When Genius Failed by Roger Lowenstein

Late post because I'm just returning from Saratoga and I hadn't finished reading before I left. Personally I was fascinated with this book, mostly because of my actuarial background. When Genius Failed is about the company Long-Term Capital Management and their hedge fund, which had unbelievable returns and unbelievable losses, all within a four year span.

John Meriwether led a very successful arbitrage group at Salomon Brothers. Unfortunately, things soured and he left to start his own fund in 1994: Long-Term Capital Management. He recruited some of the best people from Salomon Brothers. He recruited the best in academia, including Robert Merton and Myron Scholes (yes, the same guy who designed the Black-Scholes formula). He even recruited David Mullins, the vice chairman of the Federal Reserve. This group of geniuses was able to raise $1.25 billion, the largest start up ever at that time.

For the first few years, LTCM achieved incredible profits (using their brainy models) while setting all the rules. They dictated above-average fees from clients and pushed around banks who lent money and executed trades. Initially, their goal was to profit from arbitrage between spreads. They were so successful at this, other competitors started to crowd the market and opportunities dwindled. LTCM forced clients to take back money while at the same time starting to delve into equities, derivatives, mergers and equity volatility. However, in 1998 things turned real bad as Russia had major currency issues which affected the worlds' markets and spreads. They were highly leveraged at this time (100 to 1), multiplying the intensity of their problems.

I've probably lost most of my blog's readers by now, so I'm not going to try to explain any more. Eventually, the Federal Reserve ordered banks to meet in their offices in New York. The Fed coordinated a consortium between 14 banks valued at $3.65 billion. Basically a bailout. Sound familiar?

This is one of those books that will only interest 1 in 10 people. You need to read slow to grasp all of the concepts and people, and even I had to re-read sections. But this is a book that should be required reading for everyone in finance, insurance, banking, etc. The author pointed out countless times how this story should be a warning for the future. It seemed other executives mentioned in the booked understood this. Yet, ten years later, the story repeated itself.

How I have never heard of this book until now is mind boggling.

My rating for When Genius Failed: 4 stars out of 5. Get it here!

The $100 Startup by Chris Guillebeau

Mixed feelings on this one. I wanted to read this book because entrepreneurship and business interest me. And this book got a ton of praise from critics, which led me to come in with high expectations. The book wasn't bad, but it didn't meet my expectations.

The book is a how to manual for small startups. From the title, you can probably guess this. The author is some guy who has had more successful small ventures than I could keep track of. He interviewed 1,500 other small businesses. Most were single owners who started with a few hundred bucks. The book does a great job providing steps and checklists for starting a business and making it profitable.

I had a few issues with the book. The biggest thing was I didn't believe it. Things are never as easy as they sound. When you start a business, you will struggle, you will be stressed. Maybe I am too pessimistic. The last chapter tried to explain the difficulties of starting a business, but was not sufficient in my opinion. The author does a good job sharing stories of others, but I thought they were all too brief. I also dislike referencing future or previous chapters (i.e. we will discuss this more in chapter 11). Why not discuss it now? The last rift I had was almost all of the businesses seemed to rely on the internet. Internet business can succeed and nowadays it's almost a requirement to have an internet presence, but I am wary of simply relying on the internet alone.

I didn't hate the book. I didn't love it either. It was okay. If you are serious about starting a business, I would encourage reading The $100 Startup. But it's not required.

My rating for The $100 Startup: 3 stars out of 5. Get it here!

Personal Foul by Tim Donaghy

After the last "memoir" I read, I started this book with a little hesitation. Was everything Tim Donaghy said true? No one can know for sure except for him. My opinion after reading the book was most of it is true. While I enjoy the sport of basketball, I've never been a fan of the NBA and this book furthered my dislike for the league.

Tim Donaghy was a veteran NBA official who had a gambling problem. He started betting at the casino, then shifted towards sports (excluding the NBA). Eventually, he started betting on the NBA with a friend. At the beginning, he avoided games he reffed but that didn't last long. He turned out to be very good at picking winners - selecting the right team 70%-80% of the time.

The big question is how was he able to pick winners? Simply put: he knew the refs. Each ref has their own tendencies. Some favor certain players. Some dislike traveling to certain cities. Some like to keep games close. Some hold grudges. This information was money to Tim Donaghy. He knew who was reffing which games, how they would ref the game, as well as instructions from the league office for how they wanted the game called.

He claimed betting on games did not affect his job performance. He admitted to wagering on games, but not fixing games. He said he never favored a team because he bet on them. To prove this point, and which convinced investigators he was telling the truth, was a game which he bet the Spurs and ejected the head coach in the first quarter. Why would he eject the coach of the team he bet on so early in the game if he wanted them to win?

The FBI was investigating bookies he was associated with. When Donaghy got wind of this, he turned himself in against the advice of his lawyers. He admitted everything. It turned out the FBI did not have much information on him at the time, but eventually they would have put it all together. He ended up losing everything: his family, his job, his wealth, his dignity.

My rating for Personal Foul: 4 stars out of 5. Get it here!