啊哎呀，common A, I stop. It’s not funny. Last week, a 24 year old named Leopold Asian Brenner lost about two thirds of a 45 billion were a virus, A, A period working for sound bank man fried and being fired from opening. And a lot of this stuff you’d normally leave off your C. V. The fund was called Silao awareness. And the wall Street Journal reports that this was a crash he never saw coming, which does raise a small question about the name of the firm. He raised the money mostly from Silicon Valley, take executives, the strike founders, not freed. And Daniel Gross then borrowed a great deal more from willing prime brokers to bed heavily and in one direction on the rapid advancement of artificial intelligence. Now borrowing billions to make a concentrated bet on a single volatile sector is generally considered high risk strategy when the market recently reconsidered whether the artificial intelligence but be immediately profitable, his lenders, a wave of margin call, and the fund lost about 67% of its value in a single month, which is generally considered a poor Mont. Losing this much money is stressful under any circumstances, but for Leopold, the timing was a little inconvenient because the margin calls arrived during his wedding weekend. It’s like come on now to bit worse than rain. The wedding has been described as a multiday celebration in car male, California, with the ceremony at a Tuscan style villa and to send off as a spa in the forest, there was also a preweathering quum with panels and break out sessions. I’ve actually stop attending weddings myself because if there’s winter I can’t stand. It’s a colloquium. The couple’s only stated request with no gift switch. In hindsight, they may have wanted to revisit. You have to imagine some guests arrived reading for our break out session on the future of humanity and then cheered up considerably upon hearing, that is a instead, get a front row seat to catastrophic financial melt, and there is a 24 of world with no trading experience, borough billions to blow up his own fund. And why was a Griffin so willing to rescue him? But first, if the stress of a billion dollar margin called during a wedding break out sessions is causing you to feel on, well, you might want to consider to sponsor search doc. There’s a specific kind of health care admin that shows up when you move somewhere new or switch jobs and end up with different insurance. The doctor you’d finally got uncomfortable with is suddenly out of network or a five hour drive away and you’re starting the whole search over from nothing. 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Thank you so much to oc doc for sponsoring our video. If you want to manage 225000000 from tech insiders, and after a year of high returns and a lot of Barack g money, he was trading 25 million a check over coffee tech investors who understood software were perfectly happy to back at 24 year old whose portfolio was when you closely looked at a Wall Street bets account, explained using longer words, it’s the same crudity that led Elizabeth homes raise hundreds of millions for Trena s understanding th of a board of distinguish dely ly statement none of who knew anything about blood work. But California money has a ceiling, the really large pools of institution or cash, the pension funds, the big allocators, the people who write nine figure checks without checking with the group chat first, mostly sit on the east coast. So with billions already under management and an appetite for a great deal, nor Leopold packed up his quarters and took the fund raising tour to New York. And New York is the third culture, the one Leopold hadn’t gotten involved with yet. Silicon Valley asks whether a thing can be built. Washington asks whose permission you need. The street asking AA lal question, what happens when the wrong in New York? Investors are less impacted in your Twitter following and podcast appearances and your feelings about the future. They want to know whether you have a sensible portfolio and the faintest understanding of risk. According to rob Copeland reporting in the New York Times, downtown Manhattan looked at dly application, saw a lightweight gh, a one hit wonder. Blackstone, the largest investor, and hedging unt on the plane, took the in the past, Copland reports, the one wealthy New York investor welcomed, appalled into his office and gave him a proper grilling on risk. He asked a completely standard question to sort. Anyone allocating billions is obliged to ask, what was the plan if the AI revolution didn’t arrive on schedule, if adoption slowed, if the thesis was early or simply wrong? The iPod apparently had a detailed answer. He told the investors that he truly believed it would all work out. Now that is a lovely way to go through life is not, however, a risk management framework, if inductive investment committee are rarely won over by a Young man asking for billions of dollars on the strength of a def and a strong feeling, the