greatest hedge fund disaster story?

Quote from marketsurfer:

thanks for the book tip. not heard of that one, will check it out.

surfer dave :)
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I never get the credit for digging up obscure shit!

1/2 kidding, I quit smoking 49 1/2 hours ago and am quite numb!


Hope to see many at the Expo in Feb!

Best,
David
 
Quote from McCloud:

Beacon Hill Asset Management, lost over $400 million within a short period of time in 2002 in one of their bond funds ...
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Yup, we sure did...

arb.
 
was back in the 70s when Idaho potato magnate J. R. Simplot tried to corner the Maine round white potato market - one of New England's few commods. I know older guys that made a pile on the long side month after month because they knew there were no potatos on account of terrible weather. Anyway, Simplot was on the other side of a lot of these contracts and the local boys were sweating him in some kind of a convoluted scenario where nobody knew what in hell the truth on supply really was. The prices would go way, way up, then limit down with all kinds of deliberate rumors and shennanigans. The way they explain it ended was one month Simplot and these locals got into a blinking contest and Simplot had to deliver and welched. The market collapsed, Simplot got some kind of fine and Maine potatos have never traded again.

Geo.
 
Treasurer Robert Citron bankrupted O.C. a few years back. O.C. is not a hedge fund but the story is a debacle of spectacular perportion nontheless.

According to this article he used a psychic:

http://www.parascope.com/en/psychfor.htm

Moral of the story: Always use a reliable psychic!! Oh yeah... and dont martingale either.
 
Justice Potter Stewart explained the potato showdown which was the worst default in futures trading in US history at the time:

One of the futures contracts traded on the New York Mercantile Exchange provided for the delivery of a railroad car lot of 50,000 pounds of Maine potatoes at a designated place on the Bangor and Aroostook Railroad during the period between May 7, 1976, and May 25, 1976. Trading in this contract commenced early in 1975 and terminated on May 7, 1976. On two occasions during this trading period the Department of Agriculture issued reports containing estimates that total potato stocks, and particularly Maine potato stocks, were substantially down from the previous year. This information [456 U.S. 353, 370] had the understandable consequences of inducing investors to purchase May Maine potato futures contracts (on the expectation that they would profit from a shortage of potatoes in May) and farmers to demand a higher price for their potatoes on the cash market. 43
To counteract the anticipated price increases, a group of entrepreneurs described in the complaints as the "short sellers" formed a conspiracy to depress the price of the May Maine potato futures contract. The principal participants in this "short conspiracy" were large processors of potatoes who then were negotiating with a large potato growers association on the cash market. The conspirators agreed to accumulate an abnormally large short position in the May contract, to make no offsetting purchases of long contracts at a price in excess of a fixed maximum, and to default, if necessary, on their short commitments. They also agreed to flood the Maine cash markets with unsold potatoes. This multifaceted strategy was designed to give the growers association the impression that the supply of Maine potatoes would be plentiful. On the final trading day the short sellers had accumulated a net short position of almost 1,900 contracts, notwithstanding a Commission regulation 44 limiting their lawful net position to 150 contracts. They did, in fact, default.

The trading limit also was violated by a separate group described as the "long conspirators." Aware of the short conspiracy, they determined that they not only could counteract its effects but also could enhance the price the short conspirators would have to pay to liquidate their short positions by accumulating an abnormally large long position - at the close of trading they controlled 911 long contracts - and by creating [456 U.S. 353, 371] an artificial shortage of railroad cars during the contract delivery period. Because the long conspirators were successful in tying up railroad cars, they prevented the owners of warehoused potatoes from making deliveries to persons desiring to perform short contracts. 45

Respondents are speculators who invested long in Maine futures contracts. 46 Allegedly, if there had been no price manipulation, they would have earned a significant profit by reason of the price increase that free market forces would have produced.


This default was 50,000,000 pounds - 1,000 railroad cars. The Hunt Brothers went on to beat this record easily in the 80s.
:eek:
 
Quote from waggie945:

He was NAKED a few thousand S&P futures puts back in the Fall of 1998.

The market was getting hammered due to the Asian Currency Crisis and Niederhoffer refused to buy back the naked put position.

I recall that the WED, THUR, and FRIDAY of that week saw the Dow Jones register triple digit losses, going into the weekend. Yet, he still held his position.

