Long-Term Capital Management

Two Nobel laureates, a roster of the most sophisticated quant traders alive, and a track record that printed money for years. Long-Term Capital Management, founded in 1994 by John Meriwether, built models that spotted tiny pricing gaps between related instruments and bet they would converge, then layered on leverage that at times exceeded $25 borrowed for every dollar of equity. The models assumed correlations would stay roughly stable, even under stress. In the summer of 1998, Russia defaulted, investors fled to safety all at once, and the relationships the firm had counted on broke down simultaneously.

For founders and operators, this is a study in how confidence in a framework becomes most dangerous exactly when everyone shares it. It sharpens the decision of how much to trust your own operating model, and how to stress-test the assumptions that would only fail on a genuinely bad but entirely plausible day.