A hedge fund named Situational Awareness lost its situational awareness. It started July worth $45 billion. It’s now worth $10 billion, after dumping most or all of its public stock portfolio on Ken Griffin’s Citadel following a brutal few weeks for AI stocks. That’s a $35 billion hole. For scale, the old record for trading losses was Archegos, which torched $8 billion in ten days back in 2021. These guys did more than triple that. Run by a 24-year-old former OpenAI employee, staffed by eight people, four of them actual investors. Their top holdings? Nebius, Sandisk, Micron, CoreWeave. Every one of them down more than 35 percent this month.
Here’s the reality check on the “smart money.” The founder wrote a series of essays predicting artificial general intelligence by 2027, then built a fund to shovel cash into AI stocks and get rich on the way up. The backers weren’t rubes either. The Collison brothers from Stripe. Two Meta AI leaders. Jane Street, which almost never hands money to outside managers, bought in too. What did they vet? Not a track record, because there wasn’t one. They bought the social proof: valedictorian, econ prodigy at 17, the right podcasts, the right friends. Same thing that worked for a while at Theranos. The Verge has the wreckage.
A hedge fund lost $35 billion betting the same way half your retirement account probably is: piled into Nebius, Micron, CoreWeave, the picks-and-shovels names everyone swears are safe AI plays. All four dropped more than 35 percent this month, and that drop showed up in the S&P before anyone leaked the fund’s name.
The lesson for your money isn’t “AI is a bubble.” It’s that concentration is the killer. If your portfolio’s four biggest holdings all move together on the same story, you don’t have four bets. You have one, and a 24-year-old just showed you what happens when it turns.
The rule Silicon Valley sells is that a valedictorian with the right friends and a viral essay can see the future before New York does. Then $45 billion turned into $10 billion in about ten weeks, and the “situational awareness” turned out to be four investment pros holding four stocks that all fell 35% in the same month.
Jane Street almost never hands money to outside managers. They handed it to a 24-year-old on his first fund, because Patrick Collison and Ivanka Trump liked the read. That’s not diligence. That’s a group chat.
Sources: theverge.com
Would you like to save this?
We'll email this post to you, so you can come back to it later!