> Due to this - "SoftBank racks up $3.7bn in losses at tech stock trading unit": https://www.ft.com/content/0edb7c17-58e6-4ded-acfa-1822440a9...

Ugh, I hate it when PNL is reported in pure dollar terms with no reference to capital. I get it, the writer/editor wants to make the title punchy, and $4 billion is certainly punchier than say 4%. However, FT is in some way supposed to cater for professionals and I would expect better from them.

For actual informed use, the dollar numbers is largely meaningless. For a $100 billion fund, losing $4 billion is painful, but not the end of the world. For a $10 billion fund, it is likely game over.

>For actual informed use, the dollar numbers is largely meaningless.

You might have this backwards. Actual informed people have a good idea of the scale that these funds are operating at, and can understand without context whether $3.7bn is a lot.

>For a $100 billion fund, losing $4 billion is painful, but not the end of the world. For a $10 billion fund, it is likely game over.

Losing $3.7bn trading stocks in a tech bull-market the likes of which we've never seen is...not good, regardless of the fund size.

I don't believe I have it backwards. Without trying to appeal to authority, I work in the industry and except in very specific cases where it is clear how much AUM a particular fund runs, people will quote percentage returns because it tells you immediately what is the severity.

I'm sorry but nobody can keep all the different AUMs in their head. There are thousands (tens of thousands?) of funds in the world, I really can't be bothered to memorize all their assets. The headline was clearly written to elicit an emotional response, at the expense of information content.

> Losing $3.7bn trading stocks in a tech bull-market the likes of which we've never seen is...not good, regardless of the fund size.

It's not good, but again the dollar figure is completely meaningless: if the fund has an AUM of $100bln, this is a largely inconsequential -4%, which may compare unfavorably to their peer group and may elicit management changes down the line. For a $10 bln fund this is pretty much game over and they would be gearing for a fire sale of office equipment.

> Without trying to appeal to authority, I work in the industry

Fun fact, this is called "apophasis". https://en.wikipedia.org/wiki/Apophasis

I'm not attacking the OP (or is this another apophasis?), especially since they expand on what they mean later in their reply; I just like the word.

In a lot of cases, reporters do not have access to AUM or want to extrapolate from potentially misleading sources in order to construct a percentage return that does not exist publicly. You don't see reporters attempt to extrapolate dollar returns from percentage ones when percentage ones are all that are available; even if dollar returns might make a better headline like you claim. A headline with an extrapolated percentage return would have to be phrased in an awkward manner like "could be down as much as" and an editor is not going to greenlight that. This isn't even broaching the subject of gross vs net percentage returns which isn't possible to succinctly address in a mere headline.

>The headline was clearly written to elicit an emotional response, at the expense of information content.

These days, I'm ok with any headline that isn't a complete fabrication or at best, completely misleading.

>You might have this backwards. Actual informed people have a good idea of the scale that these funds are operating at, and can understand without context whether $3.7bn is a lot.

Even "actual informed people" won't necessarily know how much much any given fund has in AUM.

>Losing $3.7bn trading stocks in a tech bull-market the likes of which we've never seen is...not good, regardless of the fund size.

Actually, fund size is very relevant. Losing $3.7b as a $10b fund will put you in at least 37% drawdown which can put you past a board-controlled threshold at which trading might pause or a re-evaluation of the trading strategies might be triggered. Losing $3.7b on a $100b account is 3.7% which is business as usual really.

If you have a machine learning background this analogy might be useful: if you're building an algo trading strategy then training your model on absolute dollar returns data will be nonsense. What makes more sense is calculating the relative returns or even log-returns because then we're encoding an actual relative change.

You have a good point. But anyone following the SoftBank story within the context of Elliot’s activism is thinking about SoftBank Corp. from an earnings perspective and Vision Fund from a returns perspective. (The latter being easy to translate given its Fund 1 $100bn base.)

The fund size itself means positions will spread out to risky assets and the more money you try to put to work, the more risk you're gonna take.

They lost 4% of their unmanageable capital, big deal.

Seems many of the replies below this are referring to this post, so I'll reply here:

1) FT seemed to have changed the headline, it used to be "SoftBank’s Northstar tech unit racks up $3.7bn in losses" (refer to archive link below), which was much more specific.

The article contents are the same however - many comments below refer to $100B, however the article does not refer to Vision Fund $100B; it refers to their new "speculative trading" division, which was officially announced back in August.

2) Since this is FT, probably most people don't have access to the article due to paywall - the article itself:

http://archive.vn/8NAW7

3) The loss is significant, it is not 4%.

When Northstar started, Softbank announced it started with $555 million; however as of Wednesday announcement now they say Northstar manages 21B of Softbanks 43B cash pile.

3.7B quarter loss is 17.6% of 21B

4) FT has been reporting on Softbank trading for some months now - it was one of the first (or the first) to break the news about Softbank large speculative call options trades back in September (https://www.ft.com/content/75587aa6-1f1f-4e9d-b334-3ff866753...)

5) Finally, this is my personal opinion.

Softbank seemed to have built up a reputation for throwing money at companies at high valuations