Risk-Taking

The theme of risk-taking runs throughout the book. Risk-taking is what participating in financial markets is all about. Investors are willing to risk their own money in the hopes of making a profit. Money making for taking risks is what financial markets are all about.

All of the characters in the book are risk-takers. They risked their own money to become partners at Long-Term in the hopes of making money. And money is what they made until the end, when the spreads kept widening instead of converging. They were all willing to bet on new kinds of swaps in bonds and equities. They used mathematical and computer models to predict prices and based their positions on the models.

The kind of arbitrage trading that hedge funds engage in was considered to be low risk trading, even if the instruments involved were risky instruments. The arbitrage trading made them...