Roger Lowenstein's book When Genius Failed: The Rise and Fall of Long-Term Capital Management were released by Random House on October 9, 2000. The book presents an unofficial history of Long-Term Capital Management's founding, early prosperity, rapid downfall, and hasty bailout (LTCM).
Introduction
Book name - When Genius Failed
Author name - Roger Lowenstein
Language - English
Genre - Finance, Business, Non-fiction, Hedge-fund
Synopsis
Roger Lowenstein depicts the thrilling roller-coaster journey of Long-Term Capital Management in this business classic, which now includes a new Afterword in which the author draws comparisons to the current financial crisis. Lowenstein explains not only how the fund made and lost its money but also how the personalities of Long-partners, Term's arrogance of their mathematical certainty, and the culture of Wall Street itself contributed to both their rise and fall. Lowenstein draws on confidential internal memos and interviews with dozens of key players.
Long-Term was acclaimed as the greatest hedge fund ever when it was established in 1993. However, after four years in which the company impressed Wall Street as a $100 billion moneymaking behemoth, it unexpectedly incurred catastrophic losses that imperilled not only the stability of the major banks on Wall Street but also the financial system as a whole.
The tragic tale of Long-demise terms serves as a disturbing premonition of the disaster that would hit all of Wall Street a decade later, from Lehman Brothers to AIG. In his new Afterword, Lowenstein demonstrates that the collapse of LTCM should not be viewed as an isolated incident but rather as a model for market meltdowns in an era of instability—and as a warning to Wall Street and the government alike, completely ignored
About the Author
Roger Lowenstein (born 1954) is an American financial journalist and writer. He graduated from Cornell University and reported for The Wall Street Journal for more than a decade, including two years writing its Heard on the Street column, 1989 to 1991. Born in 1954, he is the son of Helen and Louis Lowenstein of Larchmont, New York. Lowenstein is married to Judith Slovin.
He is also a director of Sequoia Fund. In 2016, he joined the board of trustees of Lesley University. His father, the late Louis Lowenstein, was an attorney and Columbia University law professor who wrote books and articles critical of the American financial industry.
Roger Lowenstein's latest book, Ways and Means: Lincoln and His Cabinet and the Financing of the Civil War, was released on March 8, 2022.
Personal Verdict
A group of math, computing, and financial gurus attempted to manage the market using probabilities and statuses in the book Long Term Capital Management. One of the most illustrious funds is created when two noble award winners, champion traders, and an ex-federal banker are included.
They bullied everyone in the market, negotiated the finest terms, created an exquisite portfolio, and during the first four years, doubled the value of their funds.
However, tremendous gains come with great risks, and LTCM's failure was a result of underestimating risk. They created a Gaussian world where every risk was accurately assessed using Gaussian models and standard deviations as indicators of uncertainty, but as they would later discover, incorrectly.
The fund lost 92% of its value in just 6 weeks, which was the biggest loss in history. Saying anything else would give away one of the best novels I've ever read. Greed and fear are the two fundamental emotions that a trader must combat. I learned about both from this.
Quotes
- “It's a wrong perception to believe that you can eliminate risk just because you can measure it.”
“Investors long for steady waters, but paradoxically, the opportunities are richest when markets turn turbulent.”
“Prophesy as much as you like, but always hedge. - Oliver Wendell Holmes, 1861”
Bottom Line
This book has given me so much knowledge. The LTCM narrative provides priceless insights into the basic traits of human nature via the lens of the financial industry.
Meriwether and his companions act with blatant pride, arrogance, avarice, and confidence. With the strongest theoretical support, they were making the finest transactions on the market. However, since life deviates from a normal distribution, uncertainty cannot be eliminated. The collapse of LTCM and nearly all of Wall Street will be caused by a sequence of unforeseen circumstances.
My ratings for the Book are 4 on 5.
You may buy this book from Amazon When Genius Failed: The Rise and Fall of Long-Term Capital Management
Written by - Melita Pinto
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