Victor Higani

It was like, we've got to raise this capital fast. You know, otherwise there's no, you know, this is this is not going to end well.

It was like, we've got to raise this capital fast. You know, otherwise there's no, you know, this is this is not going to end well.

So we went out to all these people that were begging to invest with us and said, OK, here you go. Here's your big opportunity.

So we went out to all these people that were begging to invest with us and said, OK, here you go. Here's your big opportunity.

People would say. I'll give you $200 million, but only if you raise $3 billion. I don't want to give you $200 million if you only raise $500 million. That's not going to be enough for you to survive this.

People would say. I'll give you $200 million, but only if you raise $3 billion. I don't want to give you $200 million if you only raise $500 million. That's not going to be enough for you to survive this.

And we just never quite got there. And a lot of, you know, it was just the whole thing was in motion very quickly.

And we just never quite got there. And a lot of, you know, it was just the whole thing was in motion very quickly.

I think that we averaged like 40% annual returns, over 30%, way, way higher than what we ever anticipated was possible. They were doing amazing.

I think that we averaged like 40% annual returns, over 30%, way, way higher than what we ever anticipated was possible. They were doing amazing.

They were like, I don't know, we'll just see what happens. And the Fed said, no, no, no, this is a risk to the market. You guys have to do something about this. We think that you should all put in a couple hundred million dollars each and take over the fund and resolve this crisis in that manner.

They were like, I don't know, we'll just see what happens. And the Fed said, no, no, no, this is a risk to the market. You guys have to do something about this. We think that you should all put in a couple hundred million dollars each and take over the fund and resolve this crisis in that manner.

But 14 of the banks agreed to do this and put in about $3.6 billion.

But 14 of the banks agreed to do this and put in about $3.6 billion.

It was very sad for ourselves. It was very sad for everyone. The investors that we lost all this money for, you know, it was really painful for several years afterward. You know, we had built something and we made mistakes and, you know, it was unfortunate.

It was very sad for ourselves. It was very sad for everyone. The investors that we lost all this money for, you know, it was really painful for several years afterward. You know, we had built something and we made mistakes and, you know, it was unfortunate.

Well, I lost money. You know, call it 80% of, I lost about 80% of my net worth.

Well, I lost money. You know, call it 80% of, I lost about 80% of my net worth.

So sometimes they didn't do very much.

So sometimes they didn't do very much.

It was constantly, well, it was like game afternoon and game night. What games? Well, a lot of poker.

It was constantly, well, it was like game afternoon and game night. What games? Well, a lot of poker.

We didn't get bailed out. You know, there was no government money involved. You know, there was there was just no there was no bailout as we would commonly think of a bailout.

We didn't get bailed out. You know, there was no government money involved. You know, there was there was just no there was no bailout as we would commonly think of a bailout.

I feel that somehow the LTCM experience had to be unheeded for 2008 and 9 to have unfolded the way that they did.

I feel that somehow the LTCM experience had to be unheeded for 2008 and 9 to have unfolded the way that they did.

Well, playing poker with Bob Merton was terrifying because he was really a poker expert. Like he had programmed and written and solved aspects of poker very early on. So, you know, like we, you know, we played with Bob, but we just knew that Bob was going to walk away with some of our money. Okay. Okay. It wasn't all just for fun.

Well, playing poker with Bob Merton was terrifying because he was really a poker expert. Like he had programmed and written and solved aspects of poker very early on. So, you know, like we, you know, we played with Bob, but we just knew that Bob was going to walk away with some of our money. Okay. Okay. It wasn't all just for fun.

I think we kind of felt guilty about it at the time, but it was like giving an outlet to risk taking so that if you kind of like to take risk, it was good to take the risk here and be very risk averse in what we were doing for the firm. So it was an interesting and fun example of risk taking and risk not taking.

I think we kind of felt guilty about it at the time, but it was like giving an outlet to risk taking so that if you kind of like to take risk, it was good to take the risk here and be very risk averse in what we were doing for the firm. So it was an interesting and fun example of risk taking and risk not taking.

I just always felt that, you know, this was all just sort of too good to be true. It was amazing. I was so happy. I was so grateful and so on.

I just always felt that, you know, this was all just sort of too good to be true. It was amazing. I was so happy. I was so grateful and so on.

We were mostly cut from the same cloth. This is Victor Higani. He was the youngest of the group. Like we were all, you know, kind of game playing, geeky kind of people. And we just really felt attracted to the same kinds of problem solving and the same kinds of thought processes and intellectual challenges.

We were mostly cut from the same cloth. This is Victor Higani. He was the youngest of the group. Like we were all, you know, kind of game playing, geeky kind of people. And we just really felt attracted to the same kinds of problem solving and the same kinds of thought processes and intellectual challenges.

But finding something cheap actually means finding two things. If we were going to buy something that was cheap, we had to find something that it was cheap relative to. Otherwise, it didn't mean anything.

But finding something cheap actually means finding two things. If we were going to buy something that was cheap, we had to find something that it was cheap relative to. Otherwise, it didn't mean anything.

