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Section 1: Genius emerges (1)

WHEN GENIUS FAILED

The Rise and Fall of Long-Term Capital Management

Speculative genius Meriwether

As a child, John ·Merriweather would bet on the Chicago Cubs baseball game. Before each bet, he would get a clear understanding of Chicago's weather forecast for the day to grasp the wind direction and strength at the baseball field that day.

John Meriweather was responsible for founding the Arbitrage Division in 1977, an important but less obvious milestone in Salomon Brothers' transformation. This division was a prototype for what would become Long-Term Capital Management.

Surround yourself with good people: An owner or investor who tries to surround himself with managers who run good businesses can achieve great things.

——Warren Buffett

Genius emerges

If John Meriweather learned any secret at Salomon Brothers, this secret That is: never let go of your losses until they turn into your profits. So when did John Meriweather get this secret? In 1979, a securities dealer named J.E. Eckstein faced bankruptcy. One day, a gloomy Eckstein walked up to a group of people at Salomon Brothers, including several partners, including 32-year-old John Meriwether. "I have a good business, but it's a pity that I don't have the ability to do it well. Are you willing to take over?" Eckstein said straight to the point.

Here’s the situation: Eckstein trades Treasury bill futures (which, as the name suggests, are U.S. Treasury securities that will be delivered at a fixed price at a specific time in the future. contract).

Generally speaking, countries...