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In 1996, a certain firm with less than 200 employees made a profit of $2.1b. To put that into perspective, during that same year, McDonald’s made a profit of $1.6b. Disney made a profit of $1.2b. Even Warren Buffett’s mighty Berkshire Hathaway had look-through earnings of “just” $1.5b.

These staggering results seem even crazier when you consider the fact that this firm had started its operations just two years before that, in 1994. But well, this wasn’t a “normal”, consumer type company. This was a hedge fund called Long-Term Capital Management.

What makes this story … I don’t know … perhaps a little bit more realistic, is that everything was not right at Long-Term Capital Management. Unlike Disney, this company did not live happily ever after. Because just two years later, in September 1998, the investors and the partners in the fund lost almost everything. And it nearly brought Wall Street and its investment banks with it.

This is the story of how Long-Term Capital Management, just like Icarus from Greek mythology, managed to fly for a while. However, also like Icarus, this hedge fund sailed too close to the sun.

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A History of the United States in Five Crashes:    • A HISTORY OF THE UNITED STATES IN FIV...  

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Timestamps of When Genius Failed by Roger Lowenstein:
00:00 Intro
01:47 The Rise and Fall of LTCM
10:49 Wall Street’s Deadliest Cocktail: 1 part Leverage, 1 part Illiquidity
14:15 Investing is not a Precise Science
18:06 The Art of Arbitrage
21:23 Picking Pennies in Front of a Steamroller

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