Tag Archives: Money

How I Decide to Double Down

Many startups I invested in are coming back and asking for more. So how do I decide to double down — or cut my losses?


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Here’s how I approach follow-on funding:

Performance

I want to see startups triple revenue year over year after I invest. This level of growth shows they’re finding product market fit.

The best companies grow fast. Meanwhile, those with weak products or a poor sales strategy struggle to sign new customers.

But growth has to be efficient. I like to see a startup burning no more than $2-3 to add $1 of new Annual Recurring Revenue (ARR).

New Investors

Are any new investors joining this round? Or are existing investors just hoping to save a failing company?

If the founder could not find a new investor who wanted to make a bet on the business, that’s a strong negative signal.

Runway

This fundraise has to give the company enough money to ride out today’s tough market. I like to see startups raise enough cash for 24 months or more.

If the founder is only raising a small round to survive another couple of months, it’s likely a bridge to nowhere.

The Founder

Has the founder shown good leadership in these tough times? Has he taken responsibility for mistakes and kept investors updated?

If so, that makes me a lot more likely to open the checkbook.

How Much to Invest

I recently re-invested in a startup I first backed in 2021. They increased revenue by 5x in a year and brought in a new lead at a higher valuation.

Re-investing was a pretty easy choice. But how much should I put in?

I Invested about 2.5 times as much as my initial check. If the company keeps performing like this, I want to do about the same in their next round.

In all, I like to invest 4-5 times as much money in follow-on as I do in the first investment.

This lets me concentrate capital in winners. I also avoid major exposure to companies that are struggling.

The Human Factor

It’s very hard to say no to a hard working founder who’s trying his best.

Unfortunately, it’s also our job. If we don’t want to make tough decisions, we shouldn’t be in this business.

Even if I can’t re-invest, I’m happy to support the founder in other ways. I can introduce them to potential employees and business partners, provide advice, etc.

Done right, follow-on funding is a super power.

It increases my exposure to the best companies while minimizing my exposure to struggling ones. It gets money to the companies most likely to change the world.

How do you think about follow-on investments? Leave a comment and let me know!

More on tech:

The Hard Thing About Hard Things

I Like Big TAM’s and I Cannot Lie!

GPT-Powered Search with Perplexity AI

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Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

The Hard Thing About Hard Things

“As a start-up CEO I slept like a baby. I woke up every 2 hours and cried.”

Ben Horowitz

Today, Ben Horowitz is the billionaire co-founder of a16z and one of the most important people in tech. But 20 years ago, he was the CEO of a penny stock startup called Opsware.


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By persevering through layoffs and withering criticism, Horowitz built his company into a colossus. In 2007, Opsware sold to HP for a cool $1.65 billion in cash.

Horowitz’s most important lesson: no matter what happens, don’t give up!

“Whenever I meet a successful CEO, I ask them how they did it. Mediocre CEOs point to their brilliant strategic moves or their intuitive business sense or a variety of other self-congratulatory explanations. The great CEOs tend to be remarkably consistent in their answers. They all say, “I didn’t quit.'”

How to Lead

Horowitz often had to bet the company’s future on a decision made with limited information. As a founder, that’s all you’re ever going to get.

He also didn’t shy away from getting involved in details. Companies tend to stand still unless someone forces them to move.

“…when you are a startup executive, nothing happens unless you make it happen.”

Above all, a leader has to put the company and his people first. If you take care of your customers and employees, success will follow.

Finding the Right People

Horowitz dedicates much of the book to how to find and train the right people.

Horowitz favors team-oriented hires. He looks for people who rarely say “I” or “me,” even when discussing their own accomplishments.

Once you have those great employees, Horowitz urges you to invest in them:

“Training is, quite simply, one of the highest-leverage activities a manager can perform.”

In fact, no one at Opsware could even start looking for an employee until they had a training plan ready for that person.

Layoffs

Many startups are facing layoffs today, as Opsware did.

