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Long Term Capital Management is an interesting related story. They severely miscalculated the potential risks of what they were doing (both illiquid and very le

Long Term Capital Management is an interesting related story. They severely miscalculated the potential risks of what they were doing (both illiquid and very leveraged at the same time). I was reminded of this because Bear Stearns was actually the only major player that refused to bail out LTCM [1], which pissed off a number of other firms. I don't know if the institutional memory was long enough for this to impact Bear 10 years later, but it is ironic they were looking for a bailout after being so adamant about not participating in one. To your point, the main LTCM crew raised money to start a new fund only a couple years after their disastrous failure. People were willing to gamble millions on these guys still! [1] according to the book "When Genius Failed"

chewz 4y ago
It is unfair comparing ARK to LTCM... ARK is like a gambler who won his first lucky bet on a horse in life (TESLA), got hooked on gambling (growth stocks), made some incredibly stupid bets and is now in complete denial when markets turned against him.. LTCM did some novel and sophisticated stategies (for a time), realized the markets got too shallow for its strategies, returned most money to investors and lost liquidity due to black swan event. It is too easy in hindsight to tell they should have known better. If you want better comparison for Cathy it is Bill Ackman's Persing Square Capital Management buying Netflix in euforia without any analysis and dumping the stock in panic 4 months later, loosing 400 mllion dollars..
- caddemon 4y ago
  I don't doubt LTCM was smarter at the start. But I don't think it takes hindsight to say that it's a stupid idea to put your entire net worth in one fund and then take out additional personal loans to put even more. One of the main dudes was like $30 million in debt after the whole fiasco! Also FWIW the next fund that the core group started didn't last much past 2008. I think it's fair to say they were wrong about the amount of risk they were taking. But yeah the initial bets were smart and not "gambling". The problem is the insanely big and leveraged positions they took and continued to build even while their core business was clearly shrinking. Especially the way they dove into markets they were less knowledgeable about, at least the way the book presents it they did not do their homework on e.g. merger arbitrage in the way they had with the bond market. IMO they totally got cocky too, even if they got cocky for a better reason.

chewz 4y ago

It is unfair comparing ARK to LTCM... ARK is like a gambler who won his first lucky bet on a horse in life (TESLA), got hooked on gambling (growth stocks), made some incredibly stupid bets and is now in complete denial when markets turned against him.. LTCM did some novel and sophisticated stategies (for a time), realized the markets got too shallow for its strategies, returned most money to investors and lost liquidity due to black swan event. It is too easy in hindsight to tell they should have known better. If you want better comparison for Cathy it is Bill Ackman's Persing Square Capital Management buying Netflix in euforia without any analysis and dumping the stock in panic 4 months later, loosing 400 mllion dollars..

caddemon 4y ago
I don't doubt LTCM was smarter at the start. But I don't think it takes hindsight to say that it's a stupid idea to put your entire net worth in one fund and then take out additional personal loans to put even more. One of the main dudes was like $30 million in debt after the whole fiasco! Also FWIW the next fund that the core group started didn't last much past 2008. I think it's fair to say they were wrong about the amount of risk they were taking. But yeah the initial bets were smart and not "gambling". The problem is the insanely big and leveraged positions they took and continued to build even while their core business was clearly shrinking. Especially the way they dove into markets they were less knowledgeable about, at least the way the book presents it they did not do their homework on e.g. merger arbitrage in the way they had with the bond market. IMO they totally got cocky too, even if they got cocky for a better reason.