Market pulse: We Love Our Heros
Leopold Aschenbrenner graduated as valedictorian from Columbia University at age 19 and later worked for OpenAI. In 2024 he launched an AI-focused hedge fund named Situational Awareness, which gathered an astonishing $45 billion in assets. He bought AI stocks like Sandisk, Bloom Energy, and Nebius while heavily shorting software stocks. He chose to use leverage, lots of it.
But AI stocks fell in July and software stocks rallied. Yikes. Lenders issued margin calls and Aschenbrenner was forced to quickly unwind the holdings at fire-sale prices. The fund’s value plunged 67 percent. He was hailed as a market soothsayer — until he wasn’t.
This isn’t the first time I’ve seen investors crowning someone as a soothsayer or a guru. When I began my career in 1987, Robert Prechter gained fame as a market guru by predicting the stock market crash. Investors subscribed to his newsletter and analysts studied his Elliot Wave technique. He could move markets — until he couldn’t. His bearish calls continued while the market rose.
Similarly, Elaine Garzarelli gained celebrity status for calling the 1987 crash. She launched her own fund and became one of the highest-paid and most influential market forecasters in the country. But in 1996, just as the market began one of its best ever bull runs, she warned investors to exit equities.
Of course, the most famous market guru, and con artist, was Bernie Madoff. He lured investors by claiming 10 to 15 percent annual returns with almost no volatility. Thanks to Madoff, the term “Ponzi Scheme” became a household phrase. Remarkably, the Department of Justice helped investors recover about 94 percent of their principal losses.
We love our heroes and often place them on a pedestal. Yet history shows the guru/soothsayer business is very humbling. Why do we keep falling for it? It might be because people admire confident leaders. Or maybe investors like the false sense of certainty in volatile markets.
Jack Bogle, founder of Vanguard, is one of the few that maintained a great reputation throughout his career. Then again, he didn’t make bold predictions and instead told people to just buy-and-hold low-cost index funds. Warren Buffett also survived the test of time. Interestingly, he also recommended buying-and-holding and S&P 500 index fund.
While index funds form a great foundation, a strong case can also be made for holding individual stocks. That will be the subject of my next article.
David Vomund is an Incline Village-based fee-only money manager. Information is found at www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.