Relative to something else, yeah.

Relative to something else, yeah.

You had to explain it like, okay, why is this the case? And then you had to decide whether the reasons that were causing it were going to get stronger and make it go further apart or whether they were going to dissipate over time and whether there would be a convergence. In many cases, the idea was just to hold it long enough so that they had to converge.

You had to explain it like, okay, why is this the case? And then you had to decide whether the reasons that were causing it were going to get stronger and make it go further apart or whether they were going to dissipate over time and whether there would be a convergence. In many cases, the idea was just to hold it long enough so that they had to converge.

And then you use leverage to try to give yourself a good return on investor capital.

And then you use leverage to try to give yourself a good return on investor capital.

Well, leverage means that you're borrowing money so that you can have more of the trade on than just investing the capital that you have.

Well, leverage means that you're borrowing money so that you can have more of the trade on than just investing the capital that you have.

I forget who said that relative value trading is like picking up nickels in front of a steamroller. Nickels because these are teeny tiny opportunities to profit.

I forget who said that relative value trading is like picking up nickels in front of a steamroller. Nickels because these are teeny tiny opportunities to profit.

It was the hot thing, you know, so it just was attracting money. Just as we were making a lot of money, those trading desks were making a lot of money. So the bank management gave them more money and said, make me make even more. Here's more capital. And it expanded really quickly. And the opportunity set just looked a lot less attractive than it had looked.

It was the hot thing, you know, so it just was attracting money. Just as we were making a lot of money, those trading desks were making a lot of money. So the bank management gave them more money and said, make me make even more. Here's more capital. And it expanded really quickly. And the opportunity set just looked a lot less attractive than it had looked.

There was a smaller and smaller set of opportunities. Viewer nickels to pick up. We could see that. Yeah. Sadly, we probably didn't make the right, we didn't respond in the right way to it all.

There was a smaller and smaller set of opportunities. Viewer nickels to pick up. We could see that. Yeah. Sadly, we probably didn't make the right, we didn't respond in the right way to it all.

To a large extent, you can get rid of certain risks, but if you're going to make money, then you have to be taking risks.

To a large extent, you can get rid of certain risks, but if you're going to make money, then you have to be taking risks.

there were these currency devaluations, stock markets dropping, but we weren't super active in these emerging Southeast Asian markets. We had some little things on here and there, but very, very small, and we weren't too worried about it.

there were these currency devaluations, stock markets dropping, but we weren't super active in these emerging Southeast Asian markets. We had some little things on here and there, but very, very small, and we weren't too worried about it.

What was happening in the spring of 1998 was that Citigroup was shutting down their proprietary trading operation and we didn't really know it.

What was happening in the spring of 1998 was that Citigroup was shutting down their proprietary trading operation and we didn't really know it.

Everything was starting to behave a little bit differently, but we didn't realize, you know, it created a reshuffle. And I think it kind of got things started.

Everything was starting to behave a little bit differently, but we didn't realize, you know, it created a reshuffle. And I think it kind of got things started.

We didn't actually have much exposure in Russia. I mean, we lost money in Russia, but not a lot.

We didn't actually have much exposure in Russia. I mean, we lost money in Russia, but not a lot.

When that happened, that triggered all kinds of risk managers all over the financial system to say, hey, you know, we're going to take we got to take risk off the table.

When that happened, that triggered all kinds of risk managers all over the financial system to say, hey, you know, we're going to take we got to take risk off the table.

And it just freaked everybody out. And all of a sudden, everybody was like, we got to reduce risk. Where can we reduce risk? And then that started to set something in motion at that point.

And it just freaked everybody out. And all of a sudden, everybody was like, we got to reduce risk. Where can we reduce risk? And then that started to set something in motion at that point.

We're losing money. The market is much more volatile than it's been. Lots of different positions we have are losing money, but not all of them. That was very disturbing. It was very stressful, and we were trying to figure out how to react to different things. But the market was still functioning well.

We're losing money. The market is much more volatile than it's been. Lots of different positions we have are losing money, but not all of them. That was very disturbing. It was very stressful, and we were trying to figure out how to react to different things. But the market was still functioning well.

And some of the exact positions that we had all of a sudden, you know, made a huge gap move, just got repriced instantly and, you know, very far away from where it had been.

And some of the exact positions that we had all of a sudden, you know, made a huge gap move, just got repriced instantly and, you know, very far away from where it had been.

Like this one bet, which, you know, I mean, it would never move more than 1%, but it moved by 12% up against us.

Like this one bet, which, you know, I mean, it would never move more than 1%, but it moved by 12% up against us.

It was not. When we just saw things that didn't make any sense anymore, we're okay. When we saw the thing went down when it should have gone up, then we knew what was happening for sure. And it was like, that was like that stomach dropping moment.

It was not. When we just saw things that didn't make any sense anymore, we're okay. When we saw the thing went down when it should have gone up, then we knew what was happening for sure. And it was like, that was like that stomach dropping moment.

