John Meriwether is a good example of why many investors never learn from their mistakes. Investors delude themselves thinking “This time its different”
John Meriwether was the co-founder of Long Term Capital Management, together with two future Nobel Prize winners, Myron Scholes and Robert C. Merton. With this two brainys on board it seemed this hedge fund was a sure bet.
The fund got off to a flying start, it raised $1.01 billion from high net worth individuals. It delivered annualized returns of over 40% (after fees) in its first years. Nothing could go wrong.
But when the Russian crisis hit in 1998, it lost $4.6 billion in less than four months. With mounting losses and a bailout from the FED the fund was closed in early 2000.
You would have thought John Meriwether had learnt from his mistakes. But immediately after LTCM closed shop Meriwether launched JWM Partners. A fund that would continue many of LTCM’s strategies. He managed to convince investors to invest in him by promising them this time he was going to use less leverage.
Whoever said lightening doesnt strike twice was wrong, just like the Russian Financial crisis of 1998 killed LTCM, the 2007 Credit crisis struck JWM partners. JWM Partners LLC was hit with 44% loss from September 2007 to February 2009 in its one of its fund. As such, JWM Hedge Fund was shut down in July 2009.
Never buy into the idea “This time it is different.”
written by Constantine Njeru
\\ tags: Bailout, Bet, Co Founder, Credit Crisis, First Years, Four Months, Hedge Fund, High Net Worth Individuals, Investors, John Meriwether, Jwm Partners Llc, Leverage, Long Term Capital, Long Term Capital Management, Losses, Myron Scholes, Nobel Prize Winners, Robert C Merton, Russian Crisis, Russian Financial Crisis