00:00Like any hedge fund, they go to a bank, they say, can you lend us money to make our bets
00:07bigger?
00:08And they use the stocks that they own as collateral or the companies that they own as collateral.
00:14And so they lend him money.
00:16So banks gave him, as I said, four or five times leverage.
00:20So that means at the peak, he could have been managing around $200 billion on his $45 billion of net
00:29assets.
00:30That amount of leverage, is it typical for the industry?
00:33Did it raise any red flags?
00:35I think it started to.
00:39Usually a long short stock fund would be more like two times, would be more norm, I would say.
00:48So yes, it was a lot.
00:49So leverage basically amps up everything.
00:52It amps up the gains that you can make if you make an investment.
00:54But it can also, it will also amp up the spiraling downward pain that you'll face.
01:00And so that's why it's so risky.
01:03And then on a short bet, if you're amping up those bets, it also, a short has no downside.
01:09Like you will have to cover that bet.
01:11And there's an infinite amount of money you can lose on a short bet.
01:14So that's why shorts are also a bit more risky.
01:18It's why institutions are allowed to do that versus like regular people, let's say.
01:21So there's a lot of layers of risk bundled up.
01:25And leverage is especially concerning because it just magnifies everything.
01:31And also you're vulnerable to your lenders.
01:34The lenders can come to you and say, we don't like that you're down 10% or 20% or
01:4030%.
01:40You have to put up more collateral.
01:42And then they have to come up with the cash, which means selling things in their portfolio, which sends on
01:48the prices of those things normally.
01:50And then the spiral gets spiraling down, goes faster and is bigger.
01:55Whereas if you're using your own money, there's a down week.
01:57You can kind of wait it out, see maybe in two years this will pay out.
02:01But lenders are not.
02:02They're not going to be patient.
02:03So that's why we're going to take a Peroflmed home.
02:03And that's where we're going to take an open account.
02:04You, that's where we're going to take an open one, right?
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