To add to this point, LTCM may not have been the disaster it was if they didn't reveal their position portfolio to their so-called saviors Goldman and Bear who went back and communicated this back to their traders who shot and gunned the hell out of LTCM's positions which turned a large wave that may have been "surfable" over time into a Tsunami.
Ltcm
- Thread starter badtrader
- Start date
Quote from tradermaji:
Perhaps those PhDs and Nobel laureates thought they can trade
I guess with their degrees and their baggage of egos, they thought they can rule the market. I think these theoreticians better stick to their theories and leave the actual trading to the traders.
Have a great weekend everyone,
Maji
now if this is not the truly most self contradicting post in years. a nobody trader posting on anonymous web board claiming that PhDs and Nobel laureates per se have no idea about markets and better "leave the actual trading to the traders", like himself.
some "ego baggage" carried around here?
LTCM had a valid strategy. before and after the crisis. their problem was manifold. the were aware that they already had grown to big and were giving money back. they had huge leverage on to deliver their very ambitious return target. their market impact was levered by trading desks around the world who saw fractiosn of their trades. then a series of shocks happened. five sigma event. russian defaulting on debt in local currency. everything illiquid at once. spiral set off. selling most liquid stuff first making the portfolio even more iliquid. the markets simply went off-bid. UBS, largest european bank, was in rumour about big, big trouble. end of the story.
i recommend studying the LTCM story in detail. and better start by "what lessons can i learn" than "would have never happened to me". being calm and rationale after years of huge success - well, take that bet.
met john merriwhether some months after it. started another fund: JWM partners. do not know how they are doing. would think reasonable. i mean, that does not happen to you twice, right?
i recommend studying the LTCM story in detail. and better start by "what lessons can i learn" than "would have never happened to me". being calm and rationale after years of huge success - well, take that bet.
met john merriwhether some months after it. started another fund: JWM partners. do not know how they are doing. would think reasonable. i mean, that does not happen to you twice, right?
"valid" strategy? riiiight.....
i'm going to explain to you what's the problem with this "strategy"
suppose you find out a marvelous forecasting technique that tells you the s&p close right after the open. suppose also that spoos are illiquid so once you're in there's no coming back.
how much leverage would you use??? the ltcm guys were using the equivalent of $500 daytrading margins so the day the market went against them for more than 10 points they went broke.
of course they were right in the end.. their "prediction" turned out to be right
but if you don't know how much levergae to use or where to set your stops then your strategy is useless...
JMW is making money now but afaik not much more than a stupid 4% a year bond
i'm going to explain to you what's the problem with this "strategy"
suppose you find out a marvelous forecasting technique that tells you the s&p close right after the open. suppose also that spoos are illiquid so once you're in there's no coming back.
how much leverage would you use??? the ltcm guys were using the equivalent of $500 daytrading margins so the day the market went against them for more than 10 points they went broke.
of course they were right in the end.. their "prediction" turned out to be right
but if you don't know how much levergae to use or where to set your stops then your strategy is useless...
JMW is making money now but afaik not much more than a stupid 4% a year bond
maybe... but he's right, PhD Nobel prize winners don't even know how to manage their own retirement.... and then they want to start hedge funds and manage other people's money????
check this out
Experts Are at a Loss on Investing
Nobel winners and top academics fumble the sorts of decisions Bush's Social Security overhaul plan would ask average Americans to make.
http://www.latimes.com/news/nationw...,0,7233505,print.story?coll=la-home-headlines
most hilarious quote: "I would rather spend my time enjoying my income than bothering about investments," said Clive W.J. Granger, an emeritus professor at UC San Diego and a 2003 Nobel Prize winner
this guy is supposed to be the top expert at financial econometrics and investments do not bother him??? what a joke... it's like a medical doctor saying he's not bothered about taking care of his health.
wow. i mean i really do think they did a couple of horrible mistakes at LTCM (though i think it was not the quants who were to blame), but to put Nobel Prize winners into one basket, no matter if they did path breaking world in numerous fields of finance or worked on rats ... you m u s t be kidding. its like saying "do not hire an indian programmer, they cannot even run a decent economy on their own" ...
guys come down to earth. study LTCM and learn a lesson or two, but start with the very first: be aware that too big ego is a hinderance no matter what. and small trader with 25k account saying highly recognised profs are dumb. and ... knowing after the fact ... well no big deal.
i ran a institutional hf account in early 98 and we considered LTCM which were widely recognised as number one. turned it down due to too little info on their strategy. but i know: we were more or less lucky.
(just in case, some smarty points it out: it is as well a mistake to take anything said by an experienced Phd nobelhobel laureate bla bla as given.)
peace
LTCM was in 1998, can we just say dooms- day scenario and start another thread, this is ridiculous.