Publisher : Random House Trade Paperbacks, New York
Year of Publication : 2000
Price : $14.95 (2000 edition)
Book Designer : Carole Lowenstein
ISBN : 0-375-75825-9
Total No. of Pages : 264
No. of Chapters : 10 (Ten)
Feather in the Cap : Business Week “Best Book of the Year” Award
II. THE AUTHOR’s PROFILE:
Mr. Roger Lowenstein, author of the celebrated best-seller “ Buffet: The Making of an American Capitalist ” is a highly revered US financial journalist.
For more than a decade, he has reported for the prestigious “The Wall Street Journal” and penned its stock market column “Heard on the Street” during 1989-91 and the “Intrinsic Value” column during 1995-97.
Besides, this Westfield (New Jersey) based financial columnist has written for the Fourth Estate giants like “The New York Times”, “The New Republic”, “Smart Money”, et cetra.
III. THE GENESIS:
The genesis of the book dates back to 1993 when Long Term Capital Management (LTCM) was founded by the notoriously successful bond arbitrageur, John W. Meriwether, in partnership with two Economics’ Nobel Laureates---Myron Scholes and Robert Merton---alongwith a cadre of Wall Street’s and academia’s elite trades.
Qualitative Research :
Taking tutorials from more than half-a-dozen finance wizards to probe deeper into the world of Options, Hedging, Bell-Curves, Fat Tails, etc;
Conducting multiple rounds of personal interviews with two LTCM’s partners and a number of its employees across the entire hierarchy, major Wall Street investment bank (including the six banks---J. P. Morgan, Merrill Lynch, Goldman Sachs, Bear Stearns, Salomon Smith Barney, Union Bank of Switzerland---that played a crucial role in the genesis and ultimate rescue of LTCM);
Culling relevant facts and figures from the confidential memorandum of the LTCM, etc.
Quantitative Research :
Analysing the various figures;
Running financial metrics,
Comparing turnover patterns, etc.
V. THE KERNEL: What WE have discovered after going through and musing over the contents of the book is that Mr. Lowenstein has tried to explain how the LTCM made and lost its fortune, how the arrogance of the statistical modelling and mathematical certainties and above all how the hubris of the Financial Superstars of the time---that they could deconstruct risk and use virtually limitless leverage to create limitless wealth---led to the catastrophe. In a nutshell, "When Genius Failed." is a story about risk-management and what can happen to even the best-intentioned and the most intelligent of us, when it is found lacking.
THE G-3 CRITIC:
Mr. Lowenstein has not been judicious enough in striking his gavel on the LTCMs or on the “Genius” he refers to in his book. The term “Failed” in title of the book is a prime facie reflection of that. For the first four years, LTCM's trading strategies made huge profits---raking up returns of more than 40% per annum with no losing stretches, no volatility, seamlessly no risk at all! This nowhere gets any applause from the author; albeit numerous justifications are aflush to prove LTCMs a fiasco !
Life is a game of Wins and Loses. No matter how good the trader is and/or how good the models are, no one wins all the time. There will always be bad market bets. It is impossible to perfectly predict the future and this is exactly what the future is all about---Uncertainty!
Mr. Lowenstein perhaps forgot that unlike Physics, where each and every theory is eventually tested against experimental results, much of the Economics seems almost willfully ignorant of the way the market behaves.
THE G-3 CRITIC:
The author sacrifices the details of the investment strategies used by LTCM to tell the story, which per se shouldn’t be the case.
The term "derivative" takes on an “ominous cast” in the minds of the reader because of the failure of hedge funds like LTCMs; though Derivatives per se are more innocent than their sinister reputation projected in this book!
Derivatives and the strategies, traders use to make money on them, are not so simple. It would have been better had Mr. Lowenstein come up with a more explanatory, illustrative and simplified write-up.
Mr. Lowenstein nowhere fully explains in his book what exactly a "swap" is and inadequately explains LTCM's "volatility" bets.
VII. THE G-3 GAVEL: Simply put up, what G-3 has concluded after a review of this book is that; a few drawbacks/limitations in our view notwithstanding; it is a well-researched, meticulously crafted out and an inevitable reading stuff not only for every Investor, Investment Manager, Technical/Financial Analyst, Finance/Accounts Guy, Trader, Corporate Leader/Executive, but also for ordinary individuals who dare to broaden and deepen their understanding of risk; as it presents a haunting portrait of our financial culture where very ordinary people control extra-ordinary fortunes.