Sunday, January 07, 2007

When Genius Failed...

The latest book I have read is titled "When Genius Failed" by Roger Lowenstein.

It is about the meteoric rise and equally spectacular fall of LONG TERM CAPITAL MANAGEMENT. A hedge fund by nature,it had on board star traders from Wall Street and Merton and Scholes(Nobel Laureates) whose work forms the basis of all modern finance.

With such a stellar cast and the backing of all the major banks on Wall Street LTCM had all the right credentials to make it big. Their trades were cold,calculated bets based on MATHEMATICS. Their behaviour in the good times brings only one word, repeated many times in the book, to mind:

George Soros, in a lecture in IISc, said that ours is the age of fallibility.
Human beings tend to do irrational things. It is LTCM's inability to include this human factor in their trades that contributed greatly to their fall apart from their
(over)confidence in their "models".

All in all, a very good read though the Rs. 500/- price tag is a bit of a pinch on the pocket.

Looking forward to Hannibal Rising.

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