This was the first book I read about the fall of LTCM. It is a really good reminder that even collections of well-heeled, highly educated people can get it really wrong. It's a really good overview on how models and algorithms that fail to account for outliers or things outside of the model can bring things to a rapid end.
Another history book, and a modern one at that. This is the story of the blow-up of Long Term Capital Management, the single most lauded hedge fund of the late 1990s. For those who have gotten deeply into the math and statistics behind the market, this book should be a wake up call. Any investment strategy can be broken, and any model based on the past will not predict the future once people in the market adapt to that new knowledge. There is a huge insight in this book that may seem esoteric, but it’s likely the biggest new insight into markets of the last decade: When you are a big enough investor, your own investment in the market creates a new correlation between investments that didn’t previously exist – the fact that you own all of them. Similar to quantum mechanics, the investor affects the markets they invest in. This simple truth explains why LTCM fell, and why there is a limit to strategies based on historical analysis of assets.
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