TIP707: The Collapse of Long-Term Capital Management w/ Clay Finck
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You're listening to TIP. Charlie Munger once said that smart men go broke in three ways. Liquor. Ladies in 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 Loenstein. 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.
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