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When Genius Failed summary

Roger Lowenstein

The Rise and Fall of Long-Term Capital Management

4.2 (76 ratings)
19 mins

Brief summary

When Genius Failed by Roger Lowenstein is a non-fiction book that tells the story of the rise and fall of the hedge fund, Long-Term Capital Management. It examines the impact of hubris, greed, and flawed investment strategies on the financial markets.

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    When Genius Failed
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    Long-Term Capital Management was an enormous hedge fund that made its money through arbitrage.

    It’s a fair bet that you’ve probably never heard of Long-Term Capital Management (LTCM), a long defunct fund management company. The 1997 Asian financial crisis or the 1998 Russian default, however, are two events that are probably much more familiar to you, as they brought the financial world to the brink of collapse. LTCM had an important role to play in both.

    LTCM was a hedge fund founded in 1994 by trader John Meriwether. Hedge funds manage the pooled investments of small groups of mostly wealthy investors. Unlike their cousins, mutual funds, which manage the investments of a larger, more economically diverse group of investors, hedge funds are subject to very little regulation, meaning that there are virtually no limits to the size of the fund or where it can be invested.

    This lack of regulation makes hedge funds a ripe environment for investment in riskier financial products, such as derivatives.

    Like all other hedge funds, LTCM managed their investments with a strategy called arbitrage, whereby hedge fund managers purchase or sell financial products in the hope or knowledge that their price will change in their favor in the near future.

    To demonstrate this, imagine that one company sells different stock in two markets. As both stocks represent the same company, you’d expect them to be the same price. However, sometimes the price of the stock in one market may dip below the other. When this occurs, you have an opportunity to quickly buy this stock before the prices reach equilibrium again, after which you can sell that stock at a profit.

    In reality, the dynamics of the market don’t create these clear-cut scenarios. In fact, most arbitrage strategies rely on tiny, rapidly disappearing discrepancies in the price of financial products.

    This gave LTCM an advantage. They used academic calculations and predictions as well as the latest computer software to recognize the opportunities and exploit them quickly. Using this strategy, LTCM became the largest hedge fund ever. So what happened?

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    What is When Genius Failed about?

    When Genius Failed (2001) follows the rise and fall of Long-Term Capital Management, the world’s largest ever investment fund. The book reveals uncomfortable truths about the nature of investment and the fragility of the models we use to assess risk.

    When Genius Failed Review

    When Genius Failed (2000) offers a captivating account of the rise and fall of the hedge fund Long-Term Capital Management. Here's why this book is worth reading:

    • It provides a gripping narrative that details the hubris and folly that led to the fund's ultimate demise.
    • Through meticulous research and analysis, the book reveals the complexities of the financial world, giving readers a deeper understanding of the risks involved.
    • The author's unbiased perspective allows readers to draw their own conclusions and reflect on the lessons learned from this cautionary tale.

    Best quote from When Genius Failed

    Now that they had the scale to operate worldwide, they had no interest in managing money for others and largely froze them out.

    —Roger Lowenstein
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    Who should read When Genius Failed?

    • Anyone interested or working in investment banking
    • Anyone interested in risk calculation
    • Anyone thinking about investing in a hedge fund

    About the Author

    Roger Lowenstein is an American financial journalist and contributor to the Wall Street Journal. In addition to his many articles and book reviews, he has also written five best-selling books, including The End of Wall Street and While America Aged.

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    When Genius Failed FAQs 

    What is the main message of When Genius Failed?

    The main message of When Genius Failed is a cautionary tale about the dangers of unchecked hubris in the financial world.

    How long does it take to read When Genius Failed?

    The reading time for When Genius Failed varies depending on the reader's pace, but it typically takes several hours. The Blinkist summary can be read in approximately 15 minutes.

    Is When Genius Failed a good book? Is it worth reading?

    When Genius Failed is a compelling book that offers fascinating insights into the events leading up to the collapse of Long-Term Capital Management. It's definitely worth a read.

    Who is the author of When Genius Failed?

    The author of When Genius Failed is Roger Lowenstein.

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