First of all, it’s not exactly ‘The Wolf of Wall Street’, depicting lifestyle parts of the financial drama only briefly. In the book, we met a sort of founder biography of John Meriwether coupled with a practical history of the Black-Scholes option pricing model. (Goodreads)

In that way it reads more as a story similar to ‘Creativity Inc.’ (Goodreads), meaning the outlook view on teams of high caliber and creativity, albeit attached to the financial world.

The most surprising part is the perception change resulting from reading it.

Before that, it was presented in my mind as a story of the Nobel laureates team which put gigantic trust into the formula and failed over the spiked market.

And apparently, it was much simpler than that - as there are basically 2 differences to the perception that unraveled: 1st - with creation, 2nd - on the bust.

Starting with the latter, the fund indeed was born as a ‘spiritual spin-off’ of the bond arbitrage group of Solomon Brothers, again, supposedly, the best team at the time.

The recreated fund was meant to attract the highest caliber (and volume) of capital, so there was a place and a need for superstar finance professors (2 of whom received a Nobel Prize later in the story). Quick note - while Finance was becoming more mathematical, pure Wall str. founder was inviting finance professors, it wasn’t a physics/math group.

So, it got a team, it got capital (btw - less than initially planned in first year), and it did start making many on the very legit bond arbitrage strategies - their specialty. The problem highlighted - the secret sauce was singular - capital leverage, that’s it. It played on the markets it was dealing with, boosting them with giant leverage too and it basically printed money with no significant downs for 3 years.

Second - is the bust, which the author suggests comes primarily from success. Enormous returns made the team look for more, getting the profit from completely unknown avenues, markets, asset types. Why so? - the core strategies contrary to the perception were pretty much known to the market.

Maybe not so diverse and not so leveraged, but it looks like there was no secrets, no super-smart algo’s: banks and funds at the time did learn to hire prodigious Harvard and MIT PhDs and many of them were employing similar strategies.

The irony of the whole story is that fund wasn’t that super-smart, risk management was faulty depending on the human-factor committee, rather than supercomputers and so - a relatively predictable market condition caused the buyer-side to collapse: the fund wasn’t meant to liquidate at all and more so - wasn’t meant to liquidate quickly, the market for itself didn’t allow to find buyers in time of need and that’s the end of it.

Quite illuminating read on an important part of financial history - not even so from the fund or the strategies, but as a premise for 2008 and the Fed course chosen there.