When Genius Failed: Critical Book Review
In Roger Lowenstein’s book, When Genius Failed: the Rise and Fall of Long-Term Capital Management, he discusses several factors that ultimately led to the success and failure of the hedge fund, Long-Term Capital Management. Lowenstein demonstrates that even with the most brilliant minds in the financial world making and supporting decisions on buying and selling stocks, bonds, options, and derivative contracts; there is always risk involved. Throughout the book, the author constantly reverts back to the theme that the small, elite group in this particular hedge fund had such reputable reputations for being some of the first pioneers in investing in the arbitrage market. Since this group had done this sort of investing before with the Salomon Brothers, it was no wonder why most investor’s trusted this prestige group. I think the main idea Lowenstein tries to portray is that nothing is absolutely predictable when investing in the market and that your returns can’t be quantified as a science because there is just too many variables that can factor into the result of how an asset fluctuates.
J.F. Eckstein is a securities dealer who traded in treasury bills to make arbitrage profits. He was successful doing this several times and thought there was a pattern to always being profitable and having success. The pattern ended up going against him as he started to invest gradually more money and he lost a lot of it. He was forced to sell. The market is too random to follow a pattern. Long-Term Capital Management had invested in thousands of assets in different markets across the globe to ensure their eggs were not all in one basket and that they were not affected by each other. Unexpectedly, markets started to be more closely linked to each other and meant that a trend in one market could spread throughout other markets as well. Meriwether was a big gambler and also got the other trader’s in the hedge fund to...
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