Horowitz advises CEOs to first speak to the entire company, making clear that the company has failed. Then, managers must lay off their own people.

Be sure to treat the departing staff well: the rest of your employees will be watching closely.

Lessons for Investors

When he started a16z, Horowitz wanted to change one icky thing about venture capital: forcing founders to wait forever in the lobby.

Horowitz made a simple rule.

Anyone late to a meeting with a founder would be fined $10. A minute.

“We wanted the firm to respect the fact that in the bacon-and-egg breakfast of a startup, we were the chicken and the entrepreneur was the pig: We were involved, but she was committed.”

I’m instituting this rule in my own meetings with startups, with the fines going to charity.

Horowitz also provides some great guidance on finding promising founders.

He notes that successful CEO’s he’s met all have different styles. There’s no one type to look for.

But one thing all great leaders share is a desire to improve. So I’ll be asking “How could you improve as CEO?” a lot more frequently.

Horowitz’s memoir is a window into what life as an entrepreneur is really like — at turns, nerve-wracking and exhilarating. It makes great reading for founders and investors.

What do you think of Horowitz’s advice? Leave a comment and let me know!

More on tech:

Zero to One

The Power Law (Part One)

Amp It Up

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This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

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If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

PandoMonthly – June 2012 – Sarah Lacy interviews Ben Horowitz” by thekenyeung is licensed under CC BY-NC-ND 2.0.

Shorts Are Covering Even Faster than Jan ’21

Short sellers are running for the exits as markets rally. Short covering has hit its highest level in over 7 years, according to a Financial Times report:


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Equity markets have risen sharply so far this year, led by many of the speculative stocks that were clobbered hardest during 2022’s global sell-off. Many of the funds that profited from the rout have found themselves poorly positioned for the rebound, which has recently accelerated as investors sensed that interest rates were close to peaking in many major economies.

The resulting flurry of short covering — when investors buy back stocks they had been betting against to limit their losses — was the largest since November 2015, according to a Goldman Sachs note to clients seen by the Financial Times.

Short sellers tend to pile into the same, heavily shorted stocks. When they rush to close their positions, this can cause a short squeeze.

A short squeeze happens when many short sellers all try to buy at once to close their positions. This can cause a stock’s price to skyrocket.

Short squeezes in stocks like AMC Entertainment Holdings and GameStop in 2021 took down hedge funds including Melvin Capital. Today, those same stocks are some of the year’s best performers.

Despite big increases in heavily shorted stocks, short sellers still have massive exposure. AMC’s short interest has dipped only slightly, remaining at a lofty 29%.

This indicates such stocks could have a lot of room to run. Short sellers will have to buy many more shares to close out their positions.

Shorts are also facing some of the heaviest retail buying in history. Retail buying hit an all-time high of 23% of all stock buys, according to a recent Forbes report.

Retail investors are the biggest buyers of many heavily shorted stocks, including AMC and GameStop.

Over a month ago, I predicted a market rally in 2023. I guess the hedge funds missed that post. 🙂

If the Fed remains dovish, I expect many more losses for short sellers. 2023’s short squeezes could make 2021 look almost quaint.

What do you think the future holds for short sellers? Leave a comment at the bottom and let me know!

More on markets:

As Fed Rates Peak, Are Markets Ready to Take Off?

Major Hedge Fund Down 54% — Survival in Doubt

SEC Refuses to Address Massive Fraud in Markets

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Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: Melvin Capital founder Gabriel Plotkin

SEC Demands Citadel Employee Cell Phone Records

The Securities and Exchange Commission has ordered Citadel and several other financial firms to produce employee cell phone records.

From a new report in Bloomberg:


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The Securities and Exchange Commission recently asked Steve Cohen’s Point72 Asset Management, Ken Griffin’s Citadel and several other firms to search through the devices for evidence of business dealings on unapproved channels, according to people familiar with the matter who asked not to be identified discussing the private requests. The SEC is also probing the practices of brokerages, money managers and private equity firms. 

