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on June 16, 2004
Lowenstein is one of the finest financial journalists around, and his work in this book is no exception. More than anything, Long-Term Capital's collapse is the story of hubris and arrogance. The men who ran LTCM were brilliant financial minds and legendary traders, and their investment strategies would worked (or at least not failed on such a massive scale) if they had stayed within their realm of competence (fixed-income arbitrage). But Lowenstein chronicles their ill-fated forays into merger arbitrage, emerging markets and other areas that the gurus of LTCM didn't really understand as well as they thought they did.
The ultimate irony of the story is thatmany involved still don't think they were wrong in their investment strategy, viewing Russia's default (the exogenous event that directly led to the firm's liquidation) as a one-time, unforeseeable event.
With the meticulousness of a great journalist, Lowenstein brilliantly renders a story of arrogance run amok. As a derivatives trader, I think this book is must-reading for any trader or investment professional, since it teaches us all a couple crucial trading lessons: (1) The market is bigger than any one participant, and (2) Check your ego at the door.
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on June 3, 2004
This book is a great inside look into the world of finance and greed and hedge funds. Although LTCM was not your typical hedge fund, it did bring some of the brightest minds in finance together for an amazingly successful investment enterpirse, only to watch it fail miserably as ego and pride took over.
Lowenstein does an amazing job of taking complex financial transactions and stories and making them read like pure enjoyable fiction. The book starts out with a background of the main partners in LTCM who started the venture. Geniuses in the private and academic world who wanted to use their knowledge to create an sure fire investment fund guaranteed to make huge profits.
Each character is almost like a fictional figure but they ar emost certainly real and Lowenstein brings them to life through descriptions and anecdotes. Then the investments begin and wether or not you have a strong background in finance, the authoer explains complex interest rate arbitrage strategies in a way anyone can udnerstand them.
The story of how the fund grew to over $100 billion in assets and produced some amazing returns early on is amazing. You see how much money these guys made and how they became richer larger than life figures. Then, they become victoms of their own success. They deterimined that the likelihood of failure was so infintesiimally small that they were basically risk-free. But as Murphy's Law taught us, the unexpected can happen when you think you are better than everyone else and better than the market.
The story provides great details in the characters involved, the transactions, and how the bankers picked apart LTCM to cover all their losses. The writing is excellent and keeps the story moving at a fast pace. You almost forget you are reading a true story and instead feel like you are reading a fictional story of greed wealth and international finance.
Great insight into complex trading strategies, hedge fund positions, how investment banks work, derivatives, outright greed and the taking down of a legends in the finance world. I read the book in about a week or so because I could not put it down and plan to read it again.
If you enjoyed the great classic Liar's Poker, then you will find the same great writing style and pure enjoyment.
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on March 25, 2004
Great story. Appears to be very well researched. My only criticism would be that I felt the author was striving for a conclusion or something we could learn from the story. Whilst it certainly kept me turning the pages with intrigue (and I, like some of the other reviewers I notice, wanted to find the right conclusion too), there was no answer and I don't think there is an answer. No doubt we will be persuaded and tempted by fantastic academics with ideas for awesome returns again and no doubt we'll be burnt again too.
The story appears to describe a key episode in history which has influenced how the financial world has developed into what it is today. These few brilliant academics may have brought the largest banks in the world to the brink of collapse and perhaps we should frown upon them for it but they can also, arguably, be credited with shaking up the industry.
The book still, a year on, philosophically entertains me. Is an efficient market a good thing? What kind of greed motivated these people? Can we ever fully compensate for risk?
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on February 7, 2004
Any fool knows that playing the futures game is a risk. But here we have a situation where John Meriwether, having left Salomon Brothers under a cloud, is trusted with lots of investment money to start an arbitrage group - which in hindsight was a half step away from financial insanity. This "arbitrage group" is a fancy way of saying a group of people that gambled on futures using derivatives. Not hog futures but large international financial instruments.
The financial swings and risks were enormous. You might have trouble at the bank getting a car loan but these guys got billions from banks and investors to essentially play the futures markets. The group included academics, market veterans, and financial analysts. The academics were so sure of themselves that they did not even blink at the thought of betting billions. They played for high stakes and won at first. But eventually they lost their stake like some giant crap shoot. Again where were the regulators? Where were the regulators when junk bonds were king and where were the regulators when Enron had their fake trading floor? They did not arrive until the building was on fire and burned down.
The losses were so great that only the Federal Reserve could fix the situation by applying pressure to "encourage" the New York banks to bail out the arbitrage group.
A very interesting read. One has to remind oneself that it is not fiction, but that it all actually happened.
Four stars.
Jack in Toronto
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on January 7, 2004
The geniuses who ran Long-Term Capital Management thought they could do no wrong. They believed they had developed a can't fail system of playing small margins in bond and equity spreads. They even projected that only a unique set of circumstances could ever fall into place and spoil the niche they thought they had found in the market. And the odds of that happening were determined to be so infinitesimal that they never were concerned about it.
Naturally, that unique set of circumstances fell into place and brought them down at the same time very nearly ignited a financial crisis that required the intervention of the Federal Reserve to prevent a potential meltdown of the markets. It reads like fiction by the likes of Michael Crichton, but it is all the more frightening that it is true.
This is a true cautionary tale, one that will probably go unheeded by future "geniuses" on the Street. It is well researched and well-told. This book is must reading for anyone interested in the stock and bond markets. It should be required reading for all of the self-proclaimed financial geniuses who keep appearing on Wall Street and who all seem to manage to flame out when they learn that the markets are unpredictable and answer to no one.
