From Long Term Capital Management to Amaranth, dramatic collapses of large hedge funds have occurred throughout the history of hedge funds. In general, hedge fund blow ups result from a similar series of events and financial elements.
1. Improbable Market Events
First, there is normally an improbable market event that effects the specific central investment or trading strategy of the hedge fund. For example, the 1997 Asian Financial Crisis contributed to the failure of Long Term Capital as widening spreads caused relative value trades to fail. Hedge funds frequently engage in this type of relative …

A summary and commentary of the previous weeks and next weeks economic data for August 3, 2008. This posts includes GDP and consumer confidence analysis.

This is part of a series of future posts summarizing and analyzing key points made by traders interviewed in Market Wizards by Jack D. Schwager. Market Wizards is a collection of interviews with some of the world’s most successful traders and investors including Paul Tudor Jones, Michael Steinhardt, and Bruce Kovner. The book is widely recommended by traders and investment professionals and is included on the Sharpe Investing Recommended Reading List.
This first post focuses on a section about Larry Hite titled Respecting Risk. Managing risk is the key focus of Hite’s investment strategy. …