Bill Hwang — the Wall Street Investor Who Lost $20 Billion in 2 Days
Before he lost it all — all $20 billion — Bill Hwang was on track to becoming one of the wealthiest people in the world. Over the span of just 7 years, he turned $200 million into $20 billion. Unfortunately, he met his demise after getting carried away with leverage. During a pullback in March 2021, his most concentrated holdings fell, effectively wiping out his $20 billion fortune in a matter of days.
So who is Bill Hwang, and how did this little-known trader quietly amass colossal wealth, all to just lose it in a matter of days?
Early On
Bill Hwang comes from humble beginnings. Bill grew up in a modest household in South Korea. He moved to Las Vegas when he was 18, and he worked night shifts at Mcdonalds to get by. Eventually, he saved up enough money to go to college. He did his bachelor of economics at UCLA and later got his MBA at Carnegie Mellon.
It was Bill’s dream to work on Wall Street. He took a job as a salesman at Hyundai securities. He was an excellent salesman, and his talent was recognized by hedge-fund titan Julian Robertson, the fund manager for Tiger Management Corp.
Bill was hired by Julian. He became one of Julian’s “tiger cubs,” which were younger investors who learned from Julian and later went on to start their own funds. Julian closed Tiger Capital in 2000, but he handed Hwang about $25 million to start his own firm.
Bill’s first hedge fund was Tiger Asia. The fund was initially very successful and grew Bill’s money net worth to around $200 million, but later had to shut down based on accusations of insider trading.
Soon after, Bill opened up Archegos capital. Unlike Tiger Asia, Archegos was a family office, so Bill managed his own money rather than clients’ money. Because of this, he faced much less regulation.
Bill’s Strategy
Bill had a pretty simple strategy — buy great companies that were below their fundamental value.
He liked companies that had great management, strong competitive advantages, and knew how to reinvest their funds to make more money.
Once he found a great company to buy, he would highly leverage his position with total return swaps. Total return swaps are a method of borrowing money. Basically, a fund makes an agreement with a bank where the bank would buy a stock for a fund while the fund pays them interest. Afterward, the bank and the fund would “swap,” so the fund would keep the returns from the stock (whether it be positive or negative) minus interest.
By making total return swaps with various banks, Bill was able to leverage his positions up to 5X!
You might be wondering how Bill was allowed to use this much leverage, or frankly, why he wanted to do this. Well, Bill was a devout Christian, and he used his beliefs to justify his bets. By bringing company valuations closer to their fair value, he felt he was advancing society.
“I try to invest according to the word of God and the power of the Holy Spirit” — Bill Hwang
This sentimental belief gave him unwavering confidence and a large risk appetite. In a way, he felt God would not let him lose, and he thought his leveraged investments would be worth it if they benefited the world.
Bill invested in a lot of high-quality tech companies such as Facebook, Google, Apple, LinkedIn, Expedia, etc. He would re-invest any profits he made back into his highest conviction names. Bill made massive amounts of money this way.
The Downfall
As the stock market continued its bull run, attractive investment opportunities began to diminish. So Bill looked for value elsewhere. He started making riskier, but still strong, investments in firms such as ViacomCBS, Discovery, Tencent, and Alibaba.
Unfortunately, when VaicomCBS announced they were issuing more shares, the stock fell by 23%. Bill refused to take losses and instead continued holding his position. Then, Discovery and Chinese stocks began to waver as well. Bill’s creditors got worried and demanded their money. When Archegos couldn’t pay, Bill was forced to liquidate his portfolio, evaporating $20 billion of his personal wealth alongside another $10 billion from the banks.
Even today, the market still feels remnants of Archegos’s liquidation. VaicomCBS is down 61% from its high in March. Chinese stocks have also tanked, but this is because of many other factors as well.
Conclusion
Bill fell from being one of the richest people in the world in a matter of just 2 days. While we might be tempted to laugh, it can teach us all a lesson about risk management. No matter how confident you are in a position, you should always have some downside protection. You should be conservative with leverage. Bill’s downfall also shows the need for increased financial disclosure. If Banks and government officials had a clearer understanding of Archegos’s risks, then Bill would never get access to that much leverage. If Bill managed his risk, then maybe he would be able to recoup his losses. Instead, he’s back working at McDonalds, toiling to rebuild his once-massive wealth.
