Literature To Lead By

Lack of money and management talent are two main reasons start-ups fail. But what if you start with $1.25 billion and your staff includes two future Nobel Prize-winning economists? Could you be bankrupt in five years?

It happened to Long-Term Capital, a Connecticut investment fund started by former bond trader John Meriwether. Author Roger Lowenstein tells the fascinating tale in his latest book.

Meriwether's geniuses got Long-Term Capital off to a great start, with returns of 40 percent per year for several years. But they needed lots of leverage to do it.

Everything came to earth in 1998, when the financial winds turned against Long-Term and its 100-to-1 leverage turned golden profits into leaden losses. In September of that year, the Federal Reserve arranged a $3.6 billion bail-out of the insolvent firm.

This compelling tale offers entrepreneurs two lessons: Leverage can kill, and you're never too smart to fail.

When Genius Failed is available at Amazon.com.

This article was originally published in the November 2000 print edition of Entrepreneur with the headline: Literature To Lead By.