9 timeless lessons from Long Term Capital Management


  1. Leverage Kills: leverage is a double-edged sword. It pushes the return on equity during upside; however, it hammers down the same return on equity during downside.

  2. Diversification does not help in crisis. Everything falls down simultaneously.

  3. Investing is not pure science. It requires common sense: investing is dealing with assets & companies managed by humans. People decide the prices in the markets. People have emotions.

  4. Intelligence (IQ) cannot guarantee good returns in markets.

  5. Institutional investors are not always right. Seemingly smart money does act dumb many times.

  6. Markets are irrational or we should say are not purely rational: markets are made of emotional human beings, who act irrational all the time. Market prices do not always reflect the rational levels and therefore, provide many opportunities for keen value investors to achieve good returns.

  7. Markets can stay irrational longer than you can remain solvent.

  8. Put only that much money into markets which you can afford to lose without going bankrupt. Markets are known to test the patience of investors with very long periods of inactivity. Such periods creates feelings of frustration and self-doubt in investors and many times, makes them take wrong decisions exact at precisely wrong times.

  9. Never invest in stocks of your employer. You may lose your job and savings together.

Read more: http://www.drvijaymalik.com/…/when-genius-failed-long-term-…


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