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Citadel's Head of Global Equities Justin Lubell on why Citadel doesn't mind when two of its investors land on the same idea:
"One of the great advantages that we have at Citadel is that we don't worry if people do agree. It's not a problem for us."
"We have a really large capital base, and the positions that we can take because of that can be large."
"If one person has a great idea and another person discovers the same great idea, if it's that great, we would love to own twice as much. If it's really great, we would love to own three times as much."
"So we don't actually look to make sure that there is diversity of thought. We want there to be the best thought."
Ex-Point72 Head of Prop Research Kirk McKeown on the simplest bubble test there is:
"What's my body of work that I can look back to for bubble dynamics? It's obviously the internet bubble, the housing bubble."
"You can look back to the Great Depression. Sorkin just wrote a piece on it."
"You need a corpus of knowledge that you can draw on, you don't have to ask a robot for. So read the books, do the work."
"Having a competitive advantage takes work. And it's not asking a chatbot. It's reading a book."
"The fact that we're debating about a bubble means there's a bubble. If people are trying to explain away a bubble, there's a bubble. It's that simple."
A badly run store. One brilliant candle display. Pabrai on Sam Walton’s habit of learning from anyone.
Mohnish Pabrai explains:
"Every single thing at Walmart came from somewhere else. Everything was copied."
"He meets Sol Price, looks at Price Club, says 'No-brainer.' He sets up Sam's Club."
"Walmart came from Kmart."
"'There is no human who has stepped into more retail stores of my competitors than I have. And no human after me will ever beat that record.'"
"A manager says 'Sam, that was such a poorly run operation.' Sam says: 'Yes, but did you see the candle display?'"
"Sam said, “You can learn from anyone. You can learn from the biggest idiot operator.”"
"He'd go 5:30 in the morning to the distribution centers with donuts, sit with the drivers, and ask: 'What do you see when you go in?'"
Balyasny's founder Dmitry Balyasny on the 2008 redemptions that took half of Balyasny's capital:
"When Lehman went under, we made the decision to go to cash."
"For the next three or four months, people just wanted their money."
"I remember sitting waiting for the money to come in from the brokers, and they're like, no, no, the wire is coming, the check's in the mail. We're like, it's not here. Day after day, it's not here."
"We wound up getting hit with redemptions for probably close to 50% of our capital. And we decided not to gate people, as we were liquid, and just didn't think it was the right thing to do when we could pay them the money that they needed."
"So we had to reach into our pockets and put more money into the firm."
"Then investors came back, and they appreciated that you gave them the money when they needed it and treated them fairly."
Hedge Fund Clips retweeted
Prompts vs. embeddings:
AQR's Managing Director Peter Hecht
"You literally ask ChatGPT or Claude, is Apple cheap or expensive? Give me your analysis and give me the details why you think it's cheap or expensive. That's prompt, okay?"
"Then there's a way of using a large language model where you feed in documents, financial documents, broker reports, earnings reports, and you go under the hood of the large language model and you take what we call a word embedding, which is a numerical representation of the text."
"When we use large language models, we're doing the latter. We're not doing the prompt-based approach."
"All of the special sauce is not in the large language model. The fact that you can get a numerical representation of the data is sort of a commodity."
"The hardest part is can you find whether that numerical representation of the data can predict future returns."
"That is very difficult to do, requires a ton of skill and it's highly subjective. And that's why I don't think there will be convergence."
Citadel's CEO Ken Griffin on why AI is filling in competitive moats with bulldozers:
"In that year, the advancement in AI models has been absolutely tremendous. And there's no doubt that in a number of fields, AI is literally game-changing."
"Work that used to take our PhDs and masters four to six weeks to complete, high-level, white-collar jobs, press a button on a keyboard, wait a few hours, there's the exact same answer."
"When I went home after seeing this, it was a Friday, it was a very depressing moment. You're seeing the threat to white collar jobs playing out."
"As a business owner, you're seeing your competitive moats be filled in by bulldozers."
"And then at the same time, you're thinking that this will be a golden era for entrepreneurs. For the young entrepreneurs in this country, what a golden opportunity this is."
Balyasny's founder Dmitry Balyasny on the young PM who bought a Ferrari with his first bonus:
"The right psychology and mindset is probably the most important."
"I remember interviewing a young PM years ago. He'd only been trading for a short period of time, and it randomly came up that he used his first bonus check to buy a Ferrari. Not a good sign."
"You want people that are fairly humble, that are always trying to get better, always trying to learn, a real craftsman mentality, as opposed to a real hubris type of mentality where they think they have it all figured out, because the market will definitely humble you."
