The rise and fall of LTCM

This might be my favourite story of all time regarding the financial world

 

Long Term Capital Management was the worlds biggest hedge fund in the early 1990's. The three owners were Nobel Prize winners in economics, and were considered to be the smartest men in finance. They invented a 'foolproof' formula for pricing options, which we know as the Black Scholes option pricing model. 

This formula, like most financial formulas 'worked until it didn't'; the enormous leverage that LTCM had racked up with Wall Street firms threatened to derail the global financial system once the formula failed (due to a Black Swan event). 

LTCM had to be bailed out by the Federal Reserve (after they begged Warren Buffett to bail them out....). 

If you ever feel intimidated by the complicated mathematics and financial formulas that many employ to 'add value', then this book will not only make you smile, but instil a sense of self belief in you. It's living proof that the smartest people in the world, aren't better than your average punter at investing/trading; as investing is not a science. 

 

With investing, simple always beats complicated......

NBSInvesting