An amazing âblow up your portfolio and lose all your moneyâ story An amazing âblow up your portfolio and lose all your moneyâ story
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Jun 27, 2024 | Briton Ryle How To Lose $36 Billion in 4 Days You may not know the story Bill Hwang and Archegos Capital. So Iâm going to share it because itâs one of the most amazing âblow up your portfolio and lose all your moneyâ stories in stock market history. And even if you have heard it, thereâs a twist that you definitely shouldnât miss. The backstory is: Bill Hwang came out of the Julian Robertson fund managing tree. Robertson was the founder of Tiger Management in the early 1980s â a model for modern hedge funds. Bill Hwang made his name by launching the Tiger Asia fund with $25 million from Julian Robertson and growing it to $5 billion. Hwang got busted for insider trading in 2012 and was kicked off the Hong Kong exchange. So he started a âfamily officeâ trading his own money called Archegos and kinda dropped off the map until 2021. As a family office, you donât have shareholders or investors to answer to. Itâs yours and/or your family's money, so nobodyâs asking you for quarterly statements or shareholder letters that explain what youâre doing or why. As a hedge fund manager with a lot of years under his belt, Bill Hwang knew people at brokerage firms like Goldman Sachs, UBS, Jeffries, Morgan Stanley, and so on⦠Any fund â hedge fund, family office, whatever â needs a brokerage to execute its trades and hold its cash. And itâs not at all uncommon for a fund to get margin loans from its brokerage, with the fundsâ stock holdings as backing for the loans. But Bill Hwang didnât have just one brokerage. He had 12. And he used the same playbook at each one: open account, buy stock, borrow money, buy more stock, push price higher, borrow more money, buy more stock â over and over again until he had grown his wealth from $10 billion to $36 billion. Itâs honestly a pretty decent plan â if you can be sure that the stock prices will keep going up; or, at the very least, not go down. As it turns out, Hwang had a plan for that. He only bought 7 stocks. Across 12 different brokers. And he was using margin loans at each one to keep buying the same 7 stocks, a pump scheme that pushed the total value of his portfolio up. One of the stocks he was buying was Viacom/CBS, which changed its name to Paramount Global in February 2022. Hereâs the 10-year chart: [para 10-year] In the 5 years before the pandemic, it was a very boring stock, trading between $45 and $60. Pretty obvious when Bill Hwang started buying it and spiked the price to over $100 in March 2021. The stock had never been that high, not even close. Rumor has it that various trading firms were openly wondering just what the heck was going on because it didnât make sense. And of course, Bill Hwang had all his holdings spread out over 12 different brokers, and so nobody suspected it was Hwangâs borrowing and buying that was driving the whole thing.  --------- Sponsored --------- Breaking: Microsoft Engineers Give Nod to Next Big AI Player This one company is vetted by industry giants and it's trading at under $0.50. [Find out why Microsoft already vetted a company this small...](
[before it hits Wall Street's radar.]( ---------------------------------------------------------------------------------------  The Secondary Offering that Wiped out Hwang Hereâs something Hwang didnât plan on. The bosses at Viacom/CBS saw this massive price movement and made a fairly predictable move. They decided to sell stock at the all-time highs and raise some cash. On March 21, Viacom/CBS shares closed at $100.34. The next day, March 22, the stock fell 10% to $91 and after the close of trading, Viacom/CBS announced a secondary offering of stock to raise cash. Then it got ugly. On March 23, the stock fell 23% to $70. When the value of the assets youâve used to back a margin loan falls, a brokerage will ask for cash to make up the difference. This is known as a margin call. And on March 24, the margin calls started rolling in, to the tune of $2.5 billion. (Iâm relying on Bloombergâs excellent reporting on this case that is currently in court for this timeline. Hereâs the Bloomberg coverage: [ Now, Bill Hwang did have some cash at some of these brokerages. And he also still had paper gains at some of them, which he could theoretically borrow against. Also, his relationship with his various brokerages gave him a little leeway in how he could meet his margin calls. This is also the point where the story gets weird. UBS has $173 million of Archegos cash on March 24. UBS knew that the next day, March 25, its margin call on Archegos would jump to $400 million. But somehow, when Archegos called UBS to ask for its $173 million to be wired and assured UBS that it would meet the next dayâs $400 million margin call, UBS said âsure, hereâs your $173 million.â Needless to say, the next dayâs $400 million payment was not made. Another really weird twist concerns Goldman Sachs. Goldman had $470 million of Archegos cash. Apparently, a junior trader at Archegos tried to get that cash wired to Archegos but accidentally hit the wrong button and sent Goldman an additional $470 million! And then, when Archegos tried to get any of that nearly $1 billion back, Goldman said nope, weâre keeping it! But thatâs not even the best story to come out of all this. Remember, all these brokerages didnât know that Hwang had accounts with each other, none of them knew just how bad the situation was. Iâm going to let Bloombergâs brilliant writer Matt Levine tell this last part, which occurred on March 26:  âHere is some elite investment bank chief executive officer performance: Jefferies calls CEO Rich Handler, who is on holiday in Turks and Caicos with a spicy margarita on the way. They tell him Archegos isnât answering their calls. Handler says heâs going to get his cocktail and he wants Archegos positions gone and a tally of losses by the time he comes back. It was one of the few banks that escaped with minimal losses. Perfect. When your underlings call you up and say âhey we have a big trading counterparty that lost a lot of money, weâre sending margin calls and theyâre not answering the phone,â the correct answer is âliquidate them immediately,â but the stylish (and equally correct) answer is âliquidate them by the time my margarita arrives.â Handler handled Archegos way better from his vacation than [Credit Suisse handled it at the office](.â $36 Billion to Zero in 4 Days That ladies and gentlemen is how Bill Hwang and Archegos Capital lost $36 billion in 4 days. UBS lost $773 million. Nomura lost over $2 billion. Credit Suisse lost over $5 billion. In total, the banks that Hwang dealt with lost $10 billion. Jeffries and Goldman Sachs faired much better. Bill Hwang is wiped out and on trial right now for market manipulation and defrauding his lenders. Godspeed. Briton RyleChief Investment Strategist[Outsider Club]( X/Twitter:[( You might like these articles: Some Companies are Banks in Disguise [( Hammerâs India Stock Picks are Doing Well [( Is it Time to Sell Nvidia? [(       This email was sent to {EMAIL}. You can manage your subscription and get our privacy policy [here](. Outsider Club, Copyright © Osprey Financial Research LLC, 5004 Honeygo Center Drive Suite 102-202