April 4, 2021

How One Person Lost $8B in 10 Days ๐Ÿ˜ฑ

Mesh Lakhani Headshot
Mesh Lakhani

Hey All,

Welcome to Talk Money Weekly - where I cut through the noise and curate the best money-related topics from the web.

The new podcast is out! Talk Money Weekly the podcast, comes out every Wednesday. Last week I discussed how Robinhood and SoFi are allowing us to buy into the IPO. This coming Wednesday I'll be discussing how a $10B fund lost everything in a matter of moments.

Season 3 returns in a couple of weeks!

๐Ÿ“ˆ Markets & Business

Does Gen Z Know What a Bear Market is?

We are in one of the longest-lasting bull markets in history. Stocks have been going up since the financial crash, with minor pullbacks here and there. Things looked scary at the beginning of the pandemic, but it didn't last too long. Basically, if you've been investing in stocks, or Bitcoin, you look like a genius. BUT you don't learn how to be a great investor when things are going great. You learn when the tide turns and you experience real pain. Trust me, it's not pleasant.

This is a good take from investor Howard Lindzon. NBA Top Shots are digital collectibles (a form of NFT). The swings in value are INSANE, and are normalizing large returns for a younger generation. That said, liquidity is a big part of this. Something could be worth $9,000 one day, and then be down 50%, if you can't find a buyer for that price. This is a harsh reality of investing in new assets, especially when there isn't that much volume (like the stock market). If you can't get your money out, you didn't technically make a profit. It's just paper gains baby....and that doesn't pay the bills.

How to Lose $8 Billion in 10 Days

Bill Hwang has that classic American immigrant story. Comes to the US with nothing. Goes to school. Starts an investment fund and makes a ton of money. Gets caught for insider trading and pays a fine. Starts another investment fund made up of mostly personal capital. Makes a few big bets. Borrows a lot of money to juice up those returns. Loses everything when the investments turned for the worst. Maybe not exactly a classic American immigrant story, but it is a classic Wall Street/Hedge Fund blow-up.

Without getting into too much detail, as I'll be covering this in this week's Talk Money Weekly Podcast, I suggest you read the thread and this article from the NY Times. The issue really is, how the hell does this still happen?! Banks are still allowing clients to take MASSIVE risks because they get paid heavily in fees. IF and WHEN an investment strategy blows up, it has a major effect on the market. This was one fund that lost $8B in days and also cost a couple of banks a few billion dollars in losses. As a result, multiple stocks sold off and panic ensued. When you BORROW too much money in order to make more money, the risks are huge and it has the potential to completely wipe you out. This is what happened in 2008.

If there are more funds out there that are able to jump over regulatory hurdles and take on a ton of risk and no one can identify them, is it a matter of time before they also blow up? How will that impact the overall markets? Why should you care about this? Because at the end of the day it affects all of us. And it's not just big hedge funds that are taking on all this risk. Robinhood allows it's users to borrow money to trade, and guess what? It requires ZERO education and it takes like 30 seconds to be approved. This is not good.

Does Bernie Sanders Understand How Business Works?

I think Bernie Sanders is a good person. I think he means well. I don't think this is the right take. Why do we keep creating this rift between American businesses and the public? These large businesses aren't bad. If they were, would we be using them on a regular basis? They create jobs and they focus on profits. The more profitable they are, the more people they can employ and the better their stock performs. The better their stock performs, the better for our retirement accounts and the health of the US financial system.

Should businesses pay taxes? Yes. Is there an issue with the tax code? Probably. If you're able to get away with not paying federal taxes, then attack the tax code and not the companies that use said tax code to not pay taxes. The whole picture needs to be looked at. Let's be honest, none of us actually enjoy paying taxes. And if you have an LLC or you're a contractor, you are trying to pay as little tax as possible, right? I know I am because I want to keep investing in my own business!

The narratives are so unhealthy. We all should be pro-business and pro-innovation, within reason. We want jobs and we want people to have more jobs. Are there bad business practices? Of course! ย But this whole business is bad, they don't pay taxes, tax the rich etc. needs to change. We should educate people on how all of this works so they can make their own decision on what they think is right.

๐ŸŽฅ Entertainment

BTS, Justin Bieber, Ariana Grande and Scooter Braun Join Forces

This one is for my sister, who is a HUGE BTS fan. Not sure how that happened, but it did and I'm all for it. She wrote a great thread on this subject here. Last year, the label that BTS is a part of went public, offering shares to the members of the group. That alone was huge, as ownership/equity is not synonymous with musicians. Now, Scooter Braun's Ithaca Holdings will be acquired by HYBE (BTS label). Why is this such a big deal? Now you have BTS, Bieber, Ariana Grande, Demi Lavato under one group. That is HUGE in terms of IP value and distribution.

All the members are receiving shares of the company, which was similar to how HYBE did it with BTS. Ownership is the name of the game. Giving artists equity is HUGE. And we're seeing more and more of this across industries. I do wish this was being traded on the US stock exchange so I could buy it, but it's being traded on the Korean Stock Exchange, which is pretty interesting. One of the biggest US music deals will be on a foreign stock exchange. It's pretty cool.

That's all the news from this past week! If I was to make this newsletter into a Youtube show, would you watch it?

If you haven't already subscribed to my podcast, Talk Money, do so here. New episode next Wednesday!

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