The Story of a Billionaire Losing Millions of Dollars in Just a Short Time

Money Dolar

Usually, the richer someone gets the more conservative they are with their investments. This makes sense as the focus generally shifts from wealth growth to wealth preservation with growing riches. Even some of the richest people in the world who took massive risks to get to where they are have grown more conservative with time.

Bill Gates, for example, owned 45% of Microsoft when they went public in 1986. But since then, he’s basically sold all his as he owns just 1.3% of Microsoft today. Now, Bill is still worth $128 billion, so I think it worked out alright. But if he had just held onto his initial stake, he’d be worth over a trillion dollars.

Similarly, Warren Buffett was famous for beating the S&P 500 for decades. But today, he’s holding $150 billion worth of cash. So, clearly, even the richest people in the world have gotten more conservative with time. One billionaire who never toned it down though was Bill Hwang. With time, he placed riskier and risker bets which initially paid off growing his fortune hundreds of fold.

But like with all gamblers, when you bet it all, it just takes one bad bet to wipe you out. And that’s exactly what happened last year when Bill lost $20 billion in 2 days. So, here’s the story of Bill Hwang and how he made and lost billions in record time.

BILL HWANG:

Taking a look back, Bill’s story circles back to South Korea to the year 1964. Like many immigrant stories, Bill’s origin were rather grim. Bill says that his parents struggled to make  ends meet and that he had to pick up many part-time jobs to help them out. Despite their bleak situation, the family never lost hope.

They were strong Christians and believed that one way or another, things would eventually work out. As Bill reached his teenage years, it seemed like their wishes were coming true as things were finally starting to get better. The family was able to immigrate to Las Vegas and Bill’s father got a job as a pastor.

Unfortunately, Bill basically knew no English which made it extremely difficult for him to make friends, excel in school, or get a job. But with persistence, Bill was able to score a nightshift at a Mcdonald’s, and Bill says that this is where he learned to speak English. Just as things were starting to pick up though, Bill’s father died.

This shattered the family’s morale and they would relocate to Los Angeles. Despite the hardships, Bill knew that with his father gone, he was truly on his own. So, he put his head down and got to work. Bill eventually secured a spot at UCLA and majored in economics, and after his bachelor’s, Bill turned around and got an MBA from Carnegie Mellon University.

Despite this strong educational background, Bill struggled to score a high paying job out of college. And he ended up working as a low-level salesman and Hyundai securities. Note that this was not at Hyundai motors, so Bill was not a car salesman. Rather he was a securities broker or basically a stock salesman. These guys aren’t nearly as common today due to the rise of online brokerages that

are intuitive and simple to use.

But back in the day, securities brokers would call up a bunch of people and try to convince them to buy a particular stock or bond. This job provided Bill with a comfortable life, but given that he was still working here when was 33 years old, it seemed like Bill would never achieve much more than mediocrity career-wise.

That was until he caught the eye of Julian Robertson. Julian was the founder of the hedge fund Tiger Management Corporation. By this point, Tiger Management was already managing billions, and they were one of the fastest-growing hedge funds in the world. But like Bill, Julian had humble roots and was initially a stockbroker himself. Julian felt that he could see his younger self within Bill, so he offered Bill a golden ticket.

TIGER CUB:

Julian offered Bill a job as a financial analyst at Tiger Management, and Bill of course took the job. Bill didn’t just want to be another financial analyst though, he wanted to offer something unique to the fund. So, he proposed the idea of expanding Tiger Management into Asian investments. While Bill had assimilated quite well into American culture, he never let go of his Asian culture either.

Bill felt that he had a unique perspective on Asian companies and that he was the guy for Asian investments. Julian gave him a shot, and it quickly became clear that Bill wasn’t bluffing. He hit home run after home run investing in dot-com favorites like SK Telecom.

Amongst his peers, Bill became known as “the Michael Jordan of Asian Investing”. With the help of Bill, Tiger Management over doubled their assets between 1997 and 1998 from $10.5 billion to $22 billion. This made Tiger Management the second-largest hedge fund in the world. But it wasn’t all sunshines and rainbows.

To achieve these mad returns, Bill was investing in some of the most speculative names of the Dotcom bubble. Many of his picks would crash 80 to 90% in the early 2000s and they haven’t moved since. But, fortunately for Bill, he would never have to experience this downfall as Julian would soon shut down Tiger management.

You see, Tiger had made an investment in US Airways that wasn’t doing so well. Aside from this, Julian was already in his 60s, he was already a multi-billionaire, and he could sense the stock market was getting superheated. So, he decided that he didn’t want to push his luck.

In March of 2000, Julian went ahead and sold most of his stocks, shut down Tiger Management, and distributed all remaining profits to investors. Considering that March 24, 2000, was literally the peak of the Dotcom bubble, you could say this was spectacular timing. Or maybe, Julian’s selling was the catalyst that turned the tide. Who knows?

But either way, shutting down Tiger Management was a great call for Julian. Now, we should note that Julian ended bag holding US Airways to 0 as the company ended up going bankrupt. Nonetheless, by shutting down Tiger in 2000, Julian significantly reduced his losses and made it out quite well. Too bad, these skills didn’t rub off on Bill.

