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When genius failed
- 1. When Genius Failed By – Roger Lowenstein
- 2. About the Author Roger Lowenstein • American writer and Financial journalist. • Graduated from Cornell University. • Wrote 10 years for the “Wall Street Journal”. • Has written many great books. • Manages his own fund. 2
- 3. Characters Involved ◈ John Meriwether ◈ Robert C. Merton ◈ Myron Scholes Meriwether after being forced out of Salmon brothers founded his own hedge fund, the Long Term Capital Management and got the very best minds on the Board namely Robert C. Merton and Myron Scholes. 3 John Meriwether Robert C. Merton Myron Scholes
- 4. Story as it Happened 4
- 5. 1,000,000,000,000 $ Worth of LTCM 5,000,000,000 $ Total Assets 100,000,000,000 $ + Fund Controlled 5
- 6. Learnings from the Book 6
- 7. • Leverage is a Double Edged Sword. • Leverage pushes the return on equity during upside; however, it hammers down the same return on equity during downside. • Crisis Drowns Diversification. • It has been proved repeatedly that during a crisis, all the investment assets lose value together. • Investing is not “Pure Science”. It requires Common Sense. • People decide the prices in the markets. People have emotions and they become euphoric and panic at unpredictable times. • IQ cannot guarantee good returns in markets. • All the mathematics that an investor needs while analysing stocks is the basics taught in school. Rest is her own judgment, experience, common sense and gut to take decisions. 7
- 8. INSTRUCTIONS FOR USE • Copying Institutional Investors is not a good idea. • Markets are irrational or we should say are not purely rational • Do not invest all the money that you have into markets • Investing in your employer’s stock can be a huge risk. 8
- 9. “To John Meriwether and his traders, money management was less an 'art' requiring a series of judgments than it was a 'science' that could be precisely quantified 9 Long-Term fooled itself into thinking it had diversified in substance when, in fact, it had done so only in form. Long-Term was developing a sense of proportion all its own; like a man who pays for dinner with $100 bills and never asks for change, it had lost the habit of moderation. Quotes from the book
- 10. THANKS! You can find me at arnav.mahajan22@bimtech.ac.in