I think that if I didn't have the experience of working in the financial sector and didn't already find it quite fascinating, my rating for this book might have been a bit lower. Lowenstein indeed demonstrates a good command of the subject matter. This is no small accomplishment considering he is not from the industry himself. However, the writing style is just a bit too cold and clinical, which makes it difficult to constantly hold my attention.

The figures mentioned in the book are truly staggering. Trillions and billions are casually thrown around, and the number of players involved in the rise and fall of LTCM is equally astonishing. After a while, one's head starts to spin, and yet one hasn't even begun to penetrate the intricacies of how the hedge fund was conducting its business!

Since this book was published 15 years ago, it is interesting to view it against the backdrop of the 2008 financial crisis. Many might argue that LTCM is now just a footnote in history, but I prefer to think of it more as a warning sign that should have been heeded before the financial crisis. We often think that the concept of "too big to fail" emerged as a result of the federal bailout of AIG during the financial crisis. However, bailouts had occurred at least as far back as the savings and loan collapse in the 1980s and more recently, with LTCM. As the author points out later in the book, Wall Street has a tendency not to learn from its lessons, no matter how financially or publicly painful they may be.

"Past performance is not necessarily indicative of future performance." This mantra of the financial markets was disregarded by the gurus at LTCM, and this book thoroughly explains the early successes and subsequent downfall of their hedge fund. It is a must-read for industry professionals, but readers with only a passing interest or limited knowledge of the derivatives market will likely find it challenging to keep up.

The seductive theory of the efficient market and the Rational Economic Man (REM) has been proven wrong.

The assumptions of Modern Quantitative Finance that were used by LTCM were overly optimistic and seemed to be clad with an aura of invincibility.

Greed was indeed one of the driving factors behind the large speculative positions.

Oh! But from LTCM's point of view, they weren't speculative. They were foolishly confident in their ability to predict the future.

They firmly believed that they were right and the market was wrong. As a result, they paid a heavy price.

This serves as an interesting and eye-opening example for those who think of finance merely as quantitative and limited to fancy computer models.

In fact, the theory of finance and economics is more of an art than a science.

The behavioral factor governs finance to a greater extent than the theories of science.

It is essential to recognize the importance of human behavior and emotions in the world of finance.

Can a tightening of regulation prevent the next LTCM?

Possibly, but the financial world is constantly evolving, and complex financial products continue to emerge under the guise of derivatives.

Esoteric financial models, like the Black-Scholes model, have their uses in various industries seeking to hedge risks.

However, from this detailed account of the LTCM debacle, it becomes clear that when even the so-called geniuses fail, the consequences may be somewhat limited.

Wall Street seems to have an almost endless appetite for taking risks.

Even those who have been disgraced can simply move on with their lives and embark on another adventure that has the potential to cause chaos and havoc to the rest of the world.

This situation raises important questions about the effectiveness of regulation and the need for a more comprehensive approach to managing financial risks.

Perhaps it is time to reevaluate the way we view and regulate the financial industry to prevent similar disasters from occurring in the future.

Roger Lowenstein provides a comprehensive and detailed account of the remarkable success and sudden downfall of Long Term Capital Management (LTMC).

LTMC was established in 1994 by John Meriwether, a former bond trader at Salomon Brothers. The fund predominantly relied on convergence trading strategies. In its initial stages, the returns achieved by LTMC were truly astonishing, attracting significant attention and investment.

However, the situation took a drastic turn when the exorbitantly high leverage employed by the fund, combined with the financial meltdown in Asia and Russia, led to a severe crisis. The fund faced huge losses and was on the verge of collapse.

As a result, in 1998, the Federal Reserve had to step in and mediate a bailout of LTMC to prevent a potential systemic risk to the global financial system. This event serves as a significant case study in the world of finance, highlighting the importance of risk management and the potential consequences of excessive leverage and unforeseen market events.

Dry but exciting (for me).