Representatives for Point72 and Citadel declined to comment. Neither firm has been accused of wrongdoing.

By law, investment firms must retain all business communications. But sometimes, Wall Street traders would rather no one hears their conversation.

So, many turn to encrypted messaging apps like WhatsApp and Signal. Using their personal phones, traders can evade the scrutiny of their employer, as well as regulators.

What might be in those WhatsApp messages? Time will tell, but violations could include front-running clients’ trades or naked short selling.

The Financial Industry Regulatory Authority (Finra) has fined Citadel for front running clients in the past. Citadel has also received subpoenas in a probe of short sellers.

The SEC has already levied over $1 billion in fines on banks for failing to maintain records. But unless those fines get a lot bigger, nothing will change.

Citadel made $16 billion in profit last year. Any fine in the millions will be nothing more than a speeding ticket.

I urge the SEC to find out what is being hidden in these messages. And when they do, the penalty should sting, big time.

What do you think the SEC will find? Leave a comment and let me know!

Have a great weekend everyone!

More on markets:

Citadel’s Illegal Trades — The Tip of the Iceberg?

Major Hedge Fund Down 54% — Survival in Doubt

SEC Refuses to Address Massive Fraud in Markets

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Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: Citadel CEO Ken Griffin

How I Source Deals (Part 2)

We investors have no function except to find and help the next Google. But, uh, where is it?


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Finding the great companies of the future is a huge part of our job. I look at 150-250 companies every month.

I choose one.

Since I wrote about sourcing deals last fall, my approach has changed a lot. Here’s how I’m finding great startups now:

1) Pitch events. There’s nothing like being in person, right?

Wrong. The best pitch events I attend are usually virtual.

Founders from anywhere on earth can attend. My latest investment is in an incredible company based in the UK.

I never would’ve met that founder at a New York pitch event.

My favorites are Remote Demo Day and LAUNCH Accelerator Demo Day, both put on by Jason Calacanis’ venture firm. Stonks also has some great events.

For in person tech events in NY and SF, check out Gary’s Guide.

2) Portfolio company founders.

For me, this is the highest signal intro I can get. Any meeting with a founder recommended by someone I’ve already invested in goes to the top of my list.

This also is a great strategy for founders to approach investors. Find some founders they’ve already invested in and ask for an intro.

You may already know some of their portco CEO’s!

3) Venture firms. Great deals are currency.

Whenever there’s space in the round, I send out deals I’m doing to a number of venture firms in my network. This helps the startup and the VC’s if they find a great deal.

In return, they introduce me to some founders they’re investing in. These entrepreneurs are pre-vetted by smart investors, making my job way easier!

4) Seedscout. Seedscout is a really cool new platform that lets founders request intros to investors.

This is especially useful for founders who aren’t in Silicon Valley or New York.

I made an investment in an incredible Utah SaaS company I met on Seedscout. I never would’ve met them otherwise.

I like the platform so much I actually invested in Seedscout itself!

Seedscout is free for investors. Check it out!

5) Syndicates. As I approach the two year mark as an angel, I’m doing fewer and fewer syndicate deals.

Four out of my last 5 new investments have been direct. Over time, I’ve built a network that helps me find great deals on my own.

That has two huge advantages.

You’re not at the mercy of whatever a syndicate lead decides to send you. And you don’t have to pay anyone 20% of your gains!

But for a new angel without a great network, syndicates are an absolute must.

The best one is Jason’s, here. Flight VC, an arm of Gaingels, also has some great deals.

I am still happy to do syndicate deals if that’s the best deal available. 80% of something beats 100% of nothing any day!

How do you source deals? Leave a comment and let me know!

More on tech:

HOW I SOURCE DEALS

I LIKE BIG TAM’S AND I CANNOT LIE!

