Handbook of Hedge Funds

1

Jones’ thesis, Life, liberty and property, is still a reference text in sociology.

2

See A.W. Jones (1949).

3

In today’s terms, one would simply say that Jones was trying to isolate and double his alpha (one on the short side, one on the long side) while keeping a small beta (low net sensitivity to the market). However, in the late 1940s, alpha and beta were not yet invented.

4

See C.J. Loomis (1966).

5

By the fall of 1969, Warren Buffett had liquidated his partnership and returned the money to investors. With the exception of Berkshire, he remained out of stocks until 1974, when he loaded up again on undervalued companies.

6

An interesting sidelight is that, in 1982, at age 82, Jones amended his partnership agreement, formally becoming a fund of funds investing in a diversified selection of external managers.

7

See J. Rohrer (1986).

8

At the time, LTCM’s own estimate was that its 17 largest counterparties, in closing out their positions with LTCM, would have incurred losses in the aggregate of between $3 billion and $5 billion, with some individual firms losing as much as $500 million – see Roth et al. (2001). Note that although the same argument was used a few years later and despite the lobbying efforts of several banks, the Fed did not intervene to help Enron when it fell into financial distress. And despite its size, Enron’s bankruptcy did not destabilize either energy derivatives markets or financial markets generally. But this is another story . . .

9

The efficient ...