2025-03-21
1 小时 20 分钟You're listening to tip.
Charlie Munger once said that smart men go broke in three liquor, ladies and leverage.
The story of Long Term Capital Management is a case study in the third.
In this episode, we're diving into the book When Genius Failed by Roger Lowenstein, which tells the incredible rise and catastrophic fall of one of the most famous hedge funds in history.
Founded by Wall Street's brightest minds, including Nobel Prize winning economists, Long Term Capital Management seemed invincible.
Until it wasn't.
Using complex mathematical models, they placed massive, highly leveraged bets, convinced the market would always behave predictably.
For four years, they raked in astronomical profits with almost no volatility, attracting capital from the biggest banks and investors in the world.
But in 1998, a financial crisis exposed the flaws in their assumptions, triggering a collapse so catastrophic that the Federal Reserve had to step in to prevent a broader financial meltdown.
During this episode, we'll also explore the dangers of overconfidence, the illusion of diversification, and why excessive leverage can be a ticking time bomb.
Markets don't always behave rationally, and as John Maynard Keynes warned, they can remain irrational longer than you can stay solvent.
During the last few minutes of the episode, I'll also be sharing details on a brand new exclusive event that TIP will be hosting in the mountains of Big Sky Montana in September of 2025.
So if small in person gatherings are of interest to you, then be sure to stick around until the end to learn more.
With that, let's dive right in.
Since 2014 and through more than 180 million downloads, we've studied the financial markets and read the books that influence self made billionaires.
The we keep you informed and prepared for the unexpected.
Now for your host play fink.
From 1994 to 1998, long term capital Management had been the envy of Wall street, putting up eye popping returns of more than 40% per year, with no losing stretches, minimal volatility and seemingly no risk at all.
It was run by a number of geniuses with PhDs who would arbitrage the market and had decades of experience doing so.
The fund amassed $100 billion in assets, with virtually all of it borrowed from bankers.