It was like, we've got to raise this capital fast. You know, otherwise there's no, you know, this is this is not going to end well.

So we went out to all these people that were begging to invest with us and said, OK, here you go. Here's your big opportunity.

People would say. I'll give you $200 million, but only if you raise $3 billion. I don't want to give you $200 million if you only raise $500 million. That's not going to be enough for you to survive this.

And we just never quite got there. And a lot of, you know, it was just the whole thing was in motion very quickly.

I think that we averaged like 40% annual returns, over 30%, way, way higher than what we ever anticipated was possible. They were doing amazing.

They were like, I don't know, we'll just see what happens. And the Fed said, no, no, no, this is a risk to the market. You guys have to do something about this. We think that you should all put in a couple hundred million dollars each and take over the fund and resolve this crisis in that manner.

But 14 of the banks agreed to do this and put in about $3.6 billion.

It was very sad for ourselves. It was very sad for everyone. The investors that we lost all this money for, you know, it was really painful for several years afterward. You know, we had built something and we made mistakes and, you know, it was unfortunate.

Well, I lost money. You know, call it 80% of, I lost about 80% of my net worth.

So sometimes they didn't do very much.

It was constantly, well, it was like game afternoon and game night. What games? Well, a lot of poker.

We didn't get bailed out. You know, there was no government money involved. You know, there was there was just no there was no bailout as we would commonly think of a bailout.

I feel that somehow the LTCM experience had to be unheeded for 2008 and 9 to have unfolded the way that they did.

Well, playing poker with Bob Merton was terrifying because he was really a poker expert. Like he had programmed and written and solved aspects of poker very early on. So, you know, like we, you know, we played with Bob, but we just knew that Bob was going to walk away with some of our money. Okay. Okay. It wasn't all just for fun.

I think we kind of felt guilty about it at the time, but it was like giving an outlet to risk taking so that if you kind of like to take risk, it was good to take the risk here and be very risk averse in what we were doing for the firm. So it was an interesting and fun example of risk taking and risk not taking.

I just always felt that, you know, this was all just sort of too good to be true. It was amazing. I was so happy. I was so grateful and so on.

We were mostly cut from the same cloth. This is Victor Higani. He was the youngest of the group. Like we were all, you know, kind of game playing, geeky kind of people. And we just really felt attracted to the same kinds of problem solving and the same kinds of thought processes and intellectual challenges.

But finding something cheap actually means finding two things. If we were going to buy something that was cheap, we had to find something that it was cheap relative to. Otherwise, it didn't mean anything.

Relative to something else, yeah.

You had to explain it like, okay, why is this the case? And then you had to decide whether the reasons that were causing it were going to get stronger and make it go further apart or whether they were going to dissipate over time and whether there would be a convergence. In many cases, the idea was just to hold it long enough so that they had to converge.

And then you use leverage to try to give yourself a good return on investor capital.

Well, leverage means that you're borrowing money so that you can have more of the trade on than just investing the capital that you have.

I forget who said that relative value trading is like picking up nickels in front of a steamroller. Nickels because these are teeny tiny opportunities to profit.

It was the hot thing, you know, so it just was attracting money. Just as we were making a lot of money, those trading desks were making a lot of money. So the bank management gave them more money and said, make me make even more. Here's more capital. And it expanded really quickly. And the opportunity set just looked a lot less attractive than it had looked.

There was a smaller and smaller set of opportunities. Viewer nickels to pick up. We could see that. Yeah. Sadly, we probably didn't make the right, we didn't respond in the right way to it all.

To a large extent, you can get rid of certain risks, but if you're going to make money, then you have to be taking risks.

there were these currency devaluations, stock markets dropping, but we weren't super active in these emerging Southeast Asian markets. We had some little things on here and there, but very, very small, and we weren't too worried about it.

What was happening in the spring of 1998 was that Citigroup was shutting down their proprietary trading operation and we didn't really know it.

Everything was starting to behave a little bit differently, but we didn't realize, you know, it created a reshuffle. And I think it kind of got things started.

We didn't actually have much exposure in Russia. I mean, we lost money in Russia, but not a lot.

When that happened, that triggered all kinds of risk managers all over the financial system to say, hey, you know, we're going to take we got to take risk off the table.

And it just freaked everybody out. And all of a sudden, everybody was like, we got to reduce risk. Where can we reduce risk? And then that started to set something in motion at that point.

We're losing money. The market is much more volatile than it's been. Lots of different positions we have are losing money, but not all of them. That was very disturbing. It was very stressful, and we were trying to figure out how to react to different things. But the market was still functioning well.

And some of the exact positions that we had all of a sudden, you know, made a huge gap move, just got repriced instantly and, you know, very far away from where it had been.

Like this one bet, which, you know, I mean, it would never move more than 1%, but it moved by 12% up against us.

It was not. When we just saw things that didn't make any sense anymore, we're okay. When we saw the thing went down when it should have gone up, then we knew what was happening for sure. And it was like, that was like that stomach dropping moment.