Investment Blunders of the Rich and Famous...and What You Can Learn from Them

Chapter 12. The Eggheads Crack

This is the story of how an investment firm consisting of the most respected bond traders on Wall Street, two dozen Ph.D.s, and two Nobel Prize Laureates lost $4 billion in several months and nearly crashed the world financial system. This firm was called Long-Term Capital Management (LTCM). Although LTCM's investment strategy was quite sophisticated, several of the common investor mistakes discussed in this book contributed to its downfall.

In the Beginning

Although LTCM wasn't formed until 1993, its roots can be traced to the early 1980s and John Meriwether. In the early 1980s, bond trading was still dominated by men who traded on their instincts. Michael Lewis writes about these intimidating and often reckless traders ...