitz
- The Washington Post: Two investment funds settle Treasury note squeeze case (1994)
- Commoncog: Steinhardt and block trading
- Forbes: Michael Steinhardt, Wall Street’s greatest trader, is back (2014)
12
FAQFrequently asked questions
What is Variant Perception?
Having a view that differs from the market’s expectations and turns out to be right. When reality emerges, the price has to move from what the market expected toward reality, and that gap is the profit. Steinhardt explained the idea in the book Market Wizards
What returns did Steinhardt achieve?
The commonly reported figure is about 24.5% a year after fees over 28 years from 1967 to 1995. $1 became about $462–481 depending on the source
Why did he close the fund in 1995?
After losing about 30% in 1994 and making it back in 1995, he announced the fund’s closure, telling Time that the pain of 1994 far outweighed the joy of 1993, and that he wanted to devote his time to charity
How can Steinhardt’s ideas be used in Forex?
Directly in news trading: check the forecast before the release, and only plan a trade if you have good reason to think the actual figure will differ greatly from expectations, with a stop loss and a suitable position size, because news swings prices hard both ways
What controversies has Steinhardt faced?
His fund settled the US Treasury market squeeze case in 1994. In 2021 he handed over 180 antiquities under an agreement with the Manhattan District Attorney, and in 2019 news reports carried sexual harassment allegations, which are allegations, not court rulings
Educational content, not investment advice. Return figures are publicly reported figures. The labs on this page use made-up data. · risk disclosure · Forex glossary