Lost 20 Billion In Just 2 Days! | Biggest Hedge Fund Fail | Bill Hwang Story | Explained In Hindi |

Summary

This video delves into the rise and fall of Bill Hwang, the founder of Archegos Capital, who lost over $20 million in just two days due to risky investment strategies. Hwang’s use of leverage, including Contracts for Difference (CFDs), allowed him to amplify profits but also led to devastating losses when stock prices plummeted. His story highlights the dangers of excessive borrowing and the importance of diversification in investing. It serves as a cautionary tale about the potential pitfalls of high-risk trading and the value of making informed, balanced investment decisions.

Takeaways

• 😀 Bill Hong lost $20 million (approximately ₹1.5 lakh crore) in just two days due to risky financial strategies.
• 😀 He initially gained success by leveraging funds and investing in Chinese banks and media companies, but eventually faced significant losses.
• 😀 Bill Hong had a background in finance, having studied at the University of California and Carnegie Mellon, and worked with Tiger Management.
• 😀 Tiger Management, founded by Julian Robertson, played a crucial role in shaping Bill Hong's career, helping him launch his own hedge fund.
• 😀 Bill Hong was accused of insider trading, which led to significant legal and financial repercussions, including a $16 million fine.
• 😀 After the insider trading scandal, Bill Hong shut down his previous fund and started RK Das Capital, managing his and others' wealth.
• 😀 His fund quickly grew to manage over ₹2 lakh crore, with successful investments like Netflix yielding substantial returns.
• 😀 Bill Hong's major loss occurred due to a strategy called 'Contracts for Difference' (CFDs), which allowed him to bet on stock price movements without owning the stocks.
• 😀 CFDs involve high leverage, meaning investors can borrow money from brokers, but if the market moves against them, losses can be massive.
• 😀 Bill's downfall began when the stock prices of ViacomCBS plummeted, triggering margin calls from the banks that had lent him money. Unable to cover the margin, he faced significant losses.
• 😀 The key lesson is to avoid excessive leverage (borrowing too much money) and to diversify investments rather than concentrating on a few stocks, as Bill Hong did with only 12 stocks.

Q & A

Who is Bill Hwang, and how did he initially gain prominence?

Bill Hwang is the founder of Archegos Capital Management, a hedge fund that gained prominence after making highly successful investments in stocks like Netflix. He initially worked at Tiger Management, where he learned about hedge fund operations and later started his own fund, managing billions of dollars.

What is the significance of Tiger Management in Bill Hwang's career?

Tiger Management, founded by Julian Robertson, played a crucial role in Bill Hwang's career. It provided him with the opportunity to learn and grow in the financial world. After working there, Hwang started his own fund, Archegos Capital, with support from his mentor, Julian Robertson.

What led to Bill Hwang’s massive financial loss in 2021?

Bill Hwang’s massive loss in 2021 was primarily caused by his investment strategy involving high leverage and concentrated positions in stocks like ViacomCBS. When these stocks experienced significant price drops, margin calls were triggered, and Hwang was unable to cover his losses, leading to the collapse of Archegos Capital.

What are Contracts for Difference (CFDs), and how did they contribute to Bill Hwang's losses?

Contracts for Difference (CFDs) are financial instruments that allow investors to speculate on the price movement of an asset without actually owning it. Bill Hwang used CFDs to amplify his investments, allowing him to take large positions with a small margin. However, when the stocks he invested in dropped in value, he faced significant losses.

What are margin calls, and how did they impact Bill Hwang's financial situation?

Margin calls occur when an investor borrows money from a broker or bank to fund their investments and is required to add more funds to cover potential losses. Bill Hwang faced margin calls when the value of his investments in ViacomCBS and other stocks plummeted. His inability to meet these calls led to the liquidation of his positions and substantial financial loss.

What is the role of leverage in Bill Hwang’s downfall?

Leverage involves borrowing money to increase the size of an investment. Bill Hwang used leverage extensively, borrowing funds from major banks like Goldman Sachs to take larger positions in stocks. While this approach can amplify gains, it also magnifies losses, which is what happened when his concentrated positions in certain stocks declined rapidly.

What was the specific trigger for Archegos Capital’s collapse in March 2021?

The collapse of Archegos Capital was triggered when the stock price of ViacomCBS fell sharply, causing a significant decline in the value of Hwang’s investments. This led to margin calls and the forced liquidation of his positions, resulting in a massive financial loss.

What lessons can be learned from Bill Hwang's financial mistakes?

The key lessons from Bill Hwang's mistakes include the dangers of excessive leverage, the importance of diversification, and the need for financial discipline. Relying too heavily on borrowed money and concentrating investments in a few stocks can lead to catastrophic losses when the market moves against you.

Why is diversification important in investment, and how did Bill Hwang’s lack of it affect his portfolio?

Diversification involves spreading investments across various assets to reduce risk. Bill Hwang focused his investments on just a few stocks, such as ViacomCBS, which left his portfolio vulnerable to large swings in the value of these stocks. When these stocks performed poorly, it caused massive losses.

How did Bill Hwang’s use of financial instruments like CFDs and margin loans differ from traditional stock investments?

Unlike traditional stock investments where an investor buys and holds actual shares, CFDs and margin loans involve borrowing money and using financial contracts to speculate on stock price movements. This strategy allows for larger positions with a smaller upfront investment, but it also increases the risk of large losses if the market goes against the investor.