WHEN GENIUS FAILED (BY ROGER LOWENSTEIN)
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- Опубликовано: 13 июл 2024
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In 1996, a certain firm with less than 200 employees made a profit of $2.1b. To put that into perspective, during that same year, McDonald’s made a profit of $1.6b. Disney made a profit of $1.2b. Even Warren Buffett’s mighty Berkshire Hathaway had look-through earnings of “just” $1.5b.
These staggering results seem even crazier when you consider the fact that this firm had started its operations just two years before that, in 1994. But well, this wasn’t a “normal”, consumer type company. This was a hedge fund called Long-Term Capital Management.
What makes this story … I don’t know … perhaps a little bit more realistic, is that everything was not right at Long-Term Capital Management. Unlike Disney, this company did not live happily ever after. Because just two years later, in September 1998, the investors and the partners in the fund lost almost everything. And it nearly brought Wall Street and its investment banks with it.
This is the story of how Long-Term Capital Management, just like Icarus from Greek mythology, managed to fly for a while. However, also like Icarus, this hedge fund sailed too close to the sun.
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A History of the United States in Five Crashes: • A HISTORY OF THE UNITE...
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Timestamps of When Genius Failed by Roger Lowenstein:
00:00 Intro
01:47 The Rise and Fall of LTCM
10:49 Wall Street’s Deadliest Cocktail: 1 part Leverage, 1 part Illiquidity
14:15 Investing is not a Precise Science
18:06 The Art of Arbitrage
21:23 Picking Pennies in Front of a Steamroller
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My goal with this channel is to help you make more money and improve your personal finances. How to become a millionaire? There are many ways to get there - investing in the stock market, becoming a stock trader, doing real estate investing, or why not becoming an entrepreneur? But whether you are interested in how to invest in stocks or investing strategies for creating passive income with rental properties - I hope to be able to provide you with a solution (or at least an idea) here. Warren Buffett - the greatest investor of our time - says that you should fill your mind with competing ideas and then see what makes sense to you. This channel is about filling your mind with those ideas. And in the process - upgrading your money-making toolbox.
"liquidity is often missing when it is needed the most." Great takeaway. Your channel is great, man.
"Any calls you get on Sunday you're probably going to make money on."
So true it made my chest hurt from laughing.
One of the most well researched and well produced economy-channels on youtube. Well done sir, keep em coming!
Thanks a ton H. Sjoevall for the support 🙌
That was the best Icarus scream I've ever heard
The name of the fund is so ironical. Being called 'Long-term capital management' and the same time using such a big leverage is funny.
It seems like whenever someone puts a description in their name they're exactly not that
@@tomlxyz 0
Especially when you consider that they only managed capital for a few years
Like "Evergrande".
@@tomlxyz Idk google seems pretty dead on as far as the amount of data they have, facebook is dead on, twitter is dead on, snapchat is dead on, tesla is ironic af, Microsoft is ironic af, amazon is dead on, so you kind of have a point, its either right on the money or just completely wrong lmao
You are the epitome of what happens when genius prevails. Thank you once again for amazing content!
Another one of those times when people mistake leverage for genius.
Five things that influence the market according to Phil Fisher Psychology, government attitude towards investment and private enterprise, inflation and technology- It's no wonder it's so complex.
Great video as usual!
One of the best videos ever ... Thank you
Great video! Really good story telling :D
One of the best channels for sure on finance. Such interesting stories, good details, good research, and easy to understand takeaways.
I am sure this will be a much bigger channel soon.
if you really want to learn about stocks you should not watch yt videos. most of them (like this channel) promote stock picking and/or similar risky things. the only channel i can really recommend would be channels that promote diversified low cost indexfunds. thats because thats the only proven way to make money consistently. i would recommend ben felix.
@@overlordchrissama7235That’s pretty much what this channel recommends: Low cost ETFs, and for those with a larger risk appetite, some principles for value investing.
Interviewed at LTCM. They flew me to London for the interview. Cool place.
Well put together video, thanks for posting!
Great summary and analysis. I strongly recommend reading the book to have a deeper take on how the people in the management team lived, how their minds worked and also how the final negotiations were carried out in the brink of the collapse.
Love this!
15:38 Didn't know Scholz's supervisor published on the deviation of stock market daily movement away from normal. What an interesting coincidence when B-S eq (unless you modify it) assumes normal distribution.
For negative skew strategies, use fix bets; do not compound the capital.
Excellent video dude, thanks for the research and the great story-telling.
Interesting and presented in such captivating manner. Best of all, so educational! Thanks!
Cheers 🌟
Thank you❤
24:53 you're 100% incorrect here. The world of finance learnt a lot from this "event". The most significant part of this story (which you didn't mention) is the fact that this was the first "too big to fail" financial bailout. It is widely recognised as an enabler for what happened in subsequent years. It showed the world of finance that they can gamble as much as they want and the taxpayer will save their asses. And that there will never be real consequences because "too bit to fail".