GOOGLE IS LOSING THE AI RACE

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Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

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Photo: Google founders Larry Page and Sergey Brin. “File:Google page brin.jpg” by Ehud Kenan is licensed under CC BY 2.0.

I Like Big TAM’s and I Cannot Lie!

I just passed on a company growing 80% month over month. Instead, I chose one growing more slowly. Have I lost my mind?

Not yet.


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These two companies illustrate one of the most important principles in venture capital: market size matters. Without a large enough Total Addressable Market (TAM), a startup can only grow so big.

Company A

Company A is a fantastic consumer subscription company. It has an awesome product and growth rates you rarely see anywhere.

So they’re scaling like crazy — but for how long? To answer that question, I did a little back of the envelope math.

They have about 25 million potential customers, according to my research. At their average revenue per user of $10/mo, that’s $3 billion a year in potential revenue.

And unfortunately, like many consumer companies, churn is heavy. So the company has to be rebuilt every year or two.

Company B

Company B handles international corporate money flows. And while A has a substantial market, the potential for B is staggering.

Corporations move $23.5 trillion across borders every year. At B’s take rate, that alone is a $60 billion a year revenue opportunity.

Better yet, B also charges SaaS fees! That expands the TAM to around $70 billion.

If B takes even a small slice of the market, it could exceed $1 billion in revenue. At a typical 10x multiple, that means a $10 billion company.

And just because B isn’t growing as fast as A doesn’t mean it’s not growing! Revenues jumped 10x year over year, an amazing performance.

Why We Hunt Elephants

VC’s and angels are obsessed with big markets because the largest outcomes matter most. In venture capital, they drive almost all of our returns.

Let’s look at 3 examples: a company that’s acquired for $100 million, a startup that IPO’s for $1 billion, and another that IPO’s for $10 billion.

Assuming 50% dilution from the time we invest until exit, here’s what our returns look like:

That $100 million outcome, as big as it sounds, accounts for less than 1% of our returns! Meanwhile, the $10 billion Big Kahuna makes up fully 90% of all our gains.

If one type of company gives you 90% of your gains, that’s where you have to focus.

Expanding Your TAM

Let’s say your market is small. But you love your business and you don’t want to shut it down!

Think about how you can sell your product to more customers! Can a product that’s useful for auto garages also work for cleaning services?

There’s nothing wrong with focusing on a small market in the beginning. You have to start somewhere.

But if you want to build a venture scale business, you also have to think big!

Best of luck to all startups, big and small!

How do you think about market size? Leave a comment at the bottom and let me know!

More on tech:

Google is Losing the AI Race

GPT-Powered Search with Perplexity AI

Me vs. ChatGPT: Who’s a Better Blogger?

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Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

Use this link to sign up and you’ll save $15 on your first order. 

SEC Refuses to Address Massive Fraud in Markets

The Securities and Exchange Commission (SEC) just released its top enforcement priorities for the year. Rather than dig into systemic fraud in our markets, they’ll be regulating….confetti?


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According to a report out this morning on Reuters, the SEC will be focusing on:

”…behavioral prompts, differential marketing, game-like features…and other design elements or features designed to engage with retail investors on digital platforms.”

In plain English, they’re talking about the confetti some stock trading apps display when you make a trade. But that’s not all.

The SEC will also be regulating how funds can use certain words:

…funds with keywords such as “green,” “sustainable,” “ethical,” or “socially responsible” in their names will have to reflect an emphasis on these areas through their investing choices.

As if investors couldn’t simply look at the holdings and see if Exxon Mobil is there or not!

Combatting widespread financial fraud is nowhere in the SEC’s agenda.

Illegal naked short selling pervades our markets. Millions upon millions of trades fail to clear each day, especially in heavily shorted stocks like AMC Entertainment Holdings and GameStop.

But the SEC won’t be looking into that.

