Quote for the Week
When the markets were shaken by the Russian situation, a lot of the normal relationships between different markets were thrown off — say, the relationship between the prices of corporate bonds and treasury bonds. When these relationships get out of line, they can be a profitable opportunity because eventually they can be expected to return to normal. But this time they did not return to normal or, at least, not soon enough. The analytical system that Long-Term Capital Management used to exploit such opportunities works 99.9 percent of the time. But because they had borrowed so heavily, that very unusual deviation of the markets, which might occur 0.1 percent of the time, caused them almost to run out of capital…
If Long-Term Capital had been forced to liquidate, the deviations from the normal behavior of bonds and other investments would have been even greater and the effects on the banks would have been even worse. That is why the New York Federal Reserve intervened. One really interesting thing is that it showed how faulty are the methods banks use to assess and manage risks. — George Soros (source)
From the Archives
Last Call
- 25 Years After LTCM Debacle: Lessons for Today – Periscope
- The Curse of Short-Termism – Behavioral Investment
- Of Boiling Frogs and Underperforming Investments – Klement on Investing
- Everything You Can’t Predict – Young Money
- Qualitative vs. Quantitative Value Investing – Value Stock Geek
- The Written Word – M. Housel
- Elon Musk and the Infinite Rebuy – The Future, Now & Then
- Airlines Are Just Banks Now – Atlantic
- Vintage Nirvana – The Ringer