I used to think they are much smarter than us and still feeling many clever guys are working on the Wall Street. But just be careful that there are also lots of sh**heads!
From Realmoney.com's columnist conversation: Paul Kedrosky 1/24/03 12:15 AM ET "The fund made three big, awry bets: NTT Docomo (short); NTT (long); and Sega (long to the tune of $150-mm)"
http://home.attbi.com/~kmatenaer/SNL.wmv Don't drink while you, watch, you will "spray" your monitor.
Good points. And in regards to LTCM, it turned out that given a little more time, a few months, they would have made money on their positions rather than blowing up. This is undoubtedly why Warren Buffet was interested. He knew. They just couldn't handle the massive drawdown. And this is why a lot of hedge funds blow up. They don't correctly account for the range of possibilities of such drawdowns. And this is also true on the level of individual traders with much, much less capital. Many traders don't really examine and understand the true risks involved in the positions they put on. Like Mark Douglas would point out, everyone is so convinced they're right they don't plan for how they'll deal with possibly being wrong. They're so focused on how much money they will make if the trade goes as planned that they forget what can happen if it goes against them. As lescor's signature line says, "An amateur thinks about how much he can make. A professional thinks about how much he can lose."
Here's Mark Cook's story of blowing up his own account that should be required reading by all hedge fund managers and all full time traders for that matter. http://www.elitetrader.com/vb/showthread.php?s=&postid=157634&highlight=Mark+Cook#post157634 Also there's a book I just bought called, "When Supertraders Meet Kryptonite" by Art Collins that recounts the worst trading losses by people like Mark Cook, Linda Bradford Raschke, Larry McMillan, etc. The most important task in any trade is to protect your trading capital. And from my own experience http://www.elitetrader.com/vb/showthread.php?s=&postid=158434&highlight=Managing+Risk#post158434
In 2001, the hedge fund business was so hot that the industry employed a lot of traders without real trading experience.
in this light. Correct me if I am wrong, but as far as I recall he did not blow up his fund, but simply did not deliver as well as he was expected to in 1987 (?) and then simply closed it down.