BIO: Vineer Bhansali is the CIO of LongTail Alpha. The firm was founded in 2015 to help provide risk mitigation strategies.
STORY: In early 1993, most investors held a significant long position on the Eurodollar futures contract, betting that interest rates would go down. Vineer decided to follow the herd. The Fed increased rates, and Vineer kept buying until he lost his investment.
LEARNING: Don’t follow the herd blindly. Success in the markets is all about timing. Have an investment framework within which you operate.
“You’ve got to be very humble and disciplined with your loss thresholds and risk limits.”
Vineer Bhansali
Vineer Bhansali is the CIO of LongTail Alpha. The firm was founded in 2015 to help provide risk mitigation strategies. Vineer was a partner at PIMCO and started their first hedge fund and also started and managed their quantitative investment portfolio teams from 2000-2015.
He has a Ph.D. in Theoretical Physics from Harvard University and has written six books on finance. He has also run over 60 ultramarathons. He is also an Airline Transport Pilot rated to fly jets and helicopters and has over 4,500 hours of flight time.
Vineer started at Citibank in late 1992, just after the 1987 big stock market crash. He was participating in a bull market created by an extremely easy central bank policy. At that time, probably the easiest trade to do was just to buy anything like fixed income or stocks, and it would go up.
Veneer was at some dinner in late 1993, and everybody in that room held a pretty significant long position on the Eurodollar futures contract, betting that interest rates would go down. That should have been a signal that something was amiss. But as a young trader, seeing everything was going up, Veneer also got long Eurodollar futures.
Then as a surprise, the Fed got a little worried in February of 1994 and raised interest rates by 25 basis points. The Treasury market started to fall, and Vineer thought it was a good time to buy, so he bought some bond futures contracts. The interest was raised again in March, and the market sank a little bit more. He kept buying more, hoping the rates would soon go down again. Eventually, his trades were blown over, and he lost his investment.
There’s a lot of stuff that’s on Vineer’s website that can help with risk management. He also recommends reading The Feeling of Risk: New Perspectives on Risk Perception. Veneer...