"One of the things that helped me when I was starting off was just going around to different offices and sitting next to different top traders, and just asking questions and learning about what they did."
Stan Druckenmiller’s ‘curse of the reserve currency’: easy financing can let short-term policy mistakes accumulate.
"The reserve currency is an unbelievable privilege. That privilege, while you have it, allows you, if you choose to do so, to run very myopic policies that don’t address the long term."
"Markets don't check you because you're being funded by outside sources."
"The fiscal recklessness, the monetary recklessness — no other country could have pulled that off."
"It's great while it lasts, but it enables you to keep digging and digging into a deeper hole until the consequences come to bear."
"It probably, to some extent, you do it enough, you lose the privilege, and then you only have the consequences."
"That's why I call it the curse of the reserve currency."
Ex-Two Sigma quant Omer Cedar on why the costliest bias for smart managers isn't overconfidence:
"They have an idea, they've done the research, they've done the analysis, they really know the stock, they really know the company, but they only put a 1% or 2% position down. Why? Why not a 4%? Why not a 5% position?"
"Let's be conservative, let's see how this plays out. We're not betting and gambling on Robinhood here, we're being thoughtful, we're stewards of the capital of our investors."
"It turns out that a lot of the alpha is actually lost in that initial stage of being conservative."
"The bias is not necessarily to be overconfident when you're a really smart and talented and disciplined institutional investor. The bias is oftentimes on the opposite side: to be too conservative and not capture a certain amount of alpha up front."
"That ultimately ends up sometimes being the difference between a manager earning, call it, five to six percent a year and a manager earning ten to eleven percent a year. That's how big those biases can sometimes be."
"You're still too conservative relative to the alpha. And the data will disprove you again and again, and yet you still make the same mistake."
Citadel's Head of Global Equities Justin Lubell on why small warning signs are harder to act on than thesis-breaking ones:
"There's something I used to talk to my analysts about called analyst voices. These are the voices inside of your head that tell you, ooh, this is not quite what I was hoping for."
"The best analysts are the ones who are able to hear those voices and react quickly, and not be anxious that they just told their portfolio manager to buy more yesterday, or that this is the idea they told John at Morgan Stanley is their favorite idea."
"Really, they need to just be clean and say, something is changing here, I need to reassess. That's actually the most important moment for someone to identify a change."
"I have found over time that really big changes, thesis-busting changes, are actually easier for most people to react to because they're so obvious. When there's a really profound change, people have less trouble parting with an idea than when something is just beginning to change on the margin."
Hedge Fund Clips retweeted
if you're wondering whether you should go all in on AI, the math is simple...
> ignoring it = betting your entire life on the tech not mattering (you already lost)
> going deep = infinite upside for a few months of your time
that's not hype, that's just math
> spend your days playing with the tech
> solve real problems with it
> build something, even if it's ugly at first
worst case you wasted time learning the most important skill of the decade
now flip it:
> ignore AI completely
> hope your current skills stay relevant
> compete against people who didn't ignore it
worst case you're irreplaceable... nah, worst case you're invisible
there is literally no logical argument for sitting this one out
the risk/reward ratio has never been this broken in your favor
take the bet
Balyasny's founder Dmitry Balyasny on how Balyasny competed with rivals 25 times its size:
"So you have to think about how are you going to compete when you're smaller?"
"When we were starting off, almost 25 years ago, our competitors, which are still the same guys we really compete with today, were probably like 25 times our size in AUM. And today, maybe they're like two, two and a half times our size."
"It's like the large multi-strats, right? The Citadels, Millenniums, Point72s. It's pretty much the same group over 25 years."
"When you're starting at such a disadvantage on scale, how do you compete for talent? By being a better place to work, where you're really trying to partner with people, really trying to help them develop their business."
"Over time, you get that flywheel going: your capital grows, your returns grow, your investor base grows, your infrastructure grows, and so the gap on all that stuff starts to shrink. But you still have hopefully an edge on the cultural pieces."
Hedge Fund Clips retweeted
The casino model of diversification:
AQR's Managing Director Peter Hecht
"First off, we believe in diversification. So we are a systematic fundamental manager."
"Most systematic managers have a small edge for any single security that they trade."
"Like a casino, a casino would never exist if it could only play blackjack against you, one person."
"They bring in thousands of uncorrelated blackjack customers. That's like bringing in thousands of uncorrelated trades."
"So we believe in diversification. We're militant about thinking about: are these trades correlated with each other?"
