Sometimes, You Blow Up

There's more to worry about than the (latest) trials and tribulations of Tiger Cub Bill Hwang, although you wouldn't know it to read the headlines plastered across financial media outlets this week. As one reader pointed out, Hwang actually doesn't come across as having been all that reckless on the leverage front, or at least not if estimates of Archegos's capital are accurate and you define "reckless" in the context of infamous cases of leverage gone awry. "Archegos looks positively conserva

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9 thoughts on “Sometimes, You Blow Up

  1. Love the humor on this piece, especially welcomed on a Monday. I have as of now little concern that this blow out episode will turn into a systemic shock, but I am nonetheless curious (and cautious) to see the impact the dealer selling will have in an illiquid market while both he Russell and NDX sit in negative gamma vs the spot, might be enough to trigger a mini panic going into quarter end with many afraid of rebalancing flows. I suspect this is just another Manic Monday in Wall Street and although I’m prone to go fishing for opportunities during market scares I will sit this one out.

  2. Thanks H, a good piece, a good case study and reminder that equities are both investments and poker chips, independent of your particular reasons for buying in. It’s a good idea for the investors to remember that, especially for those of us small enough to be reliant on the market to help us make it through our later years. The gamblers already get that, and probably count on us investors contributing tailwinds to drive the equities higher for them.

  3. Your last two paragraphs are a great summary of the current landscape.
    I do not like being in a situation akin to walking across a mine field- but against the backdrop of the Fed’s printing presses, I do not see this changing.

  4. …And is why mutual funds, with their underperformance but built-in protections against blowups, should be in every 50+ person’s portfolio.

  5. An individual investor should avoid high leverage, and watch position sizes in a portfolio if they are individual stocks particularly. The biggest risk so far to this blow up is sentiment and financial conditions. It looks like some investment banks get caught out, but not all of them. My biggest concern is whether this is a canary in the coal mine regarding leverage or is just a one off.

  6. “How could it be that someone I’ve never heard of is allowed to effectively be a top owner of the companies whose shares I own without disclosing his stake?” That right there is the real issue casino or not! How can one do proper DD on a company? The ability to synthetically hold a top ownership spot without reporting it needs to end!

  7. There is no evidence that any particular set of strategies works all the time. People like Bruce Kovner are highly respected because they want to know. How will I know i am wrong? When will I know I’m wrong? What is the right position size? What time horizons historically work best for me? How do I stay sufficiently informed? Do I religiously follow a daily checklist? If I have clients, do I match my postions to what I said I would do? If my thinking has changed do I let my clients know?

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