As Long-Term’s strategies grew more diverse, the fund felt comfortable taking bigger positions. It focused on its portfolio as a whole, and thus it was willing to pile bigger trades onto each of its “risk” dollars back in the vault. The theory, of course, was that the likelihood of many leveraged trades collapsing simultaneously was slim, just as an insurer does not expect that all of its clients will file claims simultaneously. Indeed, Long-Term thought of itself in exactly those terms: as an insurer of financial risk.
