Let a kid manage your money!

Investment Analysis Clubs Macro Economic Trends and Risks
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Years ago, I met a handsome 20-something cousin and his gorgeous 20-something plus-one at a family reunion. They were both bond traders, well-dressed and exuding confidence.

In a few minutes’ conversation, I discovered that they knew ZERO about the history of bond yields or economics.

What happens when kids with no knowledge of financial history gain power over massive investment funds?

https://www.wsj.com/finance/leopold-aschenbrenner-situational-awareness-ai-fund-597633d3?mod=wknd_pos1

His Wedding Guests Were Arriving—Just as His $45 Billion Fund Was Falling Apart

Leopold Aschenbrenner was hailed as the ‘Nostradamus of AI.’ But his Situational Awareness hedge fund took on too much leverage, leading to a crash he never saw coming.

By Berber Jin, Peter Rudegeair,
Gregory Zuckerman and Anissa Gardizy, The Wall Street Journal, July 31, 2026

The 24-year-old investor had amassed a fortune by promising he could see into the future, building a $45 billion investing powerhouse that primarily bought stocks in the AI trade. For months, the holdings of his hedge fund Situational Awareness shot up in value, as did Aschenbrenner’s standing in the upper echelons of San Francisco’s elite.

But by the time guests began to arrive, his fund was unraveling—and Wall Street was closing in.

Aschenbrenner borrowed too much money to make his AI bets, leaving him at risk as they faltered. With the value of his portfolio tumbling, he scrambled to raise cash to satisfy his lenders, appealing to some of the largest hedge funds and selling billions of dollars in holdings in a fire sale to Ken Griffin’s Citadel…

The fund had gained about 270% after fees this year through May. At that point, it was up more than 1,000% after fees since inception. It had ballooned to well over $20 billion under management, reaching the size of other well-known hedge funds that took decades to build…

His fund was down 67% on the month, he wrote. “These dynamics are essentially similar to a bank run: vulnerability begetting more vulnerability,” he wrote. …[end quote]

I’m not surprised that a kid who wasn’t even born in the U.S. doesn’t know anything about the history of bubbles. But I am surprised that grown-ups who should have taken the time to study financial history would let a kid manage their money in a clear bubble example of using leverage to magnify risk.

Wendy

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Art of persuasion.

Appeal to success
Experts appeal
Appeal to the masses - FOMO
and on
and on
…

For the manager, this bubble doesn’t apply to me (I’m too smart). I understand this trend better than anyone else and have conviction (I’m smarter than everyone else).

It’s not that he DIDN’T KNOW. It’s that he didn’t care about the risks because “they don’t apply”… to him.

A person can be wrong for a long time without consequences. People can join a cult of personality through success, levitation or … true religion.

I think it’s disingenuous to say “doesn’t know anything about” or “let an (apparent expert) handle my money”. These are basic tenets of persuasion. People have been succeeding (and failing) in this way for eons.

Editorial comments aside, this is objectively aligned with the KOSPI and many other AI ecosystem sensations this year.

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I think this point is worth repeating. I read one article on Leopold and the first thought that came to mind – Hubris.

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The value of investment advice is inversely proportional to the fees being charged for it.

intercst

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Patrick Boyle has an absolute banger video on this topic. The way long-short hedge funds manage risk is they have one basket of stocks they bet are undervalued while shorting another basket they bet are overvalued. In the event of a market drop, the good stocks drop, but the bad stocks they are shorting drop even more which cancels out the loss. That’s the hedge.

Aschenbrenner was betting AI stocks would rise over time, and companies that were impacted negatively by AI would fall over time. Boyle points out that’s the same bet. He was only betting on one idea. There was no hedge.

Then he leveraged himself out the wazoo. Back in July the AI rally started to fizzle, and software stocks rallied, so both legs of his bet were moving against him. Hence, his brokers started making margin calls and Aschenbrenner was forced to sell off a big portion of his portfolio at fire sale prices in order to raise cash.

Boyle then explains the math of how you can be directionally correct and still go broke by using leverage and go broke even faster by using a lot of leverage.

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I’ve seen another piece of the story on the interwebs that tickles the conspiracy theorist in me.

The plot:

Citadel saw how close to the edge Ashenbrenner was and knew he was about to have a big wedding. They released a phony interest rate forecast causing AI stocks to crash and then just happened to be waiting with the cash to bail him out when he had no other options. Since they knew their report was phony, they were able to outbid everyone else. Citadel’s misinformation then proved wrong, and they made a bundle on the rebound. The kid never saw them coming.

Here’s Gemini’s summary of the timeline, although it assures me it’s all a coincidence and there’s a “chinese wall” between Citadel Securities and Ken Griffiths’ Citadel hedge fund.

:date: The Six-Day Implosion Timeline

  • Friday, July 24, 2026: Confident in his strategy, Leopold Aschenbrenner sends a letter to his investors calling the recent dip “one of the best buying windows since early 2025.” He invites partners to wire fresh cash by August 1 to buy the dip. [1]
  • Monday, July 27, 2026: A macroeconomic shift occurs when Citadel Securities (the market-making entity, technically separate from Ken Griffin’s hedge fund) publishes a surprise call predicting an impending Federal Reserve rate hike. [1]
  • Tuesday, July 28, 2026: Spooked by the rate hike prediction, tech and semiconductor stocks experience a massive, accelerated rout. High-leverage plays begin to crack. [1, 2]
  • Wednesday, July 29, 2026: The Financial Times breaks the news that Situational Awareness is suffering “heavy losses”. Aschenbrenner’s three prime brokers (Goldman Sachs, JPMorgan, and Bank of America) simultaneously issue massive margin calls. The fund’s extreme 4x leverage turns a standard tech correction into a terminal spiral. [1, 2, 3, 4]
  • Thursday, July 30, 2026: In a frantic 24-hour overnight negotiation, Wall Street titans (Citadel, Millennium Management, and Jane Street) bid on the distressed book. Ken Griffin’s Citadel hedge fund wins, absorbing roughly $16 billion in public equities in a single massive block trade at a steep 10%+ discount. [1, 2, 3, 4]
  • Friday, July 31, 2026: The Federal Reserve meets and ultimately decides to hold rates steady (a 9-3 vote). Because the feared rate hike never materializes, the exact AI and semiconductor stocks Citadel just bought immediately bounce back by 15% to 30%, generating near-instantaneous billions for Ken Griffin’s Wellington fund. [1, 2, 3]
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