LTCM Founder's HF down 38% YTD

[TrueStory]

Anyone that puts money with these dumb stubborn f*cks after what happened in the 90's needs a brainscan.

 

[pcvix]

Lawrence, can you possibly elaborate on the nature of these "highly concentrated money power houses?"

Thanks.

Quote from Lawrence Chan:

Power law concept can help explain why we have more of these events lately.

In short, there are MORE highly concentrated money power houses playing various markets since 2003.

It is known that most market participants are not important. Only those power houses matters.

e.g. If a casino let all the players to bet unlimited amount of money, then given enough power house players playing against the casino, it will go bankrupt - very fast.

 

[Specterx]

Quote from jem:

these guys know they are going to blow up they just try to get as much money under management until they do.

They are not sitting in their offices going oh man I can't believe I got wiped out. My life's work proven wrong... What am I gonna do now.

They are already working on their next marketing scam.

In fact, most of the LTCM founders lost everything they owned when the fund collapsed. At least one guy had gone into debt in order to own more shares.

 

[Lawrence Chan]

Quote from pcvix:

Lawrence, can you possibly elaborate on the nature of these "highly concentrated money power houses?"

Thanks.

For a stock, the transaction of 100 shares is less significant comparing to the transaction of 1000 shares. In turn, 10000 shares transaction is even more significant.

We did not have that many super sized funds, either operated independently, or within many I Banks. The very reason why they are created to be of such sizes is that they need that scale to move the market they are trading.

e.g. NYSE reports on program trading show that on average there are 50 to 75 million shares traded, per day, per big brokerage houses categorized as program trading.

When there are only "limited size" big players, the stock markets (and any other markets) move much slower and orderly.

With these super sized players, and many of them, real-time moves get more volatile, making it much easier to swing out of control.

i.e. those 6 sigma events are not 6 sigma because they used the old historical data as reference, which, does not include the effect of their own actions

 

[jem]

Quote from Specterx:

In fact, most of the LTCM founders lost everything they owned when the fund collapsed. At least one guy had gone into debt in order to own more shares.

source?

I remember reading meriweather (spelling) had already been out starting another fund.

Even if they had lost everything..

It still does not mean they were not aware of the almost sure blow up risk inherent in selling premium or attempting to make small amounts of money often while risking large amounts.

 

[circadian]

Apparently, these funds weren't modeling criticality. Maybe alot of these managers are the "low hanging fruit" that Lahde described in his farewell letter to the HF industry. There are alot of smart people out there that made alot of money in Oct. Look at Paulson's funds. Still way up on the year, and alot of his strategy is being short financials, so I don't believe that the ban on the short selling financials is the cause for alot of losses, as the smart money just moved its short focus to all of the other overvalued sectors and resumed the profiteering. Just shocking to see how many people were caught off guard.

 

[jem]

Quote from circadian:

Apparently, these funds weren't modeling criticality. Maybe alot of these managers are the "low hanging fruit" that Lahde described in his farewell letter to the HF industry. There are alot of smart people out there that made alot of money in Oct. Look at Paulson's funds. Still way up on the year, and alot of his strategy is being short financials, so I don't believe that the ban on the short selling financials is the cause for alot of losses, as the smart money just moved its short focus to all of the other overvalued sectors and resumed the profiteering. Just shocking to see how many people were caught off guard.

How do you know they did not deploy flawed models on purpose. Is it possible they were trying to maximize management fees in the short or medium run? Knowing they ran a risk of blowing up.