He delved into minute detail regarding the type of investing that Long-Term Capital Management (LTCM) was engaged in at that particular time. It was truly remarkable to gain such in-depth knowledge about their investment strategies.

The chapter on how it all got out of control, specifically highlighting the aspect of human gambling, was absolutely fascinating. It provided a captivating insight into the flaws and risks that can occur within the financial world.

Moreover, through this reading, I also learned about the significant event of the Russian debt default in 1998. This event had a profound impact on the global financial markets and understanding its causes and consequences was both educational and eye-opening.

Overall, despite the subject matter being somewhat dry at times, the detailed exploration and the newfound knowledge made it an exciting and valuable read for me.

I decided to read in order to understand precisely how they managed to lose half of my money. It was truly a captivating exploration into the world of finance.

As I delved deeper into the text, I uncovered a plethora of details and insights that shed light on the complex mechanisms at play.

The author's engaging writing style made it a terrific read, especially for those with an inner finance nerd like myself.

Each page seemed to reveal a new aspect of the mystery, keeping me on the edge of my seat.

By the end of the book, I not only had a better understanding of what had gone wrong but also felt more empowered to take control of my own financial future.

It was an educational and entertaining experience that I would highly recommend to anyone interested in finance or simply looking for a good read.

(3.5) Eerily similar to a crisis almost exactly 10 years later, this is an interesting, well-told if brief account of the rise and fall of Long-Term Capital Management.

When things got heated, it was along the lines of Sorkin's Too Big to Fail, but otherwise, it's a decent treatment of the significant events in the life and death of LTCM.

I don't have too much more to share other than how prescient the following quotation (from a book written in 2000) was. Or perhaps it shows how Wall Street is quick to forget the lessons of the past, or how it's building a great track record of huge compensation for finding and exploiting moral hazard.

"None other than Merrill Lynch observed in its annual report for 1998, 'Merrill Lynch uses mathematical risk models to help estimate its exposure to market risk.' In a phrase that suggested some slight dawning awareness of the dangers in such models, the bank added that they,'may provide a greater sense of security than warranted; therefore, the reliance on these models should be limited.' If Wall Street is to learn just one lesson from the Long-Term debacle, it should be that. The next time a Merton proposes an elegant model to manage risks and foretell odds, the next time that a computer with perfect memory of the past is said to quantify risks in the future, investors should run--and quickly--the other way."

Too bad they didn't when it came to CDOs and such. You really almost could've substituted collateralized debt obligations, credit default swaps, and mortgage-backed securities for interest rate swaps and equity volatility trades, and the story would run pretty similar. The sad thing is that for the most recent crisis, we needed the additional participation of ratings agencies to perpetuate the whole charade. One would hope that with an additional historical near-crisis and organizations charged with evaluating the risk of securities, we'd do a better job of avoiding bringing the financial world to ruin. Sigh.

Lowenstein masterfully tells the dramatic story of Long-Term Capital Management’s rise and catastrophic fall.

At the beginning, Long-Term Capital Management seemed to be on an unstoppable upward trajectory. It was a hedge fund that boasted an impressive roster of talented and highly respected financial minds. Their strategies, based on complex financial models, appeared to be foolproof.

However, as the story unfolds, we see how overconfidence in these models led to their downfall. The fund took on excessive risks, believing that their models could accurately predict and manage any market situation. But when the unexpected happened, and the markets took a turn for the worse, Long-Term Capital Management found itself in a precarious position.

The book is both a cautionary tale and a fascinating look at the dangers of overconfidence in financial models. It serves as a reminder that no matter how sophisticated our models may be, there is always an element of uncertainty in the financial markets.

Even if you’re not a finance expert, the storytelling makes this a compelling and eye-opening read. Lowenstein does an excellent job of presenting the complex financial concepts in a way that is easy to understand. He brings the characters and events to life, making it a page-turner from start to finish.

