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 enlarge | Author: Roger Lowenstein
Publisher: Random House Trade Paperbacks
Category: Book
List Price: $14.95
Buy New: $7.77
You Save: $7.18 (48%)
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Rating:  213 reviews
Sales Rank: 1149
Media: Paperback
Number Of Items: 1
Pages: 288
Shipping Weight (lbs): 0.4
Dimensions (in): 8 x 5.6 x 0.6
ISBN: 0375758259
Dewey Decimal Number: 332
EAN: 9780375758256
ASIN: 0375758259
Publication Date: October 9, 2001
Availability: Usually ships in 1-2 business days
Shipping: Expedited shipping available
Condition: Brand New Book!
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| Customer Reviews:
 Funny how history repeats itself... January 5, 2008
2 out of 2 found this review helpful
I believe that this was the first book I ever read on the markets. And after reading many, many more, this may still be the best. This story of hubris, greed and, ultimately, ignorance of the realities of the market is certainly timeless; many successful traders have believed their own hype for many generations - and many more will do so in the future.
Lowenstein's wonderfully written account of the infamous blowup of LTCM is truly one for the ages. Although a knowledge of financial markets helps, a lack of it didn't prevent this novice from loving this book. Now, many years later, as a much more experienced market participant, I can truly appreciate the lessons gleaned from this story. As I write this, the housing meltdown is in full force, and a developing credit crisis and derivatives unwind may make LTCM look like a fairy tale.
Market history is rife with stories of traders and investors who failed to acknowledge the risk, simply because they were far too overconfident in their abilities to minimize - or even eliminate - it. Such foolishness is always paid for in the end. What is even more remarkable is how little we seem to learn from our lessons, and how the past seems to be repeating itself with increasing frequency. While I would hope this book would be a warning to all of those who would foolishly - and dangerously - claim that "this time is different", I know better. Instead, simply being aware that such calamities will continue to happen until, quite possibly, the earth crashes into the sun, can at least be of some comfort on the short side.
When hubris prevailed January 5, 2008
"When Genius Failed" is an engaging chronicle of the rise and fall of Long-Term Capital Management. Folks who were reading the business pages in the late-90s will remember the sudden travails of this fund -- and of the capital markets in general. And even if you have just a passing interest in finance, you'll find Lowenstein's book fascinating. He profiles the principals of the management company, their investment philosophy, the fund's tremendous early success, and the circumstances and decisions that led to LTCM's collapse.
Reading the book is a bit like watching a disaster movie. You know dire things are about to happen, but it's hard not to be transfixed by the story. Lowenstein chalks up the fund's failure to a number of events and ill-conceived decisions. Central to the collapse, of course, is the tremendous hubris of the company's senior management. I'm still not sure if LTCM's collapse was due to a perfect storm of unlikely events, or was an inevitable consequence of the firm's investment approach. But whatever the case, Lowenstein asserts that the human element played a primary role. Pride goeth before the fall.
A story of people failing to recognize their limitations December 2, 2007
This is a valuable book to read as it delves deep into people making very big mistakes. If these geniuses can make such errors of judgement, surely anyone can. That's why it is important to read this story and learn valuable lessons through their failures. The partners of Long Term Capital Management were arrogant and too proud for their own good, but what really brought them down was their failure to recognize their own weaknesses and limitations. Warren Buffett talks about staying in his "circle of competence" as being one of the keys to his success as an investor. Some of LTCM partners were brilliant mathematicians. They were probably better suited to more scientific jobs. Unfortunately, they ventured beyond their circle of competence. Investing and finance is clearly not a pure science. As Lowenstein states one can predict how a drop of cream dropped into a cup of coffee can spread using hard scientific models, but the LTCM partners foolishly thought that they could extrapolate the hard scientific laws to finance and economics. One of the partners, Hilibrand, who was smart enough yo get 2 Phds from MIT was not smart enough to recognize this fairly simple concept. It could happen to anyone. We have certainly witnessed it with many Presidents and world leaders.
Another valuable lesson of this book is how people can fool themselves. "You must not fool yourself and you are the easiest person to fool." The partners wanted so desperately to turn finance into a pure mathematical science. They quantified the chances of the fund losing say 5% in one month much like how a mathematician can tell you the chances of your winning the lottery. They believed and fooled themselves into believing their models. It does not become true just because you so desperately want it to be true.
Final interesting point in this book (as well as Den of Thieves, a book about white collar criminals) is how people who fail so badly in their job go on to do quite well financially. The partners of LTCM lost about 4 billion dollars in 4 months but some went on and raised 250 million to start a new fund. It would be interesting to find out how that fund fares in the future.
Fascinating Story November 18, 2007
"When Genius Failed" reads like a best-selling novel, but happens to be based on real events. This book covers the rise and fall of Long-Term Capital Management, a highly visible and famous hedge fund.
Roger Lowenstein expertly threads source material, such as internal memos, macroeconomic theory and a sense for the personalities involved in this story, into a dynamic and page-turning publication.
This is a must-read for those interested in the personalities, dynamics and climate of the fast-paced financial system of the late 1990s in the United States. More generally, even if you do not fit into the group just described, "When Genius Failed" serves as an excellent read on its own merits, regardless of the underlying subject matter.
Illuminating and Fascinating Business Classic October 6, 2007
1 out of 1 found this review helpful
Roger Lowenstein's 'When Genius Failed' has been justly acclaimed as a business classic. In the wake of the 2007 credit crunch, Lowenstein's riveting study of the 1998 collapse of Long Term Capital Management (LTCM) retains its relevance and has much to teach market observers.
Ironically, LTCM had much going for it. The firm was founded by savvy Salomon Brothers veterans, and its luminaries included Nobel Prize winner Myron Scholes, the creator of the acclaimed Black-Scholes options pricing model. LTCM was also established on the premise of hedging risk and thereby minimizing financial loss.
The unraveling of LTCM, lucidly and compelling depicted by Lowenstein, has many parallels with the subprime mortgage meltdown of 2007:
--An unwavering faith in financial engineering, coupled with the erroneous belief that financial structures will protect against substantial losses.
--The insatiable search for higher yields in crowded markets, which ultimately drives even savvy managers to investments with unfortunate risk profiles.
--The use of significant amounts of borrowed capital to boost returns. Sadly, the use of leverage forces the rapid liquidation of positions to repay lenders during declining market conditions, exacerbating market slides and the withdrawal of credit.
--Hubris. Hedge fund managers and successful traders tend to get overconfident after a run of good luck, leading them to take riskier positions with borrowed capital.
Together, these factors led to the downfall of LTCM and to the 2007 subprime meltdown.
Kudos to Roger Lowenstein for demystifying the arcana of derivatives trading and the Black-Scholes model-- if you want an account that describes these subjects lucidly, this is your book. As well, Lowenstein offers a riveting depiction of the 1998 market slide that sent LTCM reeling toward insolvency, and the rescue events coordinated by the Federal Reserve and undertaken by an international capital consortium.
Bottom line: a five star financial read that maintains its relevance.
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