WHEN GENIUS FAILED (BY ROGER LOWENSTEIN)
207,899
Published 2021-10-24
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In 1996, a certain firm with less than 200 employees made a profit of $2.1b. To put that into perspective, during that same year, McDonald’s made a profit of $1.6b. Disney made a profit of $1.2b. Even Warren Buffett’s mighty Berkshire Hathaway had look-through earnings of “just” $1.5b.
These staggering results seem even crazier when you consider the fact that this firm had started its operations just two years before that, in 1994. But well, this wasn’t a “normal”, consumer type company. This was a hedge fund called Long-Term Capital Management.
What makes this story … I don’t know … perhaps a little bit more realistic, is that everything was not right at Long-Term Capital Management. Unlike Disney, this company did not live happily ever after. Because just two years later, in September 1998, the investors and the partners in the fund lost almost everything. And it nearly brought Wall Street and its investment banks with it.
This is the story of how Long-Term Capital Management, just like Icarus from Greek mythology, managed to fly for a while. However, also like Icarus, this hedge fund sailed too close to the sun.
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A History of the United States in Five Crashes: • A HISTORY OF THE UNITED STATES IN FIV...
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Timestamps of When Genius Failed by Roger Lowenstein:
00:00 Intro
01:47 The Rise and Fall of LTCM
10:49 Wall Street’s Deadliest Cocktail: 1 part Leverage, 1 part Illiquidity
14:15 Investing is not a Precise Science
18:06 The Art of Arbitrage
21:23 Picking Pennies in Front of a Steamroller
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All Comments (21)
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"liquidity is often missing when it is needed the most." Great takeaway. Your channel is great, man.
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"Any calls you get on Sunday you're probably going to make money on." So true it made my chest hurt from laughing.
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One of the most well researched and well produced economy-channels on youtube. Well done sir, keep em coming!
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That was the best Icarus scream I've ever heard
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The name of the fund is so ironical. Being called 'Long-term capital management' and the same time using such a big leverage is funny.
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You are the epitome of what happens when genius prevails. Thank you once again for amazing content!
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Five things that influence the market according to Phil Fisher Psychology, government attitude towards investment and private enterprise, inflation and technology- It's no wonder it's so complex. Great video as usual!
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Another one of those times when people mistake leverage for genius.
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One of the best channels for sure on finance. Such interesting stories, good details, good research, and easy to understand takeaways. I am sure this will be a much bigger channel soon.
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Great summary and analysis. I strongly recommend reading the book to have a deeper take on how the people in the management team lived, how their minds worked and also how the final negotiations were carried out in the brink of the collapse.
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16:40 The term you're looking for is "correlation convergence". During market fat tail events, especially on the downside, asset managers are dealing with many customers withdrawing funds and thus forcing asset managers to sell without much discretion. This is why many long-only strategies are so risky. During normal markets, the correlations are helpful are seemingly rock solid but during a 2008 style crash, it disappears.
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Great video - real shame about the 21 minute advert that youtube tried to serve up in the middle - what is wrong with them? I cast videos to my TVand it’s a pain to try to skip adds as the app often freezes. Youtube puzzles me but at least the Swedish investor knows what they are doing.
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Great video, thanks for the history lesson!
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Interviewed at LTCM. They flew me to London for the interview. Cool place.
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Great video! Really good story telling :D
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15:38 Didn't know Scholz's supervisor published on the deviation of stock market daily movement away from normal. What an interesting coincidence when B-S eq (unless you modify it) assumes normal distribution.
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One of the best videos ever ... Thank you
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Interesting and presented in such captivating manner. Best of all, so educational! Thanks!
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Well put together video, thanks for posting!
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You don't lose everything when you move $$$ from a company to your private beyond LLC pocket. Executives in the 90s onward created a new type of leadership: I'm going to profit as this thing collapses and make sure it collapses kind.
