This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

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. "They're not super-rich any more. Now they're just plain, ordinary rich."

Brett D. Fromson: They must have been complaining that they were booted out.

Roger Lowenstein: They were screaming. They were jumping up and down and screaming. Then there were a few, you know, Jimmy Kane was one at Bear Stearns, who prevailed in the long term having special status to leave more of the money in. He ended up one of the losers.

Brett D. Fromson: Because Bear was their clearing broker.

Roger Lowenstein: Bear was their clearing broker.

Brett D. Fromson: So he had...

Roger Lowenstein: He was favored, yes.

Brett D. Fromson: I can think of a few things to say about being favored in that particular way.

Roger Lowenstein: He'll survive.

Brett D. Fromson: I'm sure he will. How much money did the partners end up making or losing? I mean, at the end of the day, did these guys basically blow it all?

Roger Lowenstein: They blew it except for the tiny tip of the iceberg. They had $1.9 billion in the fund, the 16 of them, the great bulk of that held by four or five people -- Larry Hillebrand, Meriwether, probably Victor Agani and Eric Rosenfeld. Those four, then Greg Hawkins and everyone else and it was a steep slope down. Hillebrand had close to half a billion and these others had low hundreds of millions.

Brett D. Fromson: So they put this money, this $1.9 billion with the equity at the peak...

Roger Lowenstein: Yes. And that was all lost.

Brett D. Fromson: Right. This was taken out of salaries or bonuses or cash?

Roger Lowenstein: Yes, they used the partnership as a checking account. They wrote money against, they had virtually all of their investments in the fund.

Brett D. Fromson: Right.

Roger Lowenstein: Larry Hillebrand, as best as I can tell, was broke and had to rely on his bank. His wife is on Wall Street and she has ample funds in her name and they still live well. The others weren't leveraged personally to the same degree at all.

Brett D. Fromson: What about Meriwether?

Roger Lowenstein: No. I'm not aware that he had any personal leverage. And he still has his estate.

Brett D. Fromson: He's back in business.

Roger Lowenstein: He's back in business. They haven't disputed the figure of losing 90% or more of their money. It's something in the order of hundreds of millions. I don't know the exact figures.

Brett D. Fromson: So, from the average person's point of view, they're still quite comfortable.

Roger Lowenstein: No, they're still totally comfortable. But they're not super-rich any more. Now they're just plain, ordinary rich.

5 of 6

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs