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Nothing Ever Changes When Risks Are Ignored!
10 years ago this month Long-Term Capital Management hedge fund lost billions in a very short period of time. Shock Waves roiled around the worlds markets. Asian was imploding and Russia was defaulting. Then as now there was a government-initiated Wall Street-funded bailout for LTCM.
Well fast forward 10 years and it seems the boys from LTCM have not learned their lesson regarding leverage. The same boys now run JWM Partners LLC. Their biggest hedge fund is down 26% in 2008. JWM lost more than one-fourth of their investor’s money, more than $300 million. What is ironic is that this group is comprised of some of the smartest in the investment world. Both Robert Merton and Myron Scholes, won the Nobel Prize for economic sciences while at LTCM. Computer algorithms were used while risk management and money management negated.
JWM sent out a letter to their investors with this quote
"Extraordinary times make life exceptionally interesting,".
I find it so hard to believe neither they nor their investors learned from their prior blowup.
This is regardless they had an eight year profitable track record. Leverage is a great thing at times.. But the pendulum always swings both ways… almost like a guillotine. With all the lack of risk management from New York to London, struggling hedge funds and banks are unloading everything, from securities backed by mortgage debt to Japanese government bonds. Earlier this year Bear Stearns tried to fight for its life but was forced it to be sold to J.P. Morgan Chase & Co. for penitence. These are times patient investors will make fortunes once this all clears. Be patient.. Have a plan…manage the risks..
Andrew Abraham
10 years ago this month Long-Term Capital Management hedge fund lost billions in a very short period of time. Shock Waves roiled around the worlds markets. Asian was imploding and Russia was defaulting. Then as now there was a government-initiated Wall Street-funded bailout for LTCM.
Well fast forward 10 years and it seems the boys from LTCM have not learned their lesson regarding leverage. The same boys now run JWM Partners LLC. Their biggest hedge fund is down 26% in 2008. JWM lost more than one-fourth of their investor’s money, more than $300 million. What is ironic is that this group is comprised of some of the smartest in the investment world. Both Robert Merton and Myron Scholes, won the Nobel Prize for economic sciences while at LTCM. Computer algorithms were used while risk management and money management negated.
JWM sent out a letter to their investors with this quote
"Extraordinary times make life exceptionally interesting,".
I find it so hard to believe neither they nor their investors learned from their prior blowup.
This is regardless they had an eight year profitable track record. Leverage is a great thing at times.. But the pendulum always swings both ways… almost like a guillotine. With all the lack of risk management from New York to London, struggling hedge funds and banks are unloading everything, from securities backed by mortgage debt to Japanese government bonds. Earlier this year Bear Stearns tried to fight for its life but was forced it to be sold to J.P. Morgan Chase & Co. for penitence. These are times patient investors will make fortunes once this all clears. Be patient.. Have a plan…manage the risks..
Andrew Abraham
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