The clearing firm took him out on Tuesday morning.
And of course, that was the low.

A guy on the equity-derivatives desk at Deutsche Bank took the other side of much of Niederhoffer's option position, sold thousands of the puts and made $45 million that week!

True.
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wags, awesome story, isn't it?

Can we all learn a few things from that?

- Day traders aren't the only losers in the trading world
- Small traders aren't the only losers in the trading world
- Very very experienced traders can do very very stupid things
- Particularly experienced traders can do particularly stupid things
- A Bloomberg terminal doesn't necessarily make you live longer
- Don't fry in the sun naked without protection
- On entry, always assume that ANYTHING can happen.
- Beware of "losing your a$$", not of being "wrong"
- Everytime you lose, someone else must win
- Niederhoffer made the Germans even more powerful
- Investing in art and real estate is safer than naked puts
- Arrogance is the most deadly treat in the market
- Hitotsu! Jinkaku kansei ni tsutomuru koto!
- There are many mad traders out there
- ET ... Phone home
 
you guys are the best!!! Some great info. I would really appreciate any stories of pure failure and the end being a the low. I've read so many stories of people overcoming failure through tenacity and perserverence. Wouldn't it be interesting to learn from true failure and how failure ends in failure? How about Worldco? How does failure end victorious? That is something I'd like to read about.
 
"Possible investigation looms for silver price manipulation

CHICAGO (AP) _ Silver prices have shined for months because of strong demand or market manipulation, depending on whom you believe.

But the metal has lost its luster recently amid reports of possible investigations and lawsuits into allegations a group is attempting to corner the market and drive prices higher.

Silver futures prices shot up last year as inventories of the metal in exchange warehouses fell to their lowest level in more than 12 years amid reports of surging world demand for its use in amateur photography and jewelry.

But prices began to slide in late December, and tumbled further last week amid speculation that the Commodity Futures Trading Commission, the industry regulating body for futures and options, has launched an investigation into possible manipulation of the silver market.

The commission, as is its practice, declined to comment on whether an investigation is or will be underway.

Martin Armstrong, president of the advisory group Princeton Economics International, has argued for weeks that the silver market is being manipulated. He was quoted Monday by The Financial Times in London as saying a lawsuit seeking class-action status will be filed soon by a group of lawyers he declined to identify.

Armstrong's comments reinforced rumors that roiled the market last week, causing prices to fall sharply.

Silver for March delivery tumbled an additional 16.3 cents, or 2.9 percent, Monday to $5.475 a troy ounce on the New York Mercantile Exchange. At the height of its rally, on Dec. 23, silver for March delivery reached a nine-year high of $6.243 an ounce.

To be sure, rumors of manipulation have been in the market since late fall. A Merrill Lynch analyst warned in mid-October that a syndicate of U.S.-based investors and traders controlled huge stockpiles of silver in New York and London and was seeking to buy more for storage in warehouses not monitored by the New York exchange to create a shortage and push prices to $9 an ounce.

As long as futures have been traded, there have been rumors and innuendo _ often fruitless _ that someone with deep pockets is attempting to corner a specific market by buying huge quantities of a commodity when prices are low and selling them after they reach a desired price.

Such a scenario offers the potential for huge gains _ or great losses.

In 1996, copper prices collapsed after it was discovered a trader for Sumitomo Corp., which controlled 5 percent of the market, had hidden billions of dollars in speculative losses. And the silver market collapsed in early 1980, leaving the Hunt brothers with $1 billion in losses, after they first drove the price up from $6 an ounce to more than $50 an ounce in less than a year.

But in both those examples, prices were on the rise at a time when supplies were plentiful. Silver demand since 1990, however, has far outpaced production amid soaring use of silver nitrate for amateur photography in Russia and China. Silver also has benefited from increased jewelry buying in India and elsewhere and its growing use in electronics.

Demand for silver in 1996 jumped 4.4 percent to 814.9 million ounces, while supply from mine output and recycling grew only 2.5 percent to 643.4 million ounces, according to the Washington-based trade group, the Silver Institute.

Some analysts also have cited silver's growing use as an investment option, given the gold market's collapse because of a supply glut and increasing sales from central banks. "
 
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