| Where other fund managers applied old-fashioned
research skills, common sense, brute force, and guesswork, LTCM's 190 strategists
applied arcane mathematical formulas to the world's financial markets. The
firm's image was that of a skilled poker player: cool control in the face
of high risk. What's more, they appeared to have removed the element of
luck from the game (games such as G-12 fixed income arbitrage) by approaching
the management of risk as a science rather than an art, an approach that
initially generated unusually high returns. LTCM's image worked to the firm's
advantage in several key ways. Investors (mostly other financial institutions)
were dazzled by LTCM's methods and willingly lent money and invested capital.
At the same time, few people could comprehend the sophisticated formulas
the firm used and this afforded LTCM unquestioned privacy. |