Borrowed Money, Borrowed Time
Why leverage can force even the smartest investor to sell at the worst possible moment
Markets are moving faster than ever these days. Violent plunges followed by V-shaped recoveries seem like they’re becoming a normal part of the investor experience.
Part of the reason is that information has never traveled faster and both humans and computers are trading on this new information immediately. It’s wild to think it wasn’t all that long ago when you found out a stock price by looking up the ticker symbol in the newspaper.
Another reason markets have started to swing so violently is leverage.
Charlie Munger famously stated that “smart men go broke three ways: liquor, ladies, and leverage”.
Leverage is simply using borrowed money to make a bigger investment. A mortgage is the most familiar example. If you put $100,000 down on a $500,000 house, you control a $500,000 asset with only $100,000 of your own money. A 10% increase in the value of the house produces a 50% gain on your original investment, but a 10% decline cuts your equity in half. Leverage does not change whether you are right or wrong. It simply makes the consequences much larger.
Which brings us to Leopold Aschenbrenner.
Aschenbrenner earned a reputation as a child prodigy by entering Columbia University at age 15 and graduating as valedictorian at 19 with a degree in economics and mathematics. By age 21, he was working as an AI researcher at OpenAI, before later launching a massive multi-billion-dollar hedge fund which made an unusually concentrated bet on the AI boom, then magnified that bet with leverage.
He had a front row seat and a compelling thesis which made him confident an AI boom would require enormous spending on chips, memory, data centers, power, networking equipment, and related infrastructure. And he absolutely nailed it.
The Netflix script was essentially writing itself as his fund reportedly earned 439% during the first half of 2026, according to a client letter cited by the press.
Situational Awareness used substantial leverage to amplify its concentrated bets and that borrowing helped generate extraordinary returns while the trades were working, but it also magnified the damage when both sides of the portfolio began moving against the fund.
As the losses mounted, the fund needed to reduce its exposure and eliminate the risk of further forced selling. While his hedge fund was in crisis mode, it reportedly took place ahead of the weekend of his wedding. For what it’s worth, he is now married to Avital Balwit, the chief of staff to the CEO at Anthropic.
And for every forced seller, there is usually a hungry buyer. Situational Awareness unloaded much of its public equity portfolio to Citadel, Ken Griffin’s hedge fund powerhouse, which could hold the same stocks without facing the same financing pressure.
A young AI prophet, a multibillion-dollar leveraged bet, and Ken Griffin arriving to buy the portfolio during the fire sale will surely be coming to your Netflix algorithm in the future.
It’s a fascinating example of nailing the long term story with incredible precision, while committing the cardinal sin of investing. Getting wiped out should never be a possibility1. Survival is the name of the game and being a forced seller will likely find you at your worst possible moment.
“Only when the tide goes out do you discover who has been swimming naked” is a famous quote by investor Warren Buffett. The concerning thing is nude beaches have become quite popular.
You do not need access to a hedge fund to play this game. Investors can now buy single-stock ETFs promising two or three times the daily move of companies like Nvidia, Tesla, or MicroStrategy, in either direction. The key word is daily. These products reset every day, so volatility and compounding can steadily eat away at them even when the underlying stock eventually goes nowhere.
The ride has become wild enough that a group representing roughly 7,000 South Korean retail investors recently sent 32 funeral wreaths to the National Assembly while calling for single-stock leveraged ETFs to be delisted.
You’re probably not trading with 4x leverage on your portfolio, but the lesson remains. There will always be temptation throughout your investing journey to compress otherworldly returns into a short time frame.
It reminds me of this Morgan Housel paragraph:
Most young tree saplings spend their early decades under the shade of their mother’s canopy. Limited sunlight means they grow slowly. Slow growth leads to dense, hard wood. But something interesting happens if you plant a tree in an open field: free from the shade of bigger trees, the sapling gorges on sunlight and grows fast. Fast growth leads to soft, airy wood that didn’t have time to densify. And soft, airy wood is a breeding ground for fungus, disease, and ultimately a short life. “A tree that grows quickly rots quickly and therefore never has a chance to grow old,” forester Peter Wohlleben writes.
Which is exactly how it works in business and investing, isn’t it?
There is nothing wrong with growing quickly. But in investing, durability matters more than speed, because a return you cannot survive long enough to keep is not much of a return at all.
Aschenbrenner’s hedge fund didn’t get completely wiped out, and it still owns private investments in Anthropic. And it looks like he’s back for more.