In the words of Prof. Myron Scholes, “Well, our (LTCM’s) goal is to get the risk level of S&P 500. We are having trouble having it that big.”
The problem Long Term Capital Management (LTCM) was not about getting enough returns, but about having enough risk.
Something was missing here. The fund was generating extraordinary returns, without commensurate risks, as is evident from Prof. Scholes’ statement above.
Read more about the lessons from the LTCM episode in “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”
#RidingTheRollerCoaster – 49