Despite $8 billion in losses on FTX, cryptocurrency regulation won’t be a focus for the SEC this year either. Why bother with that when the SEC could be requiring “a summary of registrants’ human capital resources,” whatever that is?

It’s no wonder author Jesse Eisinger called the feds “the chickensh*t club.”

The SEC is a toothless regulator. It busies itself with make-work, avoiding the real issues plaguing our markets.

Gary Gensler and the SEC need to start going after the real criminals.

What do you think of SEC enforcement? Leave a comment at the bottom and let me know!

More on markets:

Major Hedge Fund Down 54% — Survival in Doubt

Short Sellers Down $81 Billion in 2023

Citadel’s Illegal Trades — The Tip of the Iceberg?

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Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: “CMI 101: Demystifying Derivatives with CFTC Chairman Gary Gensler” by Third Way is licensed under CC BY-NC-ND 2.0.

Short Sellers Down $81 Billion in 2023

Well, that was fast! With 2023 less than a month old, short sellers have already lost $81 billion.


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Many are running for the exits. From a new report from The Wall Street Journal:

Short sellers who have incurred hefty losses are actively trimming their positions, said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners. Investors betting against stocks have racked up $81 billion of mark-to-market losses on short positions this month through Thursday after accumulating $300 billion in gains in 2022, Mr. Dusaniwsky said.

Markets have rallied this year, with meme stocks leading the way. As short sellers race to close their positions, their losses are likely to grow:

Signs that inflation is cooling have stoked bets among investors that the Federal Reserve will pivot from raising interest rates to cutting them as soon as the second half of the year. That has helped risky assets across the board rise. Especially risky corners of the market, such as stocks with high short interest, have rallied even more. Analysts say that has likely forced short sellers to close out bearish positions to cut their losses—resulting in what is known on Wall Street as a short squeeze. 

Some of the most heavily shorted stocks have been among the best performers so far this year.

Meme stocks like AMC Entertainment Holdings, GameStop, and Bed Bath & Beyond are all up over 20%. The broader S&P 500 is up 6% for the year so far.

In addition to huge market losses, short sellers are also paying stratospheric interest rates to borrow shares. Rates to borrow AMC shares have ranged between 20% and over 100% per year in recent weeks.

It’s no wonder that some short sellers may be resorting to illegal tactics. There is evidence of widespread naked short selling in some heavily shorted stocks.

Common and preferred shares of AMC have seen millions of fails to deliver. These failed trades often occur when a short seller sells stock without borrowing it.

This is called naked short selling and it’s illegal under federal law. It’s also a powerful way to push down a stock’s price without paying any interest.

The coming months could push many short sellers to the brink.

A race to close out positions may cause heavily shorted stocks to rally further. Meanwhile, a more dovish Fed could cause a general market rally, adding to their losses.

Short sellers should avoid meme stocks like the plague. A heavily shorted stock with a passionate fan base is simply too hot to handle.

What do you think is next for short sellers? Leave a comment at the bottom and let me know!

More on markets:

Major Hedge Fund Down 54% — Survival in Doubt

Citadel’s Illegal Trades — The Tip of the Iceberg?

As Fed Rates Peak, Are Markets Ready to Take Off?

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Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: AMC CEO Adam Aron

Citadel’s Illegal Trades — The Tip of the Iceberg?

South Korea has fined Citadel Securities for illegal stock trades made with high frequency algorithms. From a report out last night in Reuters:


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South Korea’s financial regulator has imposed a fine of 11.88 billion won ($9.66 million) on U.S.-based Citadel Securities, saying it disturbed the local stock market with high-frequency algorithm trading.

The Financial Services Commission (FSC) said in a statement released on Thursday the firm had distorted stock prices with artificial factors, such as orders on the condition of “immediate or cancel” and by filling gaps in bid prices.

These illegal trades were no isolated incident. Regulators found improper trades in thousands of stocks over a period of nearly a year:

The firm carried out such trading on an average of 1,422 stocks per day from Oct. 2017 to May 2018, totalling more than 500 billion won worth of trades, according to the statement.

