TIP707: The Collapse of Long-Term Capital Management w/ Clay Finck

In this episode, Clay explores When Genius Failed by Roger Lowenstein, the gripping story of the rise and fall of Long-Term Capital Management (LTCM). Founded by Wall Street’s brightest minds, including Nobel Prize-winning economists, LTCM generated astronomical returns using complex mathematical models and extreme leverage—until a financial crisis in 1998 exposed its fatal flaws. Clay also discusses the dangers of overconfidence, the illusion of diversification, and why excessive leverage can be a ticking time bomb. Additionally, he shares details on an exclusive value investing event hosted by TIP in Big Sky, Montana, in September 2025. IN THIS EPISODE YOU’LL LEARN: 00:00 - Intro 03:34 - How John Meriwether and a team of Wall Street’s brightest minds, including Nobel laureates, built a hedge fund that seemed invincible, using sophisticated financial models and extreme leverage. 25:55 - LTCM’s reliance on mathematical models that assumed markets behaved rationally, leading them to underestimate the possibility of extreme events. 48:30 - How the Russian debt default triggered widening credit spreads, exposing LTCM’s overleveraged positions and leading to catastrophic losses. 54:49 - Why LTCM’s failure posed systemic risks to the global financial system, forcing the Fed to coordinate a rescue with major Wall Street banks. 01:08:17 - The dangers of excessive leverage, overconfidence in financial models, and the mistaken belief that markets always revert to historical norms. 01:15:09 - How to attend our new value investing event in Big Sky, Montana, bringing together passionate investors for deep discussions and meaningful connections. And so much more! Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences. BOOKS AND RESOURCES Join Clay and a select group of passionate value investors for a retreat in Big Sky, Montana. Learn more here . Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, Kyle, and the other community members. Lowenstein’s book: When Genius Failed . Mentioned book: Big Mistakes . Related Episode: Listen to TIP514: Permanent Supply Chain Disruptions that Will Destroy the Economy w/ Jim Rickards . Email Shawn at shawn@theinvestorspodcast.com to attend our free events in Omaha or visit this page . Follow Clay on X . Check out all the books mentioned and discussed in our podcast episodes here . Enjoy ad-free episodes when you subscribe to our Premium Feed . NEW TO THE SHOW? Get smarter about valuing businesses in just a few minutes each week through our newsletter, The Intrinsic Value Newsletter . Check out our We Study Billionaires Starter Packs . Follow our official social media accounts: X (Twitter) | LinkedIn | Instagram | Facebook | TikTok . Browse through all our episodes (complete with transcripts) here . Try our tool for picking stock winners and managing our portfolios: TIP Finance Tool . Enjoy exclusive perks from our favorite Apps and Services . Learn how to better start, manage, and grow your business with the best business podcasts . SPONSORS Support our free podcast by supporting our sponsors : SimpleMining Hardblock AnchorWatch Human Rights Foundation Unchained Vanta Shopify Onramp HELP US OUT! Help us reach new listeners by leaving us a rating and review on Spotify ! It takes less than 30 seconds, and really helps our show grow, which allows us to bring on even better guests for you all! Thank you – we really appreciate it! Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm