Title/Author: The Rise and Fall of Long-Term Capital Management: When Genius Failed by Roger Lowenstein
Reason for Reading: Recommended by another book
Pre-thought: Time to learn about past catastrophic mistakes made investing in the stock market
Recap of Book: You will get to learn about the rise and fall of Long-Term Capital Management. Most of you have probably heard of the name Meriwether at one point and time but may not have any idea where it's from. John Meriwether was the main driving force behind the investment strategy of Long-Term Capital Management.
For decades people have been trying to find some type of exact science that can be applied to the stock market in order to gain some investing edge over others. For decades methods have come, failed, and gone. While there may not be an exact science to the stock market, most of these successful companies who have gone belly up, have done so because of the greed and lack of common sense.
People believe in their strategies so much that when a market recesses or things go awry they continue to hold onto their stock market positions while taking huge losses. Sometimes the losses become so extreme that it is no longer possible to hold onto them.
John Meriwether developed a system; it worked for a long-time, and may have continued working for him had he not burned bridges with the people he was investing with because he would have a dire need for them in the end.
Learn about hedge-fund trading, learn who John Meriwether and Long-Term Capital Management were, learn the mistakes they made, and be in awe at how fast their Genius Failed them.
Interesting Points: The Idea of Arbitrage is very unique concept. Basically you are looking for like-investments and you short-sell one through the use of a put-option and you purchase the stock of another company. If the industry crashes you can still gain from the short-sale, if the industry rises, you will lose money on the short sell but gain more than the loss from the stock you own, it's basically a strategy to mitigate risk. You can learn more here: http://en.wikipedia.org/wiki/Arbitrage#Conditions_for_arbitrage
Recommended Audience: Anyone looking to learn the History of Long-Term Capital Management and see the dangers associated with private investment firms who get to large and make a mistake.
After-thought: This book is like a class for any stock investor. It's like studying Sigmund Freud while getting a degree in psychology; it's just something that should happen.