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It's crazy, but hedge fund managers still blow up their funds. "It's different this time," isn't the only thing that we read. It seems that risk management is still a concept that all of us could learn more about, including fund managers and traders like you and me too. I don't think it's possible to spend too much time learning about risk management. It's all I talk about when I speak publicly (and has been for a couple of years) because I believe that if you can conquer risk management, you can do amazing things as a trader.

Here's an article from BusinessWeek about the blow up of two Bear Stearns hedge funds.

If you take the time to read this article, here are two questions I invite you to think about:

1. What if Cioffi had staged his entry into the CDOs? What if he had not leveraged himself so badly, but rather staged entries as CDOs went down in price, and instead of risking 100% of his funds, he only risked 5% at most? Okay, I get it that he was paid to make spectacular returns. I'm just asking what would be different. Hint: one thing that would be different is that he would still be in business, he would not be getting sued, and he probably would not be heading to jail.

2. What if Cioffi had taken the big positions that he did (forget about #1 above) but, instead of staying in the positions, he had just gotten out?

3. What if Cioffi had admitted that no one is very good at predicting the market, and just bought way, way out of the money options on CDOs that would make money on HUGE breakouts in either direction? That would have cost money in the short term but not as much as what his eventual strategy cost him.