Hedge Fund Clips retweeted
this is why Ken is the best in the business
Citadel's Head of Global Equities Justin Lubell on the time Ken Griffin threw a project into reverse because the new guy had a better idea:
"My first month on the job, there was a conversation in a conference room amongst a number of people. After the meeting, he came over to me and he said, you looked a little pensive while we were talking about this. What was on your mind? I said, well, I'm not sure that that's really the best way to do this. And he said, why?"
"He called someone and he said, change of plan, we're going to do this instead. I just spoke to Justin, we've got to do this."
"A lot of time, energy, and resources had been put into making the other change. So I tried to hedge myself a little bit. I said, well, Ken, I'm still new here. He said, that's not how it works. I don't care how much money or time we spend doing something. If there's a better way to do it, I want to do it that way."
"So we've been driving this car a thousand miles an hour in this direction, and we're going to go a thousand miles an hour in reverse now, because this is the better way to do it."
"When Ken asks me a question, I just tell him exactly what I think, and I encourage everyone in GE to do the same. We've all been trained: no pride of ownership, just find the best ideas."
Normal Texas power: $50-100/MWh. The cap: $9,000. Short that into a freeze and you don't lose — you blow up.
Neel Somani, former Citadel quant researcher, explains:
"Feb 2021, Texas: the natural gas units froze over. Some wellheads froze, so they didn't have enough gas."
"A few weeks earlier there was no indication it'd get that cold."
"If you're overconfident, you see the price spiked but your weather model says we're okay — so you go short."
"A week later you update, it's more likely now, but you still think you're right. So you double down to make up for the loss."
"A week before the freeze, we still don't really know the weather. Now you think there's a 30% chance of the event."
"If you're a good trader: it's gone against me, it's not worth the risk of blowing up."
"In Texas the cap is $9,000/MWh vs a normal $50-100 — a hundred times higher. I'm gonna close my position and take the loss."
“It’s a short, right?” Kelly Granat recalls the Gap pitch that changed Steve Mandel’s mind.
Kelly Granat ,CIO of Lone Pine, explains:
"Steve was this super impressive figure who loomed large over the research department given his tenure and his success."
"I go in to talk about The Gap, and he's like, 'It's a short, right?'"
"And I was like, 'No, I actually think it's pretty interesting.' And he makes a face like, 'Are you crazy?'"
"It was a pretty controversial idea because people thought The Gap was a mature business, and the brands were all starting to lose market share."
"At the end he looks at me and he's like, 'Yeah, that makes sense,' and turns around and writes the order."
"I just convinced him, and it ended up being right, which was great."
"The confidence to take the other side against somebody I had so much respect for, and be right, is cumulative."
"I kind of made a career of disagreeing with Steve. And look where I'm sitting now."
Hedge Fund Clips retweeted
Really enjoyed this interview @ethanrkho and @orrdavid!
To point #1, @DavidGFool has done 20% (maybe more) annualized for 20 years. I once asked him how he got so good? He answered: reps!!!
He explained that he picked 3 stocks every single months for something like 20 years. Some of those picks were re-recs. For example, at the time he stepped back from active stock recommendations he had rec’d ISRG 7 times, each one destroying the market. My GOAT 🐐
Hedge Fund Manager David Orr (@orrdavid) on why he’ll back a delivery guy over a Harvard grad, as long as the track record is real.
David Orr runs Militia Capital, a ~$480M hedge fund. ~50% annualized, Sharpe 2.
“If you didn’t go to Harvard, they’re not going to give you money. They’re gonna lead you on for years.”
We cover:
- Edge is just reps. He's placed a few hundred independent bets every year since 2019, more in one year than a lot of hedge fund managers get in a decade.
- The two-hour rule: if he can't decide on a stock in an hour or two, he skips it. When a trade goes against him, he quits. "The market said I'm wrong, I'm wrong."
- 500 positions in his partition and zero notes. Some of his best shorts are down 40% and he's forgotten what the company does.
- The Gogo lesson: he spent 100 hours on a short and was right on the fundamentals (it's now $2), but it ripped to $20 first. All that research made him stubborn on the way up.
- The AI risk system: it groups the book into custom baskets like "Banks Done Right" and "yield traps," recalculated daily. A 25% bet can quietly become 45% in two weeks.
- How Militia recruits PMs: 95% of track records are junk, and one cherry-picker ran 30 accounts and sent the best one. The PMs who make it include a game show winner, a Spanish government worker and a programmer, with 0.15 cross-correlation.
