IN 2006, Dwight Anderson pulled off an investment feat not often seen in the hedge fund business. His fund was down 19 percent for the year in May, and within nine months, he'd made back all his losses.
Such stunts are hardly the way events typically unfold after a fund's roof crashes in. In the wake of a major loss, a manager struggles to regain his footing. Shaken, he doesn't have the confidence to make the bets needed to rebound. Poor performance can also spark a wave of analyst and client departures. On occasion, he might decide the setback is irreparable and close up shop.
By June 2007, more than a year after the worst loss of his career, Anderson was back on course. His flagship ...