book: When Genius Failed ~ Roger Lowenstein

Borrowed from my maths teacher, this small 200-odd page tale of the rise and fall of a multi-billion dollar hedge fund is packed with excitement and drama. The hedge fund of the story is Long Term Capital Management, a not so well-known hedge fund, which at one point had $140billion of assets and $1trillion of exposure in derivatives. Roger Lowenstein has a wonderful storytelling technique which he uses to weave a tale of great triumph but always overshadowed by the hedge fund's inevitable demise.

The company was filled with intelligent academics who defined and limited the unpredictable financial world into cold statistics and mathematical models. Notable people included Robert Merton and Myron Scholes, Nobel Laureates and developers of the Black-Scholes formula used to price options in the derivatives trade. However, what makes the book so special is Lowenstein's development of these characters. They're not simply 2-dimensional people who happened to be involved in the tragedy of LTCM, they're fleshed out human beings with distinctive personalities, quirks and ambitions; from the taciturn, cool-headed John Meriwether, founder of LTCM to the cocksure, academic and pedantically technical Lawrence Hilibrand. Also playing parts in this saga are other executives from famous banks such as Jon Corzine of Goldman Sachs and Herbert Allison of Merrill Lynch.

The book provides moral lessons to be learnt from the mistakes of LTCM's reckless trading and simplification of the world into models. It also provides a glimpse into the ruthless stock trading world and the great variety of products traded which most laymen would not have a clue about. The technical financial jargon is fortunately kept to a low-level and although they are not explained in great detail, the knowledge of the technicalities is not a requirement to enjoy the story. However, a look at http://financial-dictionary.thefreedictionary.com/ wouldn't hurt to get to speed on technical terms such as 'shorting' or 'going long' or an introduction to derivatives and the trade of options.

Finally, really not important at all, it took me 7 weeks to read this book. A ridiculously long time to be honest but I guess I was sort of distracted during these last few weeks [Harry Potter, Soldier's Son and GW ¬_¬].