YouSaid · the spoken record

Victor Haghani

lines on the record: 73
first: 2025-11-12
most recent: 2025-11-12
sittings or episodes: 1
sources: podcast

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“Sure. Well, the first thing is that there's not much that's modern about it in a way. Although, you know, I mean, modern, you know, sometimes modern is, you know, is going back to some.”
2025-11-12 · Forward Guidance · LTCM Co-Founder on Risk, Leverage & Simplicity | Victor Haghani · IDENTIFIED FROM THE TRANSCRIPT
“Counterproductive in terms of good allocation of resources, I think it's coming from extrapolators and return chasers more than it's coming from indexing. I think that indexing is relatively benign. I think it's people chasing past returns that leads to some really Poor functioning of the markets.”
2025-11-12 · Forward Guidance · LTCM Co-Founder on Risk, Leverage & Simplicity | Victor Haghani · IDENTIFIED FROM THE TRANSCRIPT
“It also leads to the greatest degree of dysfunction in our markets compared to any other things that are going on. I think that indexing, like the people, the index fund haters out there, like there's a bunch of people, these index funds are terrible. They're ruining the markets, et cetera. I think to the extent that there are things in the markets that seem”
2025-11-12 · Forward Guidance · LTCM Co-Founder on Risk, Leverage & Simplicity | Victor Haghani · IDENTIFIED FROM THE TRANSCRIPT
“That a lot of people do, which is really big impacts on the market, is that there's a lot of people that come up with their expectations for returns of different assets based on recent history and this kind of extrapolative return estimation is a very powerful impact on markets. I think that it leads for people that can understand what other people are doing, it can lead to a lot of alpha and it leads to very poor returns for people that are basing their future returns on past returns. I think that return chasing is probably the return chasing is probably the thing that hurts investors more than anything, more than underestimating fat tails. And I think that”
2025-11-12 · Forward Guidance · LTCM Co-Founder on Risk, Leverage & Simplicity | Victor Haghani · IDENTIFIED FROM THE TRANSCRIPT
“You know, I think that it's hard to generalize about how people approach those things. I mean, I think that there's very much a realization of fat tails. I mean, for instance, prior to 1987, prior to October of 1987, options markets really didn't price in a smile or a skew. They didn't price in neither fat tails nor did they price in higher volatility from when equity markets go down. And ever since October of 1987, that's been a feature of options markets. It's just really hard to kind of say how people are thinking about fat tails and skew, I do think that rather than those issues, Rather than people missing those issues, I think that what people also”
2025-11-12 · Forward Guidance · LTCM Co-Founder on Risk, Leverage & Simplicity | Victor Haghani · IDENTIFIED FROM THE TRANSCRIPT
“And, you know, the off balance sheet is kind of hard. You know, I don't think that the off balance sheet, you know, I don't think that was really, you know, that different in such a big issue, you know, that I think that gets exaggerated just because there was a lot of offsetting stuff that we had. That's the way the markets were back then. You would do a swap with somebody and then you would say you would even with the same counterparty you would just do a new swap to take it off instead of doing a payment to take the swap off. It was just easier. You did a swap three months ago, a 10 year swap three months ago. You would do a new 10-year swap today in the other direction. And you say I've kind of closed out that position and you would keep track of it. And that was much more the convention at the time. So there was a lot of off-balance sheet that didn't represent any.”
2025-11-12 · Forward Guidance · LTCM Co-Founder on Risk, Leverage & Simplicity | Victor Haghani · IDENTIFIED FROM THE TRANSCRIPT
“Instead of being 10 times higher, by that time we had taken off, the collapse happened very quickly. I don't know, maybe we unwound half of our balance sheet or something or a third of our balance sheet. So our balance sheet was eight times higher than it was at the beginning of the year just before the consortium took over the positions, bought the positions because we had lost 90% of our capital. That was not the target leverage, you know, or whatever, or that was not our leverage constraint. So we were, so anyway, I think, again, I don't know that much about what the pod shop, I don't know that much about what goes on today.”
2025-11-12 · Forward Guidance · LTCM Co-Founder on Risk, Leverage & Simplicity | Victor Haghani · IDENTIFIED FROM THE TRANSCRIPT
“And then, of course, there was a lot of euro dollar futures, you know, and there were, you know, there were a lot of swaps. I mean, we had swaps that we put on. We did swaps with other people to offset them. We tried to, you know, whatever. But there's a lot of off balance sheet stuff today too. But the balance sheet stuff was not like our balance sheet was not higher than the balance sheet than the balance sheet leverage of LTCM was not higher than the balance sheet leverage of any of the investment banks at the time. So, you know, when people talk about like when some of the writers who wrote right after LTCM were writing their stuff, they said, oh, the leverage was so high. Well, yeah, after we lost 90% of our capital, our leverage was kind of 10 times higher minus the stuff that we had taken off. So, you know, we got to.”
