When Genius Failed: A Monkey's ReviewHF
In 1998, where were we? Most likely, we were taking part in some combination of cashing in on the dot-com bubble, following the McGwire-Sosa home run race, and wondering by what margin the Bulls would win their sixth title.
Underneath all that though, few people realized that the conditions were almost perfect for the Great Recession to start ten years early. And it required only a spark. That spark was Long-Term Capital Management.
Another book routinely ranked in the top 10 Wall Street reads, Roger’s “ ” tells the story of that famous quant fund headed by of Salomon Brothers and led by head traders Larry Hillibrand and Victor Haghani.
If you invested $1 in LTCM at its founding in March 1994 and cashed out in April 1998, you would have received $4.08 before fees. If you waited until October of that year, you would have gotten about $.30.
If you’re looking for fun tales of late-90’s Wall Street ballertude, you’ll probably be disappointed. However, if you’re interested in the heavily quant-oriented world of bond, this book is a must. Mr. takes you through the strategies that resulted in those eye-popping returns, including a 59% growth for FY1995—still one of the best starts by any fund, ever. One of those strategies was “snap trades,” profiting on the narrowing of spreads between “on-the-run” Treasuries and “off-the-run” Treasuries, all backed with massive amounts of leverage. It proved very successful in Italy, where Mr. Haghani engineered a position on the two types of Italian government debt among the chaos of the coming monetary union. It made LTCM $600 million in one year.
Of course, all good things must come to an end, and the quants and professors found themselves in a macroeconomic environment that, try as they might, they couldn’t model themselves out of. The New York Fed ordered all the major USto “voluntarily” prop up the fund. The final chapter in the book revisits that intense boardroom meeting, which was almost derailed at the last minute by, surprise surprise, (I can hear you cackling, Midas).
Bailout was supposedly needed since LTCM’s tanking would have destroyed the balance sheets of all the financial institutions who had invested with them (which at that point was pretty much everyone).
More quantitative and less of an easy read than “” or “Liar’s Poker,” but definitely well-researched and relevant the Wall Street student. What might have happened if there was no bailout? Could it have been prevented? Would you trust with your money after that? SB to the first one who finds out what he’s doing now…
Read up, monkeys!
Monkey’s Review 1: Barbarians At the Gate
Monkey’s Review 2: The Financier
Monkey’s Review 3: Decision Points
Monkey’s Review 4: Debunkery
Monkey’s Review 5: When Genius Failed
Monkey’s Review 6: Monkey Business
Monkey’s Review 7: Death Of The Banker
Monkey’s Review 8: A Journey
Monkey’s Review 9: Damn It Feels Good To Be A Banker
Monkey’s Review 10: The Quants
Monkey’s Review 11: All About Hedge Funds
Monkey’s Review 12: The Unlikely Disciple
Monkey’s Review 13: Adventure Capitalist
Monkey’s Review 14: The Hedge Fund Book
Monkey’s Review 15: Investing In Hedge Fund of Funds
Monkey’s Review 16: Hilarity Ensues
Monkey’s Review 17: The Prince
Monkey’s Review 18: Markets Never Forget (But People Do)
Monkey’s Review 19: The Money Culture