Book Review: When Genius Failed ; the Rise and Fall of Long Term Capital Management

2623 Words Dec 17th, 2011 11 Pages
Book Reviews of:
When Genius Failed; the rise and fall of Long-term Capital Management by Roger Lowenstein
Monkey Business; swinging through the Wall Street jungle By John Rolfe and Peter Troob

When Genius Failed: The Rise and fall of Long-Term Capital Management by Roger Lowenstein

The book tells the story of long-term capital management. It is the detailed history of how a group of elite investors who called themselves the ‘LTCM’ (Long term capital management) contributed to the rise and fall of a hedge fund that brought the financial world to its knees when it lost $4 billion trading exotic derivatives. This short biography is in a nutshell about risk management, this is a gripping book of our era that tells the financial
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Hedging is a strategy designed to minimise exposure to an unwanted business risk, while still allowing the business to profit from an investment activity. Some form of risk taking is inherent to any business activity; risk that is not wanted yet cannot be avoided without hedging. A shop owner for example can take care of natural risks like competition, however, the risk of the shopkeeper’s inventory being destroyed by a fire and is unwanted and can be hedged via a fire insurance contract. Bio fuels slumped 16.1% to 93.5p after a hard-hitting downgrade to “sell” from Numis Securities. Criticising the alternative fuel group’s “disastrous” hedging strategy that left it with high levels of debt and flagging up a probable need to raise additional capital in the year. Analyst Will Wallis believes “that there are likely to be better, lower risk opportunities in the renewable sector”. Brevan Howard aims to raise up to £1billion by listing the first hedge on the main London market. The float will mark a big victory for the London Stock Exchange. Brevan Howard, which is understood to be planning to list the find in the first quarter, has taken on Citigroup, Goldman Sachs and JPMorgan to advise.
Source: Robert Orr and Peter Garnham, Financial Times, 10th August 2006. James Mackintosh, Financial Times, 11th January 2007.

It is clear that corporate demand for hedging

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