Haha, it's a good point. Perhaps I should have said "Wall Street learned something really valuable, while politicians didn't learn a thing". To be fair I think the Fed didn't put up any money here, it was the banks that did that.
@@TheSwedishInvestor yes but it's not all about money, it was more about the call to action and reassurance. To quote the "almighty" wikipedia (which quotes a reputable source)"
"Some industry officials said that Federal Reserve Bank of New York involvement in the rescue, however benign, would encourage large financial institutions to assume more risk, in the belief that the Federal Reserve would intervene on their behalf in the event of trouble. Federal Reserve Bank of New York actions raised concerns among some market observers that it could create moral hazard since even though the Fed had not directly injected capital, its use of moral suasion to encourage creditor involvement emphasized its interest in supporting the financial system .[40]"
Great video - real shame about the 21 minute advert that youtube tried to serve up in the middle - what is wrong with them? I cast videos to my TVand it’s a pain to try to skip adds as the app often freezes. RUclips puzzles me but at least the Swedish investor knows what they are doing.
16:40 The term you're looking for is "correlation convergence". During market fat tail events, especially on the downside, asset managers are dealing with many customers withdrawing funds and thus forcing asset managers to sell without much discretion.
This is why many long-only strategies are so risky. During normal markets, the correlations are helpful are seemingly rock solid but during a 2008 style crash, it disappears.
Great work!!
Great video, thanks for the history lesson!
You don't lose everything when you move $$$ from a company to your private beyond LLC pocket. Executives in the 90s onward created a new type of leadership: I'm going to profit as this thing collapses and make sure it collapses kind.
LTCM strategy is like vacuuming pennies on the highway. You may succeed for a good long while but you will meet a bloody end by a full load 18 wheel truck.
Smart people with expensive education will tell you otherwise but all LTCM did was use regression plus leverage. JoM
good job, very informative
Outstanding presentation.
Amazing video! Learnt heaps thanks so much!
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12:00 Sounds way too similar to the Colectiv club in Bucharest. Holy shit!
Yes learning is More important than teaching
@@Roseanderson. I think someone who watches the Swedish investor will not fall for this 😛😛😛😛
The point made about decreasing marginal utility is such a good point btw. When the economy is on a high people probably leverage waaaay to much (even their homes) to gain just a few percent of unrealized gains in their savings portfolio.
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Bill Hwang: Amateurs.
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I read the book twice. This is a great video, great explanation without over-complicating what happened, which is great for a moron like me 😊
Another wonderful video ! hey Swedish investor its me again . How about a 10 part series video of the takeaways from the book poor charlies almanack. I am sure there are 1000's of jewels in there which will be worthwhile to learn
Great video!
Very interesting video, I had not heard of this firm before. Thanks for the video Swedish investor!!! Excellent as always
Cheers S E! 🙌 Glad you enjoyed it
Thank you for the video.
I study for my Master's Degree (economics with an emphasis on finance and finance mathematics). We use Black Scholes in every finance and finance mathematics class. It's so frustrating to know that we assume something to be true which clearly is not and build every model on this assumption.
I am toying with the idea of dropping out because I cannot stand it anymore.
I think it's important to consider black Scholes as only a method of estimating options value, and appreciate its underlying assumptions. It is a great piece of math on it's own, when it is misused is a problem.
Carry on! Your dissatisfaction is a sign from your mind that you can think of a better way. Good luck!
Hey man, do not quit. You can use your masters to question the stablishment from within
"It's so frustrating to know that we assume something to be true which clearly is not and build every model on this assumption. "
Sounds like politics and the people that vote for them...
Study Extreme Value Theory. It's by far our best tool. Drop everything else. Always remember that academics are most of the time clueless about what happens in practise.
Excellent
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Love from India, brother.
I liked the bar analogy and every minute of this video!
Great video
Hi, overall I find the video is very well-made and researched.
I've got a few nitpicks.
1) Many people leverage up on illiquid investments, chief of which being real estate. I think the takeaway should rather be that if you are leveraged up on illiquid bets make sure you have other sources of income or a cash pool with uncorrelated tail risks (ie, don't leverage up on your own company, don't leverage up your whole portfolio without a sufficiently sizeable and secure cash pool etc...).
2) Hedge funds are not necessarily market neutral, actually most of them are not. Arbitrage is also a necessary component of efficient markets.
3) Investing in assets with limited upside risk isn't always bad. That's the whole point of investing in high yield bonds and shorting options (negative gamma). You just need robust risk management and use another risk measure than volatility. Expected Shortfall (CVaR) or Maximum Draw-Down (MDD) are much better at capturing fat tails if you use high quality historical data.
4) The biggest issue with LTCM that is relatable to the average investor was that they assumed that the correlations of their positions were stable, when they converged to 1 in times of crisis. You talked about this, but I think it was too brief and your explanation with business owners was too vague in my opinion and too far from reality. I think it was a missed opportunity to talk about how "risk-off" events work and why safe-haven assets hedge such events.
