When Genius Failed by Roger Lowenstein is the story of the rise and fall of Long Term Capital Management.
This is the second book I’ve read by famed financial author, Roger Lowenstein. (The first one was Buffett). And you’ll be happy to learn that When Genius Failed didn’t disappoint.
In this book review, you’ll learn exactly what When Genius Failed is all about. I’ll also be sure to share my favorite parts of the book and why I think Lowenstein is such a capable financial journalist. Now, let’s start this book review of When Genius Failed in earnest…
Summary of When Genius Failed:
When Genius Failed is the story of Long Term Capital Management (LTCM). And if you aren’t familiar with LTCM, then that’s even more reason to read this book. In short, LTCM was like the Titanic of hedge funds.
When Genius Failed starts our by profiling the main characters in the LTCM saga, like John Meriwether, a Solomon Brother’s bond trader who recruited the biggest names in arbitrage and academic finance to join his hedge fund.
The first half of the book proceeds along the same vein. When Genius Failed aptly describes the prolific gains that LTCM accomplished. It shows how Meriwether and his crew were able to manage 50% returns and earn billions of dollars for themselves and investors.
Halfway through the book, it seems like LTCM is destined to take over the world of finance. But just like the unsinkable Titanic, Lowenstein identifies potential danger lurking on the horizon. And that’s what the second half of the book is all about.
When Genius Failed goes from demonstrating the impressive rise of LTCM to showing how it all very quickly unravels. And the second half of the book is where things really get interesting. While the rise of LTCM is dizzying, the comedown is even more shocking.
When Genius Failed gives an apt, entertaining and insightful look at how LTCM came crashing down. The book also very clearly identifies the risks it presented to the major Wall Street banks and even the financial system at large. Put simply…
The story of When Genius Failed is both shocking and captivating. The behind-the-scenes deal making that happens to save the markets (and those major institutions that blindly investing in LTCM) is almost like a prequel to the bank bailout of 2008.
And that leads me to my next point…
The Best Part of When Genius Failed
My favorite part of When Genius Failed is that Lowenstein does an incredibly effective job helping you learn from the lessons of LCTM. The story of LCTM is so interesting that it would have been a good book if all it did was recap the rise and fall of this prolific hedge fund. But Lowenstein goes a bit further.,
In the world of financial journalism, there are relatively few writers who are able to dig deeper into the complex story arcs, and extract the important lessons that you as an individual investor can apply. In the case of LCTM and When Genius Failed, there is no shortage of these lessons.
When Genius Failed is filled with reminders (both subtle and more pointed) about what happens when investors put their head in the sand and blindly embrace ideology. It’s a stark warning to investors and financiers everywhere, that reality doesn’t always make sense, and yet you can never fully escape it.
I think When Genius Failed was consistent with Buffett, where I think Lowenstein went above and beyond to help you go beyond the entertaining story and learn the lessons embedded in the narrative.
It’s exactly this focus on helping investors learn from the successes and losses of others that makes Lowenstein’s books that much more worthwhile. But it also exposes an unfortunate reality.
The Sad Thing About When Genius Failed:
When Genius Failed is an excellent book about an important part of recent financial history. And while Lowenstein does such a great job recounting the moral hazard, the excess and the euphoria of market makers that it’s sad his warnings have not been heeded by more people.
In a world where the Federal Reserve is proceeding with unprecedented quantitative easing, with interest rate at all time lows and individuals with less truth than ever in our financial institutions, it’s a shame the lessons in When Genius Failed were not heeded by more people.
When Genius Failed highlights the common underlying instincts, behaviours and risks that are built into our modern financial system. So it’s sad that, with such an accurate and telling template, our society hasn’t been able to avoid further financial crises. This is especially true in the updated version of When Genius Fails, that contains an Afterword written after the financial crisis of 2008.
When Genius Failed is a great read and an illuminating roadmap for anyone looking to learn from the mistakes of history. So let’s wrap up this book review.
When Genius Failed – The Final Word:
When Genius Failed is an excellent book about an important part of contemporary financial history. It highlights a road map that has become all too familiar in the world of modern finance. For that reason, the learning opportunities are immense, and the story itself is highly entertaining.
That’s why I recommend you buy When Genius Failed on Amazon today. It’s a fun book that is easy to read and one who’s lessons will stay with you for years to come. If you’re still unsure, I encourage you to watch the video book review below to learn more about When Genius Failed.