<p>Uh, being massively over leveraged forced LTCM to liquidate their positions…doesn’t matter if it was a good position trade. Their risk management didn’t take fat tails into account…</p>
<p>Modern Portfolio Theory is garbage. I wouldn’t call them geniuses.</p>
<p>The whole point is that the whole super star thing is mythology. Over the long haul, managers cannot offer superior risk adjusted returns to the market. Just look at Bill Miller. Managers that appear to be generating superior risk adjusted returns are either Frauds, a la Madoff, or they are hiding serious risks that are exposed during a crisis like this. The couple of mega funds that keep beating the indices have preferential treatment from their prime brokers and have enough clout to manipulate markets.</p>