Nevertheless, these are mistakes they seem to have made. These are mistakes we all know/ should know not to make. No doubt they made others too.
It’s the American Way. Success, no matter how spurious, is worthy of admiration while failure, no matter how well justified is a subject of derision. On the subject, besides the area-specific issues, I’d name excessive leverage and lack of liquidity. These have been key or at least contributed to the downfall in most of the high profile blowups.
If I remember correctly there were actually 3 main players here in the order of: ? -> Amaranth -> Centaurus. Who was the guy/fund that Amaranth swallowed?
Excessive leverage is a symptom of the same underlying problem that has always been at the heart of these blowups. Specifically, a lot of the characters involved (and I would also add Endeavour to the list) could never imagine that they might be wrong. The biggest lesson for me: no matter how big, clever and important you are, you ain't never bigger than the mkt.
It's more complicated then just saying leverage. Again, if one reads the book you will see that "both" the main players were actually "trying" to force the other out. In other words, leverage was not used simply to juice returns or average into a loser, the leverage used by both Arnold and Hunter were used to squeeze the other. Arnold was smart and that he gave Hunter the impression he was all in and even sent out some false rumors that he was on the edge of liquidating. He was lying. He had plenty of ammo left and when the time was right, he moved all in and swallowed Hunter whole. It truly was a game of poker and trying to read the other player.
Brian Hunter is the trader. Surely for every trader, there will be a risk manager who will look over his shoulders to make sure the trader does not make the classic mistakes like excessive leverage, excessive large position size relative to liquidity etc. Furthermore, Hunter was not the boss of Amaranth. The boss was Nicholas Maounis. Why didn't the boss and risk manager stop Hunter when it is in their absolute interest to do so? This part puzzles me.
hee hee, an intern can find correlations with a spreadsheet and PhD's can't necessarily figure out what to do when it uncorrelates
You overestimate the power of a risk manager. Traders push the limits all the time... they rather mouth off the risk department and see it through... and if they are making money, the risk manager will get bypassed by the boss. Boss sees money, likes it... says go with it and overrules risk. Risk will try to contain, but that's not always possible. And in this case, it would be like he was very committed to the trade. Reducing would quickly start to become liquidating. In the end, traders make the money... risk managers usually partly prevent them from doing so. And sometimes, risk managers would/should prevent failure... but wheels motion etcetc...