The Collapse of Long-Term Capital Management: A Cautionary Tale

This chapter examines the downfall of Long-Term Capital Management, focusing on the flawed strategies and overreliance on complex models that led to significant losses. Highlighting the unpredictable nature of markets, it serves as a cautionary tale for investors about the risks of overconfidence.

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On today’s episode, Clay Finck reviews Michael Batnick’s book, Big Mistakes: The Best Investors and Their Worst Investments.

One of the best ways to become a better investor is to learn from our own mistakes. The second best (and less costly) way is to study the mistakes of others. If you want to learn from the mistakes of the world’s greatest investors, then this episode was made for you.

IN THIS EPISODE YOU’LL LEARN:

00:00 - Intro.

01:24 - Lessons from Batnick’s book from studying the mistakes of the world’s greatest investors.

02:18 - How Benjamin Graham lost substantial capital during the great depression.

07:14 - How Jesse Livermore taught us to always limit the potential downside.

12:49 - How Long-Term Capital Management went from billions in AUM to zero almost overnight.

16:40 - Michael Steinhardt’s mistake of stepping outside of his circle of competence.

26:24 - What the endowment effect is.

27:20 - Warren Buffett’s biggest blunder.

29:57 - How Bill Ackman became publicly attached to a short position that went against him.

37:32 - How Stan Druckenmiller got suckered into the 1999 tech bubble.

49:21 - The dark side of concentrated investing.

54:50 - How Keynes transitioned from being a macro investor to a bottoms up value investor.

Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences.

BOOKS AND RESOURCES

Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, and the other community members.
Michael Batnick’s book, Big Mistakes.
Check out our previous episode: WSB577: Valuation Masterclass w/ Aswath Damodaran or watch the video here.
Follow Clay on Twitter.

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