[Ebook] When Genius Failed: The Rise and Fall of Long-Term Capital Management *Full Pages* [[All Format Support]] By Roger Lowenstein. When Genius Failed: The Rise and Fall of Long-Term Capital Management PdF,ePub,mobi ebook When Genius Failed: The Rise and Fall of Long-Term Capital. When Genius Failed Epub is Avaialble in EPUB, MOBI, AZW and PDF eBook genius failed book now all books are in clear copy, when genius failed ebook by.
- 《When Genius Failed》电子书下载
- The Hedge Fund That Almost Broke The World - Adventures In Finance Ep. 25 - Real Vision™
- When Genius Failed (PDF) by Roger Lowenstein
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- When Genius Failed: The Rise and Fall of Long-Term Capital Management
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Details if other :. Thanks for telling us about the problem. Return to Book Page. When it was founded inLong-Term was hailed as the most impressive hedge fund in history. Get A Copy. Paperbackpages. More Details Original Title. Other Editions Friend Reviews. To see what your friends thought of this book, please sign up. To ask other readers questions about When Genius Failedplease sign up. Basically leveraging on leverage.
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《When Genius Failed》电子书下载
Feb 11, Duffy Pratt rated it really liked it Shelves: journalismtrading. Long Term Capital Management was a hedge fund made up of a group of former hotshot bond traders from Solomon Bros. They were the biggest stars in the business, and they had all the arrogance and greed that you could possibly imagine.
They also seemed to be as good as they thought themselves.
In five years, they turned a billion dollars into 4. Then they lost Long Term Capital Management was a hedge fund made up of a group of former hotshot bond traders from Solomon Bros. Then they lost it all in just a few months and came close to bringing down the financial sector in the process. It's a great story, and Lowenstein tells it well.
He makes the complicated trading structures fairly easy to understand. For example, he does a good job of explaining how a fund could go long or short on volatility in equities. And I'm not going to try to repeat that here. There are two main themes here: first, is the arrogance and greed involved.
The Hedge Fund That Almost Broke The World - Adventures In Finance Ep. 25 - Real Vision™
This led LTCM to trade at leverage ofand even greater as they started to collapse. That means they were controlling about billion dollars in assets when they had 4 billion in equity in the fund. And that didn't include their risks in more complicated derivatives. I'm not sure anyone knows what their exposure was there.
The second main theme is the over-reliance on mathematical models. And these, in turn, stem from the efficient market hypothesis, and the random walk theory that goes along with it. In a nutshell, these theories are that the current price always reflects everything that is known, and that future moves in price are randomly distributed according to a bell curve. There are a few ironies here. LTCM, who believed so firmly in the efficient market, did everything it possibly could to cut better deals with the banks who gave them financing, and with their clearing bank.
In other words, they didn't simply go with the price that was better. One tactic they used was to cozy up to these people by inviting them to a posh golf club in Ireland owned by one of the partners. When dealing with their bankers, at least, they felt there was some room for market inefficiency. Worse, for the first four years, the fund did unbelievably well.
In all that time, the worst month they had was down 2. The partners saw this as a pure confirmation of their method, and of their own genius. And they took this success as a justification for adding on even more leverage. But no-one, not even the book, seems to get that the early success was already a red flag that their models didn't work.
The success they had was not something that their models would predict. The event that wiped out the company, according to their own models, was a 10 sigma event: it was something that might happen once in several lifetimes of the universe, but probably not. It's worth noting that this 10 sigma event happened a second time the year after the company collapsed.
When Genius Failed (PDF) by Roger Lowenstein
So instead of once in forever, the event happened twice in just over a year. But no-one has said how unlikely their success was according to their own models. It may not have been as unlikely as the collapse, but it was far from what anyone, including the partners, expected from the outset. In short, the firm lived through two black swan events.
The first worked in their favor, as volatility shrank and shrank without so much as a hiccup for four years. And the second blew up the firm. My point is that they should have been paying attention to the first black swan event as well. Apr 02, Jim Rossi rated it it was amazing. Lowenstein displays remarkable prescience.
Not only is "When Genius Failed" a great read, it accurately foreshadows the "weapons of mass destruction" risks, to quote Warren Buffett, that would lead to the subprime meltdown and Great Recession. Reading this book, along with Kindleberger's "Manias, Panics, and Crashes" allowed me to foresee the Great Recession, steer clear, and avoid damage. It also helped me to better understand booms and busts in my own upcoming book "Cleantech Con Artists.
View all 8 comments. Jan 25, Robert rated it it was amazing.
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As a student of the efficient market idea I has always wondered what these guys were up to in more detail even after seeing the Nova program about the meltdown of Long Term Capital Management in This is an excellent book that explains as well as can be in a general work of literature less than pages. There are several lessons here, that apparently will not be learned. Mathematical models are based on very good math with very many assumptions required to make the computations workable.
The real world is under no obligation to stay within either the quantitative nor temporal boundaries required to survive an investment program based on these models in the applicable markets. The quote from Keynes applies "Markets can remain irrational longer than you can remain solvent". The technique employed by hedge fund such as Long Term only works by means of very large bets with very big leverage. Without these elements there is insufficient return compared to the costs and risk.
As things go wrong leverage increases as base equity declines. LTCM was leveraged to 1 routinely, and of course much higher, eventually more than to 1 as relentless losses hammered their capital.
Many events that affect investments are truly unpredictable both as to their source and their impact when they occur. For example, a little nation defaults or devalues. Maybe no big deal.
When Genius Failed: The Rise and Fall of Long-Term Capital Management
If the little country defaults in the midst of a larger default by a larger nation e. Russia there might be a disproportionate effect larger than simple sum of the two together, especially if the world's largest players are margined up to the eyeballs on a different outcome when it happens.
Crisis scenarios are poorly represented in such models which always are based on predicting the future based on the past. In a crisis, linkages occur that are not normally apparent, as the book says correlations converge to one.
As it happens it was a self-delusion on the part of LTCM partners that there was any true diversity in their bets. While most were hedged, all were essentially the same bet made on similar goods in many locations. They were counting on diversity over thousands of positions to prevent my simple leverage example above from simply taking them out in short run of adverse market conditions. But as conditions deteriorated all of their trades suffered in unison and LTCM took the full force of leverage against its equity.
Another non-mathematical fact is that their markets are a small place full of people not automatons. Once their distress started to become evident, trading behavior compounded their troubles.
Although LTCM's secretiveness, arrogance and its deal making practices that skinned safety and profit to the bone for those who helped them finance their trades e.