Situational Awareness and the Impending Stock Market Volatility
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Situational Awareness and the Impending Stock Market Volatility
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Re: Situational Awareness and the Impending Stock Market Volatility
#2It's a good reminder that there are many ways you might interpret Citadel's intervention...from everything I've read, it seems that everyone wants to believe this is a bullish position on AI.
Re: Situational Awareness and the Impending Stock Market Volatility
#3How does it actually work under the hood?
Re: Situational Awareness and the Impending Stock Market Volatility
#4How does it actually work under the hood?
You'll have to clarify -- do you mean the fund, or our hypothesis on reflexivity and the value of AI assets?
Re: Situational Awareness and the Impending Stock Market Volatility
#5How does it actually work under the hood?
Michael Burry's substack answers this in his articles over the last week. It's along the lines of there are a number of market players that are taking on similar position in the market. These market players use leverage. Because of how many players there are, and the different levels of leverage involved, if the market goes against these crowded strategies there tends to be a sharp unwind against these funds. People know this dynamic exist, and so when the unwind slows down they jump right back in there as the forced selling stops and re-levering occurs again.
Re: Situational Awareness and the Impending Stock Market Volatility
#6I think the collapse of SA is very simple (as long as I'm not wrong about it of course hehe).
SA weren't geniuses, they weren't sophisticated. They just did the same thing everyone else did, all in on semi-conductor, AI and memory positions. They got great returns because 1) everyone got great returns and 2) they were leveraged through their ears. In fact, not only they weren't geniuses, they were pretty bad at risk management, so bad that the first mild drawdown triggered margin calls on their over-leveraged bets and they couldn't cover them.
TLDR: SA didn't have alpha, they just looked good through over-leveraged beta and got caught
Re: Situational Awareness and the Impending Stock Market Volatility
#7This fund returned 47% in its first 6m and over 400% prior to the downturn.
I don't understand how the investors didn't realize this was going to blow up. Returns like that are not asymmetrical and can only be produced with leverage, at least when you're trading paper.
When something is inevitable and there is a large enough position, this makes adversarial attacks likely. Every small drop causes an amplified amount of pain to the investor which causes them to liquidate positions furthering the decline. SA doesn't have the history or relationships yet to endure margin calls.
I don't see the edge these companies have when they're just going long a very particular position, namely anything related to AI. Long term value in finance is made in a couple of ways. For instance, relationships & being able to source deals (lots of PE firms), short term trading infrastructure and knowledge (Renaissance), capital and clout to make favorable deals (Buffet), etc. Even then the skills are fleeting as employees leave taking knowledge and companies raise money to compete.
Buying Nvidia on leverage is not a long term strategy. Especially when all your investments are common stock and obvious.
Re: Situational Awareness and the Impending Stock Market Volatility
#8I think the collapse of SA is very simple (as long as I'm not wrong about it of course hehe). SA weren't geniuses, they weren't sophisticated. They just did the same thing everyone else did, all in on semi-conductor, AI and memory positions. They got great returns because 1) everyone got great returns and 2) they were leveraged through their ears. In fact, not only they weren't geniuses, they were pretty bad at risk…
They were the alpha. Leopold called the boom in 2025 and returned 200% in 2025.
He unfortunately got caught with his pants down.
Re: Situational Awareness and the Impending Stock Market Volatility
#9"The forces that destroyed SA were also what generated its 4×+ return"...yes, that is what levrage means? And it goes both ways.
The interesting part what this article states: SA was essentialy a thematic ETF without any hedging to buffer downside, and got margin called.
Re: Situational Awareness and the Impending Stock Market Volatility
#10This fund returned 47% in its first 6m and over 400% prior to the downturn. I don't understand how the investors didn't realize this was going to blow up. Returns like that are not asymmetrical and can only be produced with leverage, at least when you're trading paper. When something is inevitable and there is a large enough position, this makes adversarial attacks likely. Every small drop causes an amplified amount…
>This fund returned 47% in its first 6m and over 400% prior to the downturn.
>Returns like that are not asymmetrical and can only be produced with leverage
This is simply untrue. Just because the path to doing so is much more clear in hindsight doesn't mean it wasn't possible.
Sandisk is still up 110.82% in the last 6 months, and that's after a drawdown that's now approaching 50% from peak. Over the last year, they're up 2730%, and again, this is after the drawdown. Zero leverage.