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The question that keeps flying around the financial media is some form of "How does this keep happening?" In an era of complex risk-management structures and systems -- and in the aftermath of Barings Bank, Long-Term Capital Management, Amaranth Advisors LLC and a dozen other financial implosions -- it surprises us that the decisions and actions of a few individuals can still jeopardize billions of dollars of investor wealth. But as sophisticated as risk analysis, control and compliance have become in the modern financial institution, all of these structures ultimately depend on the one thing that never seems to change -- human nature.

Why Smart People Get Dumb With Money and Risk

What You Can Learn from Rogue Traders

Rogues' Gallery of Risk and Ruin

A case could be made that the lone gunmen in the "rogues' gallery" are not so far removed from -- or beneath -- the "Mensa Club" of hedge fund masters who have caused as much, if not more, damage.

LTCM was well profiled in Roger Lowenstein's When Genius Failed as having the smartest minds that extreme amounts of leverage could buy, while Amaranth's natural gas trading superstar Brian Hunter was not a solo risk taker in his multi strategy, model-based firm's collapse.

LTCM dropped nearly $4 billion in its leveraged bet on global interest rate spreads, and Amaranth blew the biggest hole by a trading firm (before Kerviel) with almost $7 billion in losses.

Why You Need a Trading System, Part 1

Why You Need a Trading System: Scientific Proof

Kevin Cook is a Senior Stock Strategist withZacks.com

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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