Long Term Capital Management and the Lessons of Failure

Oct. 05, 2010 6:29 AM ET2 Comments
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Mercenary Trader

by Jack Sparrow

Welcome back, your dreams were your ticket out…
Welcome back, to that same old place you laughed about…

- Welcome Back Kotter

John Meriwether — the trader of Liar’s Poker fame and founder of Long Term Capital Management (LTCM) — is back in the game, this time with a focus on macro.

As FINalternatives reports:

Two-time hedge fund loser John Meriwether has launched two new hedge funds, hoping that the third time turns out better.

A founder of the legendary and infamous Long-Term Capital Management, which collapsed in 1998, requiring a government bailout, Meriwether has unveiled his JM Advisors Management’s global macro strategy. The new fund is available in both onshore and offshore versions, according to regulatory filings.

Going with global macro is something of a change for Meriwether, and for JMAM. The Greenwich, Conn.-based firm was originally slated to run the same relative-value arbitrage strategy used at LTCM and JWM Partners, which Meriwether closed last year after taking a beating during the financial crisis.

JWM Partners lost some 44% over its last two years. Meriwether founded it in 1999, just a year after the spectacular demise of LTCM.

Hmm. So who are the investors lining up to give this guy another chunk of change?

The above chart () shows the carnage that engulfed LTCM investors in 1998 (though it doesn’t show the substantial costs of the bailout, or the carnage inflicted on the rest of the Street).

For a few good years, LTCM snatched up nickels in front of bulldozers with huge leverage, while the fund’s Nobel laureates got high on their own supply with seriously addle-brained concepts like “Continuous-Time Finance.” Then it all went wrong, in accordance with the “100 year storms” that actually seem to occur every five or six years.

LTCM, and later

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