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Masters of the Universe: Long-Term Capital Management If you ve made a series of good trades and feel intoxicated with overconfidence, read this account of the rise and fall of Long-Term Capital Management (LTCM), the formerly profitable hedge fund managed by some of the smartest people in the country Before it collapsed, it was considered the most impressive hedge fund in history Many of LTCM s managers had earned numerous degrees from some of the best schools in the country At least two were Nobel Prize winners, and many were on the boards of the most prestigious brokerage firms The people running LTCM were considered geniuses, and reading about their downfall teaches important lessons about trading stocks Let s start at the beginning At first, LTCM was incredibly successful, earning as much as 40 percent per year for its wealthy clients At its height, it had over $100 billion in assets, much of it leveraged, including $6 billion in cash As it made more money, its arrogance grew People at LTCM were the masters of the universe, and in their minds, nothing could ever bring them down John Meriwether, their secretive but brilliant founder, handpicked a group of geeks who created complex mathematical computer models that traded bond derivatives As their profits grew, they made bigger and bigger fixed-income bets using sophisticated trading strategies such as bond and merger arbitrage Their complex models helped them to manage risk, or so they thought Unfortunately, they failed to program one scenario: a once-in-a-million doomsday situation in which a huge country like Russia could default on its currency, the ruble LTCM believed its computers would be able to forecast such a calamitous event Meanwhile, every year LTCM s partners wrote letters to their clients, which included how much they could theoretically lose; for example, 5 percent of their portfolio (the numerical odds, the partners wrote: no more than 12 times over the next 100 years,. itextsharp vb.net pdf to text PDF Clown – Open Source PDF Library for Java and . NET
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