- The best short seller in the world, quietly: 40% a year short only for years, and he still gets a tiny allocation at his fund.
- Why multi-managers' real business is marketing. Collect $2B a year in fees on $100B and it's "mission accomplished," whatever the returns.
- The long/short tax trick: harvest losses on losing shorts, and never cover one that's down 90%. No tax is due until it's delisted, which can take 10 years.
- $150M raised from one email asking LPs for $100M. He says he could raise a billion but won't, and admits they "must have gotten at least somewhat lucky."
- His AI stock map: hyperscalers locked customers into take-or-pay deals at ~35% return on capital. If compute prices crash 80%, the end customers get wiped out, not the hyperscalers.
- Is investing 99% talent? For big alpha, almost entirely. Pod shop alpha is teachable, maybe for 1 in 50 people rather than 1 in 10,000.
Highlights:
00:00 Intro
00:44 How AI custom factor baskets track dynamic correlation in levered portfolios
03:24 Sourcing non-consensus PM talent and verifying live Sharpe track records
07:24 Structuring carry and tax deferral to attract elite proprietary traders
12:50 Why institutional multi-manager platforms fail to back pure alpha
20:22 The two-hour research limit: Avoiding sunk-cost bias in short selling
27:58 Momentum screening vs deep value: Why top longs hit new highs
29:40 Why traditional finance books fail and what operator biographies teach
37:16 Why rapid technological adaptation beats traditional economic moats
39:26 Analyzing the AI trade: Why hyperscalers offer superior downside protection
44:57 Internalizing stock borrow desks to maximize net-of-fee fund compounding
55:25 Avoiding confirmation bias and why shorting revenue growth fails
01:01:42 Pod shop leverage factories vs raw discretionary alpha generation
01:07:12 Unplugging from market narrative feeds to preserve independent conviction
Hedge Fund Clips retweeted
Good company culture with Ken.
Citadel's Head of Global Equities Justin Lubell on the time Ken Griffin threw a project into reverse because the new guy had a better idea:
"My first month on the job, there was a conversation in a conference room amongst a number of people. After the meeting, he came over to me and he said, you looked a little pensive while we were talking about this. What was on your mind? I said, well, I'm not sure that that's really the best way to do this. And he said, why?"
"He called someone and he said, change of plan, we're going to do this instead. I just spoke to Justin, we've got to do this."
"A lot of time, energy, and resources had been put into making the other change. So I tried to hedge myself a little bit. I said, well, Ken, I'm still new here. He said, that's not how it works. I don't care how much money or time we spend doing something. If there's a better way to do it, I want to do it that way."
"So we've been driving this car a thousand miles an hour in this direction, and we're going to go a thousand miles an hour in reverse now, because this is the better way to do it."
"When Ken asks me a question, I just tell him exactly what I think, and I encourage everyone in GE to do the same. We've all been trained: no pride of ownership, just find the best ideas."
Jason Calacanis (@Jason) on where Ken Griffin may be slightly wrong about the AI bubble:
"Based on the quote, I think he may have something slightly wrong. When startups flood to a technology, that is a strong signal."
"They look for the cheapest, best, fastest edge they can get."
"And then it was Facebook ads. Facebook ads were mispriced, they were super cheap. They dumped all their VC money into Facebook ads, and now it's become AI for the last few years."
"If you see startups rush to a technology or rush to a trend, and start spending all their VC money on it, it means this little colony of two to 200 person companies have determined, and they're the most nimble, that this is the best solution."
"So that's a tell that things are going in the right direction. The big, slow, cumbersome enterprises, they're the slowest to the new technology. And that's why they buy startups all the time."
Chamath Palihapitiya (@chamath) on the AI spending loop behind Ken Griffin's bubble warning:
"1% of companies represent 90% of AI spending, so that's tokens. And of that 90%, 80% of them are from unprofitable VC-backed companies."
"VCs raised from pension funds and LPs and foundations and family offices. They put money into a startup. That startup takes that money and invests in growth. Part of growing is by consuming other people's AIs."
"Those folks then say, hey, look how well we're doing, raise a bunch of money from the same VCs, and it's just this circularity."
"What Ken is pointing out is that for AI to really scale as a predictable driver of long-term earnings, it has to diffuse out of the startup ecosystem."
"You can't be in a situation where on the one hand you're talking about breathtaking valuations, but where 75 cents of every dollar is actually just a startup sending it back and forward so that they can mark themselves up."
"What's different here is you have a bunch of money-losing entities just spinning a bunch of money around, and it has to diffuse more broadly."