Situational Awareness and the Impending Stock Market Volatility

Posted by cl42 6 hours ago

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Comments

Comment by bko 2 hours ago

This 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.

Comment by dgellow 47 seconds ago

> Buying Nvidia on leverage is not a long term strategy.

The whole country of South Korea is long SK Hynix and Samsung, with insane level of leverage. That won’t be a happy ending. People talk about past bubbles as if it was a good thing long term, but that will be millions of people losing their savings, homes, decades of austerity for countries to recover

Comment by pliny 50 minutes ago

>Returns like that are not asymmetrical and can only be produced with leverage, at least when you're trading paper.

Definitely not true, looking at their last 13f (filed in may 2026) their top3 holdings were BE, SNDK and CRWV which had 1y returns of 1,500%, 2,000% and 500% at the time of the filing. They accounted together for 15% of the fund (plus an unknown amount of exposure through options). These tickers show up in the 2 and 3 previous filings so they had exposure to some of that run up, and looking at the filings further back they had some very concentrated exposure to INTC in a half year period where the stock went up about 200%

Comment by cj 17 minutes ago

You could say "only produced with leverage or [the equivalent of trading penny stocks]"

Obviously they're not penny stocks, but they're behaving like penny stocks. And those tickers had less than a $10 billion market cap before 2026. Which is very small for a $45 billion fund.

The point is what quickly goes up can quickly go down. Leverage produces that effect. As does investing in tiny volatile small cap companies.

(Did the 13f not have any mention of option trading?)

Comment by anonym29 2 hours ago

>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.

Comment by gizajob 1 hour ago

The skill in the stock market, and the value of any kind of investment fund, is producing good returns over an actual long-term period. YOLO-ing once before imploding in one of the biggest bull markets ever can be done by any gambling degenerate out there.

Comment by anonym29 46 minutes ago

I don't disagree at all with what you're saying, but it has nothing to do with what I said, which is strictly a refutation of the assertion that it's only possible to achieve a 47% return in 6 months or 400%+ return in ~2 years with leverage.

It's also worth noting that this wasn't a total implosion, as Situational Awareness is reportedly still up over 80% YTD even after the unwind, and kept their Anthropic stake.

Comment by HeyBigE 42 minutes ago

Uhhh.. you think this isn't driven by options trading? Which is, by definition, leverage.

Comment by Recursing 2 hours ago

All comments here are written as if Situational Awareness blew up, but it seems like it didn't and is up 80% YTD https://nitter.net/tbpn/status/2083226453509030285

All the stuff that it was forced to sell to Citadel is also up ~10%-30% since the sale

Comment by drexlspivey 1 hour ago

The public book went to 0 and LPs lost everything. The 80% number is a result of blending the Anthropic stake (+620% YTD, 25% of NAV) and the public book (-100%, 75% of NAV) = +80% YTD

Comment by 52 minutes ago

Comment by blitzar 1 hour ago

> All the stuff that it was forced to sell to Citadel is also up ~10%-30% since the sale

and Citidel took it all at a multiple billion dollar discount to the prior close

Comment by lz400 3 hours ago

I 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

Comment by jfrbfbreudh 2 hours ago

They were the alpha. Leopold called the boom in 2025 and returned 200% in 2025.

He unfortunately got caught with his pants down.

Comment by lz400 1 hour ago

I mean, so many people also went in on the boom, that's why it's a boom. Leopold somehow got it 100% right and _still_ managed to go bust

Comment by blitzar 1 hour ago

That was just leveraged beta.

Comment by wiejee 1 hour ago

[dead]

Comment by trash_cat 2 hours ago

"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.

Comment by 1 hour ago

Comment by ChrisMarshallNY 1 hour ago

"Impending"? Has anyone looked at the Business section, lately?

Comment by intrasight 1 hour ago

My first thought as well. My second was the lack of situational awareness.

Comment by Yummiy 6 hours ago

How does it actually work under the hood?

Comment by m101 4 hours ago

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.

Comment by cl42 6 hours ago

You'll have to clarify -- do you mean the fund, or our hypothesis on reflexivity and the value of AI assets?

Comment by andiey 6 hours ago

It'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.