2025-11-12 · Forward Guidance · LTCM Co-Founder on Risk, Leverage & Simplicity | Victor Haghani · IDENTIFIED FROM THE TRANSCRIPT
“Don't hold me to that. I'm going to be quoted on that, but don't hold me to that. But it was something like that. It was like low teens. It was probably like 14 or something would be my guess just from recollection. We weren't running a lot of balance sheet risk.”
2025-11-12 · Forward Guidance · LTCM Co-Founder on Risk, Leverage & Simplicity | Victor Haghani · IDENTIFIED FROM THE TRANSCRIPT
“So, the balance sheet leverage, right, that LTCM had at the beginning of 1998, I think it was low teens. I'd have to go back and remember, don't.”
2025-11-12 · Forward Guidance · LTCM Co-Founder on Risk, Leverage & Simplicity | Victor Haghani · IDENTIFIED FROM THE TRANSCRIPT
“For investors after expenses, after frictions and all of that. So I think that it's, you know, I guess it's surprising to see that those things from back then. Now there's differences, that there's differences in risk management. I think that in general successful alternative managers have generally followed a policy of having tight stop losses. So they feel that they want to be in things that are pretty liquid, that they can take them off really quickly. And so I think there are adaptations. There are positive adaptations, et cetera, from then to now. But overall, at some high level view, it's like, wow, there's more capital than ever being deployed. In these things. And I think the leverage is similar, that the leverage that LTCM had at the beginning of 1998.”
2025-11-12 · Forward Guidance · LTCM Co-Founder on Risk, Leverage & Simplicity | Victor Haghani · IDENTIFIED FROM THE TRANSCRIPT
“And fast forward 27 years later to 2025, well, the capital that's being deployed in these strategies is two orders of magnitude bigger. You know, it's 100 times bigger, it's between 10 and 100 times bigger than back then. The economies are bigger. Stock markets are bigger. The capital markets are bigger. size of the funds being deployed in these strategies is still bigger relative to that. And, you know, I think that the amount of leverage in many of these different trades is pretty similar, you know, from what I can tell, you know, that, you know, if you look at basis trades, for instance, that somebody running a basis trade has to run it with a decent amount of leverage to get a good return on capital.”
2025-11-12 · Forward Guidance · LTCM Co-Founder on Risk, Leverage & Simplicity | Victor Haghani · IDENTIFIED FROM THE TRANSCRIPT
“You know, anybody that was around in 1999 or so would have been surprised that one of the things that people at the time were saying was like, oh, LTCM was too big. We had about $5 billion of capital at the beginning or just over close to $5 billion of capital in the beginning of 1998. And people would have said, you know, that was too much capital to be doing relative value trades or people would say, oh, you know, their position sizes, the leverage that they ran was too large relative to their capital base. So these ideas of too much capital and too much leverage, I think, were like the two main lessons that people were thinking about in 1999.”
2025-11-12 · Forward Guidance · LTCM Co-Founder on Risk, Leverage & Simplicity | Victor Haghani · IDENTIFIED FROM THE TRANSCRIPT
“I think that's how I got to where I got eventually to Elm Wealth and the investment approach that we follow and that we help our clients with”
2025-11-12 · Forward Guidance · LTCM Co-Founder on Risk, Leverage & Simplicity | Victor Haghani · IDENTIFIED FROM THE TRANSCRIPT
“As part of the toolkit. And really, I think that's the biggest lesson that I take away from the whole thing. And I think also it's the most or the least discussed lesson that came out of LTCM was this idea of trying to make good risk decisions. And the book that I co-wrote with my partner, James White, is really devoted to this question of how much. It's not devoted to what we should invest in. You decide what you want to invest in. 99.9% of what's out there is talking about what to invest in, what's good. And that's what everybody's thinking about is what should I invest in and what we tried to make the book about was once you've decided what you like and what you don't like, how do you decide how big to be in those investments with your financial and human capital”
2025-11-12 · Forward Guidance · LTCM Co-Founder on Risk, Leverage & Simplicity | Victor Haghani · IDENTIFIED FROM THE TRANSCRIPT
“You know, there is a really simple risk framework that economists and game theorists and philosophers and all of this had come up with for a long time ago, from a long time ago, for thinking about how do you approach these types of decisions, financial decision-making under uncertainty. And the paradigm for that is maximize your expected utility, maximize your, you know, we could translate that into maximize your risk adjusted wealth, maximize your risk adjusted return. And if I had thought about that and if I had done that, I mean, and I was aware of it, you know, like I had touched on it in university, maybe it came up, you know, a little bit over my career in Wall Street, but hardly at all. And it certainly was never something that was ingrained in me or taught to me as an important tool.”
