When Genius Failed

When Genius Failed by Roger Lowenstein

In this book, Roger Lowenstein gives the reader a peek behind the curtain in the spectacular collapse of LTCM (a large U.S. hedge fund). The absolute return fund achieved a post-fee 20%+ annualised return for 3 consecutive years. In its fourth year, however, the fund came crashing down. The book explains the intricacies behind the collapse, and we believe it is a fantastic read for anyone interested in financial markets.

The title of the book alludes to LTCM’s origins. Founded by a John Meriwether, a highly respected bond trader, LTCM’s board members included nobel-prize winning economists Myron Scholes and Robert Merton – two of the minds behind the Black-Scholes options pricing model, which is still taught to Finance students at universities all over the world.

The book touches on many aspects that ultimately contributed to the collapse, including over-confidence in predictive computer models, employing extremely high levels of leverage and a lagging regulatory environment.

The book serves as a cautionary tale – even a team of geniuses at the top of their game failed to grasp the complexities of the financial markets and human behaviour.