To William F. Sharpe, a Nobel Prize–winning economist and an adviser to one of Long-Term’s investors, the returns seemed surreally smooth. “We distinctly asked, ‘What’s the risk?’ ” Sharpe recalled. “Myron [Scholes] said, ‘Well, our goal is to get the risk level [the volatility] of the S&P 500.’ He said, ‘We’re having trouble getting it that big.’