Citadel’s illegal trades stand out as some of the most egregious ever in South Korea:

The Commission said it was the first time it had imposed fines on such high-frequency trading on the South Korean stock market, which has a high proportion of retail investors and little competition among algorithmic traders.


Citadel used strategies such as flash orders to gain an illegal advantage over other traders. This practice involves offering to buy or sell and then retracting the order in a fraction of a second.

Flash orders let you see the prices at which other traders are willing to buy or sell. This gives you an illegal edge over your competition.

In Korea, Citadel used these strategies to take advantage of mom and pop retail traders, which I find particularly heinous.

Citadel’s algos don’t stop in Korea.

The firm was recently fined by the US Financial Industry Regulatory Authority (FINRA) for frontrunning its customers. By placing trades ahead of customers, Citadel made money for its own account.

Breaking the law appears to be quite lucrative for Citadel.

Citadel Securities posted record revenues of $7.5 billion last year. Citadel’s hedge fund made even more, approximately $28 billion.

I think Citadel is using these illegal flash orders all over the world. They may also be using other illicit tactics we don’t know about yet.

After all, if you go to the trouble to create a program that can make you money, why not use it in as many places as possible?

The reality is that these speeding tickets will never stop Citadel. Fines in the millions are a cost of doing business for a multi-billion dollar operation.

Securities regulators worldwide should find out what exactly Citadel is doing in their markets. If they find more wrongdoing, they should simply ban the firm from trading for a period of years.

Nothing but a severe penalty will stop them.

Who says crime doesn’t pay?

What do you think is the future for Citadel? Leave a comment at the bottom and let me know!

More on markets:

Major Hedge Fund Down 54% — Survival in Doubt

Tiger Global Losing $185 Million a Day

As Fed Rates Peak, Are Markets Ready to Take Off?

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Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: Citadel CEO Ken Griffin

Major Hedge Fund Down 54% — Survival in Doubt

In a brutal year for hedge funds, few have suffered more than Light Street Capital. The fund lost 54% in 2022, over $1 billion.


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From a report out last night in Bloomberg:

Light Street Capital Management’s hedge fund tumbled 54% in 2022, according to a person familiar with the matter, one of the industry’s worst performances last year. 

That drop rivals the 56% decline for Tiger Global Management, and is steeper than Lone Pine Capital’s 36% loss and Whale Rock Capital Management’s 45% slide.  

Light Street was the classic crossover hedge fund. It made big bets on technology companies, both public and private.

Many of those bets were at eyewatering valuations. Tech was crushed in 2022, pushing many such funds to the brink.

What strikes me is how simple Light Street’s strategy was. Its biggest holdings were a who’s who of growth stocks:

Anyone could’ve bought Tesla and hoped for the best. Why should investors pay Light Street 2% of assets and 20% of gains to do what they could do themselves?

Light Street’s 54% loss is abysmal even compared to benchmarks. The S&P 500 lost 18% last year, while the NASDAQ lost 33%.

Investors could’ve bought index funds and avoided hundreds of millions in losses, not to mention outrageous fees.

No wonder the California Public Employees Retirement System (Calpers), one of the most astute investors in the market, hasn’t invested in hedge funds since 2014.

The future for Light Street is bleak. It cannot charge a performance fee again until it more than doubles its fund.

That’s extremely hard to do. And without those juicy performance fees, the best traders will leave.

This is the kind of spiral that took down Melvin Capital. Light Street could be next.

I’m a huge bull on technology. But no stock is a good buy at any price.

What do you think the future holds for hedge funds? Leave a comment at the bottom and let me know!

More on markets:

Tiger Global Losing $185 Million a Day

As Fed Rates Peak, Are Markets Ready to Take Off?

Is SBF Laundering Money As We Speak?

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Photo: Glen Kacher, Founder of Light Street Capital