instead of converging, those prices move back in opposite directions. And the target company stock collapses and you lose my sets of risk. And smart people have developed models and ways of thinking about companies and talking to management and doing a lot of fundamental bottom-up research to figure out that risk. Long-term capital didn't do that. They did a couple of things. They just kept betting. And they said, look, we know a certain percentage of these trades are going to bust. But if we do enough of them in enough size and do it persistently, we will, in fact, make money because on average, you do. So that was kind of going back to what we said earlier about average distribution. Average sample size. And the Martin Gale. But the other thing we did, we'd never owned a share of stock. We did it in derivative form. We had a, what's called a total return equity basket with Bear Stearns, which was our prime broker. So we would literally just call up and say, we were in every big risk (27/98)
You are viewing a single comment's thread from: