When Genius Failed: The Rise and Fall of Long Term Capital Management

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A captivating story of the rise and fall of Long-Term Capital Management – When Genius Failed chronicles a spectacular collapse that shook the financial world to its core. #Finance #LTCM Recently, I read the book “ When Genius Failed”, written by Roger Lowenstein. This book is the story of rise & fall of Long Term Capital Management (LTCM), the largest hedge fund of its time. LTCM was started in 1994 by John Meriwether who was a Wall Street veteran and once a part of Salomon Brothers, an old Wall Street investment bank. However, the fund drew its real fame from its investment management team that constituted of many Nobel laureates. Furthermore, as bond arbitrage opportunities started to melt away due to influx of competitors, LTCM plunged into unexplored waters: merger arbitrage, bets on equities via derivatives, bets in emerging markets, etc. The firm essentially started to shift away from convergence bets to directional bets, which are inherently speculative. In other words, LTCM began to meddle outside its area of expertise. The fear was that there would be a chain reaction as the company liquidated its securities to cover its debt, leading to a drop in prices, which would force other companies to liquidate their own debt in a vicious cycle.

Jacque, Laurent L. (2010). Global Derivative Debacles: From Theory to Malpractice. Singapore: World Scientific. ISBN 978-981-283-770-7. . Chapter 15: Long-Term Capital Management, pp.245–273 In a decade that had seen the longest and most rewarding bull market in history, hedge funds were the ne plus ultra of investments: discreet, private clubs limited to those rich enough to pony up millions. They promised that the investors’ money would be placed in a variety of trades simultaneously–a "hedging" strategy designed to minimize the possibility of loss. At Long-Term, Meriwether & Co. truly believed that their finely tuned computer models had tamed the genie of risk, and would allow them to bet on the future with near mathematical certainty. And thanks to their cast–which included a pair of future Nobel Prize winners–investors believed them. WHILE AMERICA AGED HOW PENSION DEBTS RUINED GENERAL MOTORS, STOPPED THE NYC SUBWAYS, BANKRUPTED SAN DIEGO AND LOOM AS THE NEXT FINANCIAL CRISIS The real culprit in 1994 was leverage. If you aren’t in debt, you can’t go broke and can’t be made to sell, in which case “liquidity” is irrelevant. But a leveraged firm may be forced to sell, lest fast-accumulating losses put it out of business. Leverage always gives rise to this same brutal dynamic, and its dangers cannot be stressed” is dotted with discount stores and luncheonettes-and, almost everywhere, brokerage firms and banks. The Fed's immediate neighbors include a shoe repair stand and a teriyaki house, and also Chase Manhattan Bank; J.Roger Lowenstein is an American author and journalist. He is currently a contributor to The Wall Street Journal. In addition to his work as a journalist and book reviewer, he is the author of five best-selling books, including Warren Buffett - The Making of an American Capitalist, When Genius Fails . What does this book have for me? Learn about a hedge fund that tried to outperform the market and failed. Investors realize they don't always get relief. There will be times when bad things happen, they have to stand on their own two feet. mid-August, when Russia had defaulted on its ruble debt, the global bond markets in particular had been highly unsettled. But that wasn't why McDonough had called the bankers. When Genius Failed recounts the story of Long-Term Capital Management (LTCM, a hedge fund founded in 1994 by a group of prominent Wall Street financiers and Nobel Prize-winning economists.

Lowenstein, Roger (2000). When Genius Failed: The Rise and Fall of Long-Term Capital Management. Random House. ISBN 978-0-375-50317-7. Bookstaber, Richard (2007). A Demon Of Our Own Design. USA: John Wiley & Sons. pp. 97–124. ISBN 978-0-470-39375-8. Do you know the story of Icarus? Thanks to the wings his father made, Icarus was able to fly – an ability that humans never had. Complacent with proud wings, Icarus ignored his father's advice, tried to fly high, aspired to conquer the vast and vast sky. But the higher the flight, the greater the heat of the sun, causing the wax that binds the feathers of the wings to gradually melt. In an instant, the wings disintegrated into a hundred pieces. Icarus died, tragically.

LTCM applies academic knowledge to investing.

Roger Lowenstein, the bestselling author of Buffett, captures Long-Term’s roller-coaster ride in gripping detail. Drawing on confidential internal memos and interviews with dozens of key players, Lowenstein crafts a story that reads like a first-rate thriller from beginning to end. He explains not just how the fund made and lost its money, but what it was about the personalities of Long-Term’s partners, the arrogance of their mathematical certainties, and the late-nineties culture of Wall Street that made it all possible. A: Yes. Some of Meriwether’s former partners, who are partners with him now in a new venture, asked me to make changes because they thought sections of the book would be harmful to their future fund-raising efforts. We, of course,