New York money passed, deciding to hold on to its cash, which in hindside turned out to be an excellent piece of risk management to understand how situation awareness lost so much money so fast. We need to look at how hitch funds are supposed to work Madelia Bloomberg layout really well, the basic idea of a long short equity hedge funds, and the strip out the market. And sk, if you find some bad stocks and buy them and the whole market then crashes, your ten good stocks will most likely fall with everything else, they might follow a little, little bit less, but you still lose money. That’s why you hedge, you find ten bad stocks and you short them. And if the market crashes, your good stocks fall, but you, your bad stocks fall. And if you are the short and you make money there, which councils have the losses on your lungs, you’ve insulated yourself against the market as a whole and left yourself exposed to the thing you’re supposedly good at, telling the winners from the losers. That is a perfectly sound approach. If you’re longs and shorts are chosen through good research, but it’s not what Leopold did. Leopold had one big idea that you’d helpfully written down in a 165 pages document. The idea was that A, I was going to change everything, but bought the companies he thought would win the AI revolution, the South Korean chipmaker S. K. Hinny, the SanDisk blue energy. And he shorted the company he taught would lose it, mostly software firms like a dobe. The trouble is that this doesn’t hit your portfolio at all. As a bleeve imported, a book like this hasn’t reduced its risk. It rotated. You’re insulated against the market, but you’ve intensified your exposure to your one big idea. It’s a bit like betting $100 that one football team will win a match and then it’s a hedge betting another hundred dollars that there are opponents lose. It feels like to batch, but the same bad twice both sides of the oppose portfolio depended on the identical team. The moment the market started to worry that the AI revolution might take a little longer than expected, his long bets on the chip makers would fall and his short bets on the software companies would rise. So he d lose money on boat legs of of his head. At precisely the same moment he didn’t have a hedged book. He had won enormous unhedged bed on a single idea dressed up as a hedge fund. Now that’s fine if you’re trading your own money on Robin Hood, but Leopold was running a hedge fund, and he was formed leverage and took his, borrowed a boring, borrowed a further the Toronto emt from the main Rob and Goldman sex and J. P. Morgan, and poured the whole lot into the same tedglobal. Warren Buffet once put it, if you’re smart, you don’t need leverage and if you’re dumb, you shouldn’t be using it. Now it’s worth passing on the leverage chair because normally there’s a logic to it, funds of news, leverage and a link. Their trading is boring and barely moves. You borrows to turn a tiny, stable return into a decent return. Leopold was trading the most volatile stocks on the planet. And then leave it up on top of that to get even more exposure to them. That the exact mistake we went through a few weeks ago in the video on Korean retail traders, and I’d suggested if your investment strategy is functionally the same as a retail trader leverage to the eye and as the more careers, it may be time for a rethink. And Paul wasn’t alone with this brilliant idea, as Paul Davies pointed out in Bloomberg, the entire market and still is leverage long on AI. In South Korea, retail investors known locally as arms have barreled heavily on marching to buy the same sorts of names like Samsung and SK. Highest. And when the tech rally wot, in July, the ancient Korea got their margin calls and had to sell as k hyne. S. Dropped out at the same time, software stocks that Leopold was short rallied. His portfolio was now taking on water from both sides once, and his prime brokers began demanding more collateral because of banks enthusiasm for your a itis ends precisely at the point where it might have to hold the bag for it. With the fund coming apart, the oppose team reportedly started phoning rival hedge funds to offload positions and race cash. According to the New York Times, the delta tis described what they can be selling as a porfolio of heads, that they were simply in the stress, and that a creative way to describe a giant runway bet on Adobe. The rival funds open the file. And so immediately that these warrant hedgers, they were just large directional bets blowing up in real time. And once arrival knows that you have losing positions and your desperate to get out of the dynamic turns nasty, they can smell a blood in the water if they know you’ll shortly be dumping a stock to repay your loans, they shorted ahead of you and make money from a move that they can see coming in my laugh, with prime brokers like Goldman sex and J. P. Morgan issuing margin calls and rival funds actively bedding against his book