Posted by: jhamon | July 8, 2009

When Genius Failed… Again!

When Genius Failed

When Genius Failed

The old saw goes like this:

Q: How do you make a million dollars in the stock market?

A: Start with two million.

Well, John Meriwether of LTCM fame has done it again.  In 1998, Merriwether and his posse of “geniuses” lost close to $5 billion in just 6 months.  That was back, pre TURD TARP, when a billion was a REALLY big number.

It was a gaffe so big that it nearly brought down the whole financial system and even created its own cottage industry: Roger Lowenstein wrote a great book about the whole affair called When Genius Failed: The Rise and Fall of Long Term Capital Management.  (No I don’t get an associate fee, but click the link to buy it cheap – it IS a great beach read).

So I marveled when I read the following at Bloomberg:

JWM Partners LLC is closing its main Relative Value Opportunity II fund after losing 44 percent from September 2007 to February 2009. Meriwether, credited with generating billions of dollars of revenue at the former Salomon Brothers in the 1980s through so-called relative value trades, returned an average of 1.46 percent a year with his new fund since opening in 1999, compared with 2.4 percent for the Credit Suisse/Tremont Hedge Fixed-Income Arbitrage Index

Well we already established the Meriwether is not a genius where it counts in the adviser business: managing risk and losing as little as possible.  What I want to know is: who are the “geniuses” that put their money with him the second time around?  The mind boggles…

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