2025-11-12 · Forward Guidance · LTCM Co-Founder on Risk, Leverage & Simplicity | Victor Haghani · IDENTIFIED FROM THE TRANSCRIPT
“Looking back on it, you know, I think that that was a very woefully partial analysis that I don't think that the answer is take all of, you know, if you have a really good risk investment, put all of your money into it except that which you need for subsistence, where what economists mean by subsistence is like that amount of money that if you go below it, you kind of feel like you're broke, you know, which is that was how I went about it, you know, that I had this, my subsistence number was like, what would I feel wasn't that I would still be like, okay, this is a good lifestyle, but everything else has gone. And, you know, it was only after LTCM that I really and not right after, you know, it was really some years after that I was reflecting and learning and reading and thinking that I realized that”
2025-11-12 · Forward Guidance · LTCM Co-Founder on Risk, Leverage & Simplicity | Victor Haghani · IDENTIFIED FROM THE TRANSCRIPT
“To if everything goes wrong, that I will still have enough savings to not have to change my lifestyle, you know, my family's lifestyle that, you know, I'm not going to put so much into this that if it all goes bad, that I'm broke, but I'm going to put so much into it that if I lose everything that my lifestyle could kind of stay the same. And remember, you know, that I wasn't used to having a lot of money, so I wasn't living a super high lifestyle at the time. I was 32, 33, whatever, getting going, had young kids. And as a matter of fact, I didn't even have children at the beginning of LTCM. And my first one came in 94, and then 96 and 99. And so...”
2025-11-12 · Forward Guidance · LTCM Co-Founder on Risk, Leverage & Simplicity | Victor Haghani · IDENTIFIED FROM THE TRANSCRIPT
“Invest in our hedge fund that I was co managing with, I don't know, a dozen other partners. And the answer is that at that time, you know, and I was, let's see, when we started the hedge fund in 94, I was 32 years old. So at that time, you know, I have to say that I didn't really have a useful or good or satisfying framework for making that decision. So I really just thought about, well, this is the best thing that I'll ever get to invest in. And so I should really want to have about as much of it as possible. You know, that was about the extent of my reasoning. And I was like, well, I want to, or I think that part of that reasoning was like, you know, I'd like to invest as much as I can in this subject.”
2025-11-12 · Forward Guidance · LTCM Co-Founder on Risk, Leverage & Simplicity | Victor Haghani · IDENTIFIED FROM THE TRANSCRIPT
“Solomon Brothers and even from before the time that I was on the Solomon Brothers trading desk, I saw how successful the trading had been prior to that. So I saw this relatively long history of returns. I understood what the returns came from in terms of market segmentations and frictions and inefficiencies. And I felt really comfortable that this was a good expected return business. I also realized, though, that there were periods where you could lose a lot of money. And I saw that from our Solomon experience, we had some short periods of time where we lost a lot of money, many multiples of what you would get out from the daily volatility of the positions that we had. So really the question is, how did I decide, for instance, how did I make a decision about how much of my family's savings I would”
2025-11-12 · Forward Guidance · LTCM Co-Founder on Risk, Leverage & Simplicity | Victor Haghani · IDENTIFIED FROM THE TRANSCRIPT
“Dollars or so of capital back to the consortium of banks that took over the positions. There have been a number of books, a really good Harvard case study written on LTCM. And there are many, many valuable lessons that came out of that experience. I would say that the one lesson that has been discussed a little bit, but not very much, and which I think is really the strongest and most valuable of the lessons of all really revolves around the question of skin in the game, you know, like, and I can speak personally, you know, about how I was thinking about how much of my savings and my family's savings to invest in our hedge fund, you know, the hedge fund was doing great. I had been familiar with our investment strategies from”
2025-11-12 · Forward Guidance · LTCM Co-Founder on Risk, Leverage & Simplicity | Victor Haghani · IDENTIFIED FROM THE TRANSCRIPT
“So, yeah, as you say, I started at Solomon Brothers in research out of university. And then I moved out to, I was invited to move out to the trading floor from research. And so I was at Solomon from 84 to 93, 1984 to 1993. And then most of my group went and founded long-term capital management with John Merriweather, who was the head of our group. And I went to London and ran the London office along with my partner Hans Hofschmidt until 1998 when the hedge fund lost 90% of its capital and basically sold the whole portfolio to 13 of the biggest counterparties that LTCM had. And then stayed around for a little more than a year to help liquidate that portfolio and return the capital back the $4 billion.”
2025-11-12 · Forward Guidance · LTCM Co-Founder on Risk, Leverage & Simplicity | Victor Haghani · IDENTIFIED FROM THE TRANSCRIPT
“I decided at a point, maybe it was around 2006 or 7, that I wanted primarily to have my family's savings invested in index funds. The only way that I was going to get alpha was either through leverage and or taking concentrated risk. So that was like really the aha moment for me. I don't want to pay high fees. I don't want to take a lot of idiosyncratic risk. And I want the things to be tax efficient. And when I go through all of those screens, I wind up with broad equity market ETFs. I wind up with some real estate. And that's about it.”
2025-11-12 · Forward Guidance · LTCM Co-Founder on Risk, Leverage & Simplicity | Victor Haghani · IDENTIFIED FROM THE TRANSCRIPT