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“This has to be one of the single greatest losses of personal wealth in history.” –Mike Novogratz
Today is Good Friday. The spectacular rise and fall Bill Hwang and Archegos Capital Management make it a good day to reflect upon the philosophical purposes of money.
Archegos has been described as one of world’s “Greatest Hidden Fortunes,” and its “epic meltdown” led Sonali Basak to observe, “Wall Street’s habit of lending to lucrative clients with few questions asked is getting unwanted attention.”
For the world’s largest banks, KYC + AML = LOL.
Skip those issues to focus on something more intriguing: What is the purpose of money? To those fortunate enough to have accumulated a great fortune, towards what purpose is that capital aimed?
Once capital has defined ambitions, the next question is how one should then manage that fortune towards those goals. Failing to consider these issues can result in dissatisfaction, unhappiness and losses. This is true whether you are a family with a hundred thousand dollars or a family office with hundreds of millions or billions of dollars.
Without a purpose, money is merely an entry in an accounting ledger. But capital tied to a useful purpose has magical powers.
Reading about Archegos leads me to conclude that this was purposeless capital. I appreciate quietly accumulating a small fortune, a stealthiness suggesting status / social approval was not the prime motivation. Or, all that leverage made discretion a requisite.
Regardless, the elements of recklessness and mismanagement of risk makes me wonder what rationales were being expressed via these investments. All portfolios express a viewpoint, and if you learn to read between the holdings, you can identify purpose, goals, personality, and meaning. Towards what purpose was this extremely leveraged, wildly concentrated, incredibly risky portfolio constructed? Greater and faster returns. I can fathom no other explanation for why someone would build portfolios this way, other than “I want more NOW!”
What other motivation might there be for this deeply risky, borderline insane portfolio? Portfolios so hyper-concentrated they make Ark’s Cathy Woods blush, so leveraged they would raise the eyebrows of Lehman Brothers’ Dick Fuld.
Across the entirety of my career, I have repeatedly witnessed talented people get destroyed by their own refusal to get rich slowly. People kicked out of the industry for some stupid infraction, a manifestation of a lack of patience. Time and again, I see the insistence on right now! cause deep and irreversible problems. There are too many ways for investors to submarine their own prospects, but a lack of patience is perhaps the most consistent destroyer of wealth broadly seen.
The SEC should explore replacing the Series 7 Exam with the Marshmallow test.
Perhaps I am reading too much into this. Maybe Hwang was merely misguided, trying to repent for his prior (insider trading1) sins; maybe his thinking was, this is for the greater good. We don’t know. We can never truly understand what is in someone’s heart. We can only look at their actions as a way to glean some insight into what they were trying to accomplish. (Note to self: Your actions matter more than written thoughts and unexpressed ideas).
This is the reason we deeply integrate planning into wealth management. Money without a goal is mere lucre. Capital without a purpose is simply currency awaiting mischief.
There are many lessons to be learned from the debacle that has befallen Bill Hwang and Archegos Capital Management, but at its most basic, there is this simple question:
What purpose does your capital serve?
Previously:
Kawhi Leonard, Please Buy a New Car (January 17, 2020)
Forget Happiness; Think Satisfaction (January 16, 2020)
Money Buys Some Happiness; Health Buys You More (October 21, 2019)
A Modest Defense of Money & Materialism (July 25, 2019)
“Never Buy House Product…” (September 6, 2012)
Advice for Rich Uncles and Others . . . (August 2007)
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1. Something else to be blamed on deregulation?
“Last April, the Securities and Exchange Commission lifted a ban on Hwang working at or running a securities firm. Though the ruling was little noticed at the time, it raises questions about whether the one-time star hedge fund trader was plotting some sort of comeback — an effort likely derailed by the forced liquidation of more than $20 billion of stocks held by Archegos.