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on October 25, 2003
Some of you may remember Liar's Poker by Michael Lewis, written over ten years ago about the author's experiences at Salomon Bros. One of the central characters (John Meriwether) is back in 'Genius - this time at the helm of a hedge fund employing sophisticated quantitative methods in the bond and equity markets. Along with Meriwether, the hedge funds partners include names like Robert Merton that (literally) wrote the book on Corporate finance and asset pricing.
The aim of LTCM is to 'beat the market' and it does so consistently in the early stages, before going bust in spectacular style. What are we to conclude from this meltdown? The author clearly believes that the theories the firm used to predict financial market behaviour are incomplete and ill equipped to model extreme turbulence and crowd behaviour. It's difficult to disagree, as LTCM's collapse happened largely a result of adhering to them without question.
Author Lowenstein wouldn't have got much help from Meriwether in writing this, but he appears to have produced an accurate and highly readable account, extensively indexed and well noted. I couldn't put it down.
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on September 6, 2003
Roger Lowenstein tells us in full detail the downfall of John Meriwether's LCMT fund.
It is a tale of colossal hubris, with staggering amounts of money involved, and with people who believed that tomorrow's risk could be inferred from yesterday's volatility.
In fact, the fund speculated against the whole world, putting the whole market system at risk: seven thousands derivative contracts covering $ 1.4 trillion notional value, with a leverage which amounted at a certain moment to 100 to 1.
The fund could conceal its positions until it ran in trouble and was forced to open its books. The counterparts saw that they were in a win/win position and forced the fund into receivership: $ 3.6 billion disappeared in just five weeks.
Roger Lowenstein's book gives us a clear picture of the characters involved and of the evolution of the speculation.
He criticizes rightly the Fed who rescued everybody (men and companies) in this monstrous speculation: '(the Fed) regrettably squandered a choice opportunity to send the markets a needed dose of discipline.' (p. 230)
But the players were too big to fail. More, the culprits could start again with a new fund. Unbelievable.
Some other aspects of this story are truly amazing, like the colossal losses on Russian and South-American bonds!
Lowenstein did a magnificent job to unravel this big jumble.
This book should be read as an example of a 'safe' speculation that went out of hand.
For a correction of the following sentence: 'In 1992, Soros' Quantum fund became celebrated for "breaking" the Bank of England and forcing it to devalue the pound (which) he had relentlessly sold short' (p. 24), see Gene G. Marcial 'The secrets of the Street' - p. 209-210.
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on July 17, 2003
Roger Lowenstein (RL) gives a lucid account of a complex thing called LTCM fiasco. For someone who isnt into derivatives, black scholes, volatility, RL makes it very easy to understand. And here in lies the beauty of the book. While lot of people have heard about the risks in investing in hedge funds and the LTCM collapse only a few people understand how and why the fund lost $ 4 billion in a few weeks.
RL starts with the background of the founders and gives a nice warm up. He starts off with John Meriwether and his rise to fame at Solomon Brothers. The book then continues to account for the rise of LTCM covering such things as how it got Robert Merton and Myron Scholes on board, the traders Hillibrand and Haghani etc. Its a fascinating account. The second part deals with the fall of LTCM. How the Fed got involved to get LTCM out of the mess it got itself into, the perils of over-leverage and equity vol trading etc. Its very clear and the flow is excellent. You dont want to put the book down.
For any reader interested in hedge funds, derivatives etc, he/she must get this book. LTCM is a remarkable event in the history of modern finance. Its perhaps the only fund that got finance academics (all the professors in the fund) putting their money where their mouth is. It made more money than ever imagined and lost all of it too. It got together all of Wall Street for the first time to solve a major debacle. It teaches quite a few lessons. And they are worth learning.
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on July 17, 2003
Roger Lowenstein (RL) gives a lucid account of a complex thing called LTCM fiasco. For someone who isnt into derivatives, black scholes, volatility, RL makes it very easy to understand. And here in lies the beauty of the book. While lot of people have heard about the risks in investing in hedge funds and the LTCM collapse only a few people understand how and why the fund lost $ 4 billion in a few weeks.
RL starts with the background of the founders and gives a nice warm up. He starts off with John Meriwether and his rise to fame at Solomon Brothers. The book then continues to account for the rise of LTCM covering such things as how it got Robert Merton and Myron Scholes on board, the traders Hillibrand and Haghani etc. Its a fascinating account. The second part deals with the fall of LTCM. How the Fed got involved to get LTCM out of the mess it got itself into, the perils of over-leverage and equity vol trading etc. Its very clear and the flow is excellent. You dont want to put the book down.
For any reader interested in hedge funds, derivatives etc, he/she must get this book. LTCM is a remarkable event in the history of modern finance. Its perhaps the only fund that got finance academics (all the professors in the fund) putting their money where their mouth is. It made more money than ever imagined and lost all of it too. It got together all of Wall Street for the first time to solve a major debacle. It teaches quite a few lessons. And they are worth learning.
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on June 11, 2003
...If you haven't heard of LTCM, then the book might not be worth it.
The book is about the spectacular rise (1994) and fall (1998) of the trading firm LTCM. You will find in this book: 1) what sort of trades LTCM made (mostly fixed-income arbitrage, less foreign exchange, much less plain stocks), 2) yearly (and at times daily, when LTCM was going bankrupt) balance of LTCM's accounting books, 3) (somewhat vaguely) counterparties involved in LTCM trades, 4) personnel in LTCM who made the trades; their personalities, 5) heads of Wall Street firms between 1994-1998. If any of the above interests you, you will find the book worthwhile, not only because the author does a fairly good job in chronicling the events, but also because there are not many sources available that cover the LTCM debacle. (I personally find it strange that such a talked about firm in the 1990s has such little "publicity.") On the other hand, contrary to the opinions of some reviewers here seem to hold, I would not go so far as to draw investment lessons from the book. To me this is history, dry as it should be.
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