When Genius Failed: Lowenstein Talks LTCM
Brett D. Fromson: Lower tolerance?
Roger Lowenstein: Yes.
Brett D. Fromson: In retrospect, looking at the returns for the risks, I know that they were fantastically successful when they were successful, but overall, it doesn't look like the returns were that good.
Roger Lowenstein: You mean the cash returns or the overall returns?Brett D. Fromson: I mean the overall returns. I want to know what you think, because on the one hand they certainly made a ton of money using enormous leverage, and then they lost it all. Roger Lowenstein: If you look at the cycle, if you put a dollar on LTCM, it rose, before fees, to about $4.11 -- it was in the book but I think that was the exact figure, at the peak -- then it fell to about 32 or 33 cents. So, $1 from start to finish turned into 33 cents at a time when the stock market was doubling. Brett D. Fromson: Is that roughly what the stock market did over this period of time? Roger Lowenstein: Yes. Brett D. Fromson: It doubled? Roger Lowenstein: Yes. Brett D. Fromson: And this is the period of time from 1994 through when? Roger Lowenstein: 1994 to 1998. The end of 1998. Brett D. Fromson: Great time to be in stocks. Pretty good time. Roger Lowenstein: Yes, it was a great time. It was a good time to be in bonds, too. It was a great time to be in anything but LTCM. And if you'd done it on a fee basis, you went from $1 to close to $3 then down to 23 cents. You never come back from that because the next year they made 10%, and that was the 32 cents back to 36 cents and 23 cents back to 25 cents. You never come back from that loss. Many outside investors were cashed out against their will, before the fall. But many of the outside investors made money. Brett D. Fromson: Ironically. Roger Lowenstein: Very ironic.
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