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These guys trades (LTCM) were not that sophisticated (book). They lost track of their firms leverage. The Econ studs were disconnected from the trader/key guys at LTCM. A few things hit which were not even black swan events and their leverage went hyperbolic in one direction. I thought the book was outstanding.
8:23 it's SOUTHEAST asia. Not East Asia. East Asia is the onesabove it (China, Japan, South Korea, Hongkong, Taiwan, etc). Anyways, great video as always!
Choo Choo 🤣🤣🤣
-:Mr. Mr. Mr. Swedish Investor:-
*_Book Summary RECOMMENDATION_* :- Where are the Customer's yatch?
A famous 80 year old stock market book.
What the book title
@@JS-jh4cy Where are the customer's yachts
@@tomonaut yeah
Thanks for the video
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how ironic it was called long term
read the book about them everyone called when genius failed. definitely worth the read.
People always forget that mathematics itself is just language.
It will be accurate if you use it to accurately describe reality
And it will be very inaccurate if you use it to describe reality incorrectly
It all depends on your personal ability to understand in advance which model of reality is accurate enough for your needs
Also consider Poor richards almanack ! the auto biography of ben franklin
As a public service, tell people hedge funds don't hedge.
Super!!
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Same thing was mentioned in liars poker book by Micheal Lewis
We have 2022 version for this video, FTX.
Many thanks to the best investing channel on youtube, super video as usual. Is it possible that you also make summary of the " Investing for growth" for Terry Smith; "The five rules for stock investing" and "the little book that builds wealth", both for Pat Dorsey; "Richer,Wiser,Happier" for William Green
I'm flattered mm0dk0ur, I appreciate your support a ton 🌟 I think I might do a vote in the community tab soon to decide on the next book, where the suggestion with the most likes will get a video. I do like your suggestions, be sure to stay tuned for the community post. I will just finish up a few videos that I've had in mind for a while first 👍
Great hardwork i hope you are doing well in investing
Anyone have the source for the snippets of buffet? I'd like to listen to the whole talk...
24:34, Jim Simon entered the chat... :-)
Love 💞 from India
😂😭😂😂😂 when he hits the sun
Great video.
Hope one day you can make 5 takeaways from Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever by Robin Wigglesworth
Great video. My favorite take-away is to make decisions with unlimited upside and limited downside. Don't play Russian Roulette with your finances or any part of life.
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Kindly provide the summaries of different investing books like where is customer yachts & 100 to 1 in stock market etc
Did not get your point...Kindly Explain
❤️
NICE ONE!
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this is so similar to the Credit Suisse buyout by UOB
That little icarus in the beginning of the vid 💀💀💀
The question is not "can" because of course we can, the question is "do they" and the answer to that is NO, that is why we keep making the same mistakes over and over again.
They probably would have been close to the mark with their probabilities if they weren't leveraged. I'm sure they would have corrected their models in 98 if not leveraged.
see also, pride goeth before destruction, and an haughty spirit before a fall. proverbs 16:18
23:00
we have a saying in cantonese: "Won a candy but lose a factory."
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If you can control your emotions, you can win in life. But, can you really 🤯
LTCM - before Wall Street Bets was cool
20:14, if B stock is traded relatively higher than A stock, if they converge, shouldn't B be shorted and not A?
It’s dangerous to have a highly levered position in illiquid assets, so….. housing market?
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How could you not cite Nassim Taleb here? :D
It looks like 28 former workers of LTCM also watched the video.
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Why bailout LTCM? Just encourages more risk taking that is transferred to others.
Exactly the same story for FTX falling
Sounds like me in 2020
Goes to show that safe investing is when you assume a zero sum game + edge.
I love you
Above all else, LTCM just sounds like a bad business model.
A company like Berkshire invests in real businesses that are undervalued and offer a compelling product/service. LTCM just plays financial shenanigans using leverage (which is pretty much the only way to go from billions to zero in such a short time span).
It should have been an obvious avoid from day 1 or at least not something you put all your eggs into.
LTCM smells like ARKKK
“Long-Term” means short-term gains, long-term pains. Even the faustian bargain passed on a chance atLTCM.
Is this this created in doodle, or? :)
Such a Talebian video ❤️❤️❤️❤️❤️ just a bit slow tbh
Which banks didn't participate in the bailout of LTCM?? Lehman and Bear. Wall Street remembered.
I'm not sure about Lehman, didn't they participate? But Bear Stearns definitely, I think that could have been a takeaway from this saga too. Because it seems like the same thing was true for LTCM in a sense, they had created themselves a lot of semi-enemies in the way they behaved.
Stranton vs LTCM vs FTX
prezi? nice look
well at least when you're eager to learn by mistakes, you may get a few Nobels
Nothing's changed since that time.
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very similar to ARK invstmnt :>
The capital management turned out to be not so long term...
Long-term Capital Management...
Short-term Thinking. Oopsies
another example of bean counters thinking too much . a major case of scotoma ??
Rule of thumb: Maybe "long term" is not a good phrase to include in the name of a new and innovativ4 proposition. 🤣🤦♂😎
great video on LTCM but the last einstein "quote" was the lowest point of the video.