Anyway, while Julian was done with running his own hedge fund, he wasn’t completely done with the hedge fund space quite yet. He was well aware that by shutting down Tiger, he put 97 bright investors out of a job. So, Julian launched a seed funding program that gave his former employees capital to start their own hedge funds. By the end of the decade, Julian helped launch 38 different hedge funds which are often referred to as Tiger Cubs. As you would guess, Bill used this opportunity to launch his own hedge fund called Tiger Asia.

BANNED:

From the very beginning, Bill ran Tiger Asia on the edge. Most of his positions were outsized leveraged bets that could go really well or really bad. For the first couple of years, Tiger Asia posted stellar numbers as the market recovered from the dot-com crash.

By 2007, Bill boasted a nutty 40% annualized return managing a total of $8 billion. But, when you’re constantly playing with fire, it’s only a matter of time until you get burned. And Bill’s first burn came in late 2008 during the height of the great recession.

Considering the timing, you would think that Bill got burned by an outsized bullish bet which would actually be quite understandable. But ironically, Bill actually got destroyed by a short position. If you’re not familiar with shorting, it’s basically the opposite of regular stock investing.

You make money when the stock goes down and you lose money when the stock goes up. Anyway, considering the recession, Bill thought that it would be a great idea to short Volkswagen. In theory, he should’ve been right, but Porsche’s rapidly growing stake in Volkswagen set off an insane short squeeze.

And if you thought the Gamestop short squeeze was nuts, this was on another level. The percentage gains weren’t as much as Gamestop as Volkswagen only grew 4 to 5x from $200 to nearly $1000. But given that Volkswagen wasn’t initially a penny stock, the short squeeze actually made Volkswagen the biggest company in the world momentarily.

This caused Tiger Asia to lose 23% of their entire portfolio, and as you would guess, investors weren’t happy. They were furious that Bill was even involved with Volkswagen. The hedge fund was called Tiger Asia and it was supposed to be focused on Asian investments. Many investors pulled their money out of Tiger Asia after the fiasco, but Bill did recover.

His colleagues say that he learned from this mistake and that ever since this experience, he opted to buy into heavily shorted stocks as opposed to just shorting them as well. Over the next couple of years, Bill recovered from his mistake, but unfortunately, his next mistake would be unsalvageable. In 2012, Tiger Asia would get convicted of insider trading.

Bill was fined $44 million and he was permanently banned from managing other people’s money. With Bill out of the hedge fund scene, you would think that this was the end of Bill’s journey. But this was just the beginning of Archegos.

ARCHEGOS:

Since Bill could no longer manage outside money, he decided to manage his own fund. He had already made hundreds of millions during his time in Wall Street, so he didn’t need outside money. If Bill just went ahead and invested his own money, it wouldn’t have been that bad, but he wasn’t happy with just making ordinary returns.

Bill wanted extraordinary returns, so he turned to his favorite strategy: leveraged trading. Bill went ahead and borrowed money from banks in order to fund his trading. Now, this itself is extremely dangerous, but Bill would take it to the next level.

You see, banks aren’t stupid enough to loan Bill hundreds of millions and eventually billions to go gamble in the stock market. Banks want to ensure that there’s very little risk of losing their own capital, so they use collateral and margin calls.

For example, let’s say that you wanted to buy $200 worth of Apple shares but you only have $100. Chase will happily loan you the other $100 if you put up your $100 worth of Apple shares as collateral. This way, they have quite a bit of leeway. Apple stock would have to crash 50% for the total position to be worth less than $100, and the second that Apple does reach -50%, Chase will sell your stock and get their money back.

On the other hand, if the stock skyrockets, they’re happy to just collect interest and go on with their day. But what if you use the same $100 as collateral with many different lenders. Now, as a retail investor, banks will make sure you don’t do this as they don’t really trust you. But with someone like Bill, they were much looser with their restrictions which allowed Bill to take on 3 to 1, 5 to 1, and even 8 to 1 leverage.

Bill used this strategy to 100x his portfolio from $200 million to $20 billion, and no one noticed a thing. You see, as long as your positions are playing out, there’s no problem with leverage. It’s only when your positions go south that you get wiped out. By 2021, Bill’s personal net worth stood at $20 billion, but he was trading with $100 billion meaning that he had $80 billion worth of debt spread across multiple banks.

This means that if Bill’s positions dipped just 20%, he would have a negative net worth and he should be margin called. But, banks didn’t know this. They thought they had 40 or 50% worth of leeway and this became painfully evident when one of Bill’s biggest positions crumbled. In March of 2021, Viacom CBS announced that they would do a share offering which caused the stock to tumble over 50% within a week.

Given that this was one of Archegos’ biggest positions, banks started to margin call Bill and this is when they realized they were screwed. Not only had Bill blown away his entire net worth, but he had also caused banks including Morgan Stanley, Goldman Sachs, Credit Suisse, and Nomura to incur $10 billion worth of losses. And with that Archegos filed for bankruptcy.

THE AFTERMATH:

At the end of the day, no one really cared about the banks losing money as it was due to their own lack of due diligence. But, many were sad that Bill lost all his money. You see, while Bill definitely had a gambling problem, he was putting his winnings to good use. He wasn’t blowing it on yachts and jets.

Instead, he lived an extremely modest life and donated a total of $590 million to churches, schools, and charities. And Bill has repeatedly iterated that his greatest love in life is god and that the primary reason he was chasing money was so that he could donate it. So, it’s really quite a shame that things have to come to this, but he should’ve thought about that before he was gambled with $100 billion. But that’s just what I think. Do you guys think Bill has had a net positive or net negative impact on the world?

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