Book Review: When Genius Failed – The Rise and Fall of Long-Term Capital Management

When Genius Failed

Somebody suggested that for every 3 books you read, make sure that one of them is at least eight years old (from its initial publication date). This particular book demonstrates the legitimacy of the suggestion.

This is required reading for anyone involved in the fields of finance/ economics/mathematics or the social sciences. The moral of this story is really captured from a quote attributed to John Maynard Keynes on page 123:

Markets can remain irrational longer than you can remain solvent.

Lowenstein is a superb story-teller. This is a mystery, thriller, non-fiction  account of the intrigue and insights into the minds of those on Wall Street who evolved the proto-typical hedge fund.  It is a story about assumptions, thinking and hubris.

As Lowenstein says:

Finance is poetically just; it punishes the reckless with special fervor.” (p. 179).

Not only do markets possess the capacity for irrationality, the businesses and the people behind them can be unreasonable and simply wrong. For finance professionals, this book is a stunning reminder that the risks of tomorrow cannot always be inferred from the examination and inferences made from yesterday’s information. The author makes a solid case for the observation that uncertainty and risk do not always cooperate with the results produced by quantitative modeling.

Read this book. You don’t have to be a finance professional, investor or mathematics wizard to garner the timeless truths that are illuminated throughout this  carefully crafted story….truths whose essence endures today….Truth has a habit of doing that (enduring) doesn’t it?

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