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When Genius Failed: The Rise and Fall of Long-Term Capital Management – Roger Lowenstein

24th March 2023
when genius failed book cover


When Genius Failed is about the disgraced Long-Term Capital Management. This book was recommended in Richer, Wiser, Happier. Since I decided to read the recommended books in Richer, Wiser, Happier, I start with this book first.


Roger Lowenstein is an American author, journalist and columnist. He is also a director of Sequoia Fund.


When Genius Failed has an introduction, 10 chapters, an epilogue, and an afterword. The chapters are divided into 2 parts: The Rise of Long-Term Capital Management (first 6 chapters) and The Fall of Long-Term Capital Management (4 chapters).

The chapters are:

1. Meriwether

2. Hedge Fund

3. On the Run

4. Dear Investors

5. Tug-of-War

6. A Nobel Prize

7. Bank of Volatility

8. The Fall

9. The Human Factor

10. At the Fed


When Genius Failed is about an investment firm known as Long-Term Capital Management. It shows how an investment firm (hedge fund) threatened the whole economy. Nonetheless, this history of Long-Term Capital Management is unauthorised.

Long-Term Capital Management is a hedge fund. It opened for business at the end of February 1994 and managed to recruit top traders and scholars including 2 Nobel Laureates in Economic Sciences (Robert Merton and Myron Scholes). The man who founded this firm is John Meriwether. This hedge fund ran into trouble in 1998 and required bailout from banks with help from Federal Reserve. The fund liquidated by early 2000. The silver lining is that most outside investors had positive returns due to the forced repatriation of their capital at the end of 1997.

The author mentions that investing involves both risk and uncertainty. Risk is the occurrence of loss while uncertainty is the likelihood of the loss. Risk is normally represented by volatility but past volatilities do not prepare investors for shocks in that lie in wait nor do they signal in advance just when such shocks might occur.

The main problem to financial crisis is undue leverage. The mistake is in thinking that markets have a duty to stay liquid or that buyers will always be present to accommodate sellers. A bit of liquidity greases the wheel but too much liquidity tends to make the market skid off the tracks.

The author also reminds us about the unreliability of formulaic risk management. Traders or investors, being humans, are not always reasonable. Thus, any formula that assume humans will always act rationally contain flaw in them.

Overall, this book is interesting. It chronicles the events that led to the fall of Long-Term Capital Management. We can see that the market cannot be reduced to some formula and we should avoid undue leverage in trading.

One-sentence summary: Disaster struck when we are overconfident.


  1. History, Mark Twain noted, rhymes; it does not repeat.
  2. But there is nothing like success to blind one to the possibility of failure.
  3. Once a typhoon breaks loose in markets, there is no telling where it will go.
  4. But long-term thinking is a luxury not always available to the highly leveraged; they may not survive that long.


3 out of 3 stars

Interested in When Genius Failed?

You may get the book through the links below*.

Get the print book from Kinokuniya Malaysia here

Get the ebook from Shopee Malaysia here

*Disclosure: The above links are Involve Asia affiliate links. Thus, I may earn a small commission when you purchase the book through the links.

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