Thursday, July 9, 2009

Meriwether Crashes Another Hedge Fund

John Meriwether, who in 1998 crashed the hedge fund Long-Term Capital Management, has done it again. He is shutting down his Greenwich, Conn., hedge-fund firm JWM Partners amid double-digit losses.

Meriwether posted losses of 44 percent between September 2007 and February 2009 in his Relative Value Opportunity fund.

Bottom line, Meriwether has always been a sucker for equations that would tell him how to trade. Since there are no constants in the realm of human action, equation builders must assume that some relatively non-volatile variable is a constant. This trading strategy can work until Wenzel's Observation #1 kicks in, "Any variable has the potential to eventually start to dance." When the dancing starts, the hedge funds blow up.

Despite billions in losses in Long Term Capital because of faulty equations, Meriwether was able to find investors who in aggregate put in over a billion into his fund that attempted to defy reality.

1 comment:

  1. Meriwether is like a guy on his 4th or 5th DUI, who has totalled 3 different vehicles and killed countless innocents in his collissions, still being allowed to drive. And his investors are like the "fun" friends who buy him booze at the bar and try to get him wasted for a laugh.