Fun to read after Liar's Poker.

It is closely related to these people.

As someone with a math degree who has entered the finance industry, it has taught me some extremely valuable lessons.

Finance is a combination of art and science and cannot be simply reduced to science alone.

The complexity and diversity within the finance field require not only a solid understanding of mathematical principles and scientific methods but also an appreciation for the art of decision-making, risk assessment, and market intuition.

This book provides insights into the real-world experiences and challenges faced by those in the finance industry, highlighting the importance of both the quantitative and qualitative aspects.

It serves as a reminder that in finance, one cannot rely solely on numbers and formulas but must also consider the human element and the ever-changing market dynamics.

Overall, it is a thought-provoking read that offers valuable perspectives for anyone interested in the finance industry.

During my vacation, I engaged in some beach reading.

Strangely enough, I found myself addicted to reading about hedge funds and their declines.

The instruments described and the bets they made were barely comprehensible to me.

However, I suppose this is my own version of what might be called 'dick lit', something that I both love and hate.

Maybe it's the allure of the complex financial world, even though I don't fully understand it.

Or perhaps it's the curiosity about how these powerful entities can rise and fall so dramatically.

Whatever the reason, I couldn't put down these books, despite the confusion they often caused.

It was a strange but captivating experience that added an unexpected element to my vacation.

I'll likely continue to explore this genre, even if it remains a bit of a mystery to me.

I had this book on my reading list for quite some time. Oh, how I wished I had read it earlier! To me, this is a truly remarkable book that delves deep into the dangerous and seductive effects of excessive confidence. When you encounter such a topic, it is crucial to learn to be sceptical.

LTCM was like a debutant on prom night, and all the banks and Wall Street seemed eager to dance with it. I was unaware that Seth Klarman had refused to take a stake in LTCM. Now, in my eyes, he appears even greater. Investing is all about having the ability to withstand the storm that may come once in a hundred years. At LTCM, just two simple small mistakes could completely wipe you out.

Once again, as Buffett and Munger have advocated numerous times, risk is not simply the volatility around the mean. I didn't know that they mainly went downhill for shorting outright equity implied vols. In my opinion, if this trade is carried out without a hedge elsewhere in the vol curve (as I work in trading, I have some insights), it seems like a very dangerous one. I had no idea that the story repeated itself in 2009 after JM launched another fund.

A while ago, I saw this video at TED. I thought it was clever and well presented. However, I was wrong. I didn't know it was from one of the LTCM guys. With this context in mind, this person just doesn't seem like the right one to be giving this type of pitch.

While reading, I also researched Eric Rosenfeld and came across this video. My first reaction was one of surprise that he teaches at MIT today. But I guess it's worth taking a look. On that video, he was getting the leverage number mixed up, showing a graph with the wrong dates, and when describing the 30 vs 29-year trade, he mixed up the yields. It was quite unconvincing for an adjunct professor at MIT. When I finished the book, I couldn't stop thinking about another famous book and the dangers of speculation, market misjudgment, overleverage, and overconfidence. As W. Buffett was right, history just keeps repeating itself.

Imagine the unthinkable - losing a staggering US$5 billion in just 5 weeks. This is the true story of how Long Term Capital Management, helmed by a group of (allegedly) the world's smartest individuals, including two Nobel laureates, met its downfall. It is a narrative filled with recklessness, arrogance, and above all, a lack of practical experience in the real markets. It serves as a powerful reminder to flee whenever an academic attempts to lecture you on market trading. The astonishing part is that some of these individuals managed to "rise from the ashes" not just once, but several times by launching new funds. I simply cannot fathom how any investor could still entrust them with their money after the initial disaster. I've even witnessed one of them giving TED Talks. Good grief.

This was an excellent read, with not an overwhelming number of technicalities that non-financial readers would struggle to understand. In any case, the technical explanations regarding markets and derivatives are not truly necessary to fully appreciate the book's value.