We Need To Talk About Leopold_逐字稿

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 hedge fund in a matter of weeks. Before this, his main qualifications for managing $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 $45 billion on Wall Street, the traditional route involves decades of staring at spread cheats, building risk systems and surviving a few market crashes. It takes a long time and instruct a Catti. A Silicon Valley has fortunately streamline this process to raise a large hedge funding. California. Your cv requires a big following on Twitter, a one year stint at a start up, a viral pdf and a four and a half hour podcast appearance. It is going to be a lot of, fortunately, things that happened just like AA pen and make it it AA Ole Odin bta, a csrc ID. He graduated from Columbia at the age of 22, was an early convert to effective ultrasonic and got his first real job at the philanthropy c arm of sunbonnet for crypto exchange, FT. X. He stayed there until the exchange collapsed in late 2022. Which is one way to learn about risk. It might surprise you to learn that I'm actually one of the few people who hopes that some bank man fried gets a partner, not because I think he's innocent. I don't think that at all if that I find him considerably funnier than all of these new guys. Even if the corporate place of bank man feeds flavor of effective ultra ism was that you should take any bed with a positive expected return, even if repeated place guarantee eventual ruin. That's a risk management philosophy that gets you onto the cover of forms right up until the morning. You have to borrow your lawyer suit for the appearance after of the exploded after the apple spent a bit under a year at the OpenAI before being fired, he says that he was let go of retaliation of raising security concerns. Even en AI called it an improper disclosure of sensitive information. He reportedly refused to sign a non disparagement agreement on the way out, walking away from about a million dollars in equity and declaring that freedom is priceless. I think that story is a big part of how we got such a big following on Twitter, because I've been through his tweets and it definitely wasn't the tweet. I would say though, that if I left million dollars on the table over a non disparagement class, I'd bang out a million dollars worth of disparagement that same afternoon. But that's just me. His actual trading experience before starting the fund appears to be nonetheless, he implied on a podcast that he short at the market in 2020, which would have been impressive because he would have been 17 years old at the time. And U. S. Broker just tend not not to allow miners to open the margin accounts you need to short stocks. Is that problem of them not being legally able to sign a contract? And and and then you bought, like, do you sort the market or something? Yeah, Yeah, Yeah. Did you did you do the right time? Yeah, okay. The cornerstone of the whole empire, however, was a 165 page essay he self published in June 2020. Or about how the Utah awareness. I read all 165 pages for this video, and I can tell you how badly I wanted to read an a summary instead, which, given the subject matter, might have been the intended way to consume it. You'll notice that everyone who mentioned this SA brings up the page count. Nobody ever tells you that Georgia wrote a 220 page po called the road to weaken and pear. I possibly tells you about how grip in the oppose SA is the comparison ID ever tells. How many of the people who cite this SAA scripture actually reached page 165? My suspicion is that situational awareness is the most referenced and least finished document in Silicon Valley since the terms and conditions. And look, I'm aware that I'm not in a strong position to complain about people not finishing long things. I know that right now in a number of households, one member of the family is put this video on and the others are sitting nearby wondering how much long it it is on a normal will resume to the people. I would only say this, your partner is watching a 30 minute plus video about a guy in a quarter ship who has a funny laugh and lost a lot of money. On some level, you already knew who they were. None of your rate of dissatisfaction is the videos fault. This is a compatibility issue, and you should take that up directly. Which partner on top of the 165 patio and AAAAA half hour podcast with darker Patel, which even a double speed is a lot of a apple t four in a half hours of AI chat and laughing for scale. Watson and Crick paper setting out the double helix structure of dna. Arguably the most important scientific paper of the last 100 years was two pages long. Now, having read the whole thing, I can report that it is less of a propac's and more of a very long summary. And what everyone in Santa Cisco had already been saying at dinner for about three years, he says, AG, I arrives in 2027 that the world will change faster than anyone believes because of recursive self improvement, that the free world survival is at stake. And there's a great deal about China and robots, that sort of thing there's nothing about. The essay that struck me as innovative or even interesting is just a describing the tech industry's group chat back to itself in 165 pages is not usually what we mean by seeing the future. It also contradicts itself in ways that are more entertaining than any of the predictions. In one passage, he describes himself as a firm believer in the American private sector who would almost never support government involvement in industry. A few pages later, he calls for the U. S. Government involvement in a labs and run them as a war time project, which would be one of the largest peacetime national invalidation imaginable, proposed by a man who has just told you he opposed his government involvement in business. He believes both of these things, apparently, at the same time, it opens, by the way, with the line, you can see the future first in Sanford, Cisco, which struck me as a slightly alarming thing to promise because it implies that in the near future, most of us will be homeless and on drugs. The esa, when viral among tech executives when it was released, and Tim era crowd appalled the the strada as of AI, which is more fitting than fairs probably intended, given the Nostradamus was a man whose famous predictions only look like predictions once you already know what happened. Along with the manifesto to tech visionary costume, Elizabeth homes had her black turtle neck. Steve Jobs had his black turtle neck. Leopold went with a Brown turtle neck and then wear a bh quarter. Zip weather over it is also dull. When you're in California and you want to costume to race billions of dollars, don't you realize that Hollywood is write down the and you are a professional costume designer up your game? Anyway, it all worked out for layer pod. He launched the fund would have reported $225000000 from tech insiders, and after a year of high returns and a lot of Barack g money, he was trading $45 billion book, all of this out of the small office with eight employees, Kenya and and the England, and on the other hand, have wasted their whole careers building trading infrastructure risk teams. They just don't seem to know how it's done. The way I describe it is that they lack a uaw awareness. There are real cultural delights in America. Wondered de, quite a few, and lea polled who we ve by now worked out was lacking in situational awareness, was about to collide with a full of them. I was listening to an Israeli podcast a few days ago where he was viewed a sociologist thread with them about why most Americans don't want the enormous AI data center build out anywhere near them and climate. A really interesting point that struck me. He pointed out that people in silent energy have spent their entire careers watching impossible looking problems cave as soon as enough smart engineers throw code at them. To that culture, every obstacle is temporary, and every wall is just a bug that hasn't been patched yet. Washington, he explained, runs on the opposite valley in Washington. That ought to be simple to fix, become permanently impossible because everyone involved wants a different outcome and nobody will budge. And the one thing Silicon Valley desperately wants to build right now, giga, a power plants and vast data centers out in rural counties, turns out to be a Washington about a coding problem. Building data centres is all about permits, land rights, utility boards and angry local residents. You can resolve a room for the people who want opposite things by writing better code. Leopold 165, page SA was, to a large extent, about this infrastructure build out. And Silicon Valley loved it. Because in California you write a science fiction manifesto about how the world is going to change. Someone will hand you a $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