Planet Money The rise and fall of Long Term Capital Management
401 snips
Feb 22, 2025 
Victor Hagani, one of the youngest traders at Long Term Capital Management, shares his firsthand insights into the firm’s meteoric rise and catastrophic fall. He discusses how this elite group initially thrived by leveraging complex mathematical models to exploit market discrepancies. However, their overconfidence led to a collapse during financial crises, emphasizing the shocking interplay between human nature and rigid algorithms. Hagani offers cautionary lessons on risk management and the perils of ignoring historical precedents in investment strategies.
AI Snips
Chapters
Books
Transcript
Episode notes
Math Over Emotions
- In the mid-1990s, a group of math-focused traders developed a model for managing risk in the market.
- This model prioritized data and computers over emotions and hunches.
Poker Games at LTCM
- Long-Term Capital Management employees, including Victor Hagani, played poker regularly.
- They viewed it as an outlet for risk-taking, allowing them to remain risk-averse in their work.
Relative Value Trading
- Long-Term Capital Management's strategy involved relative value trading, identifying discrepancies between similar assets.
- They bet on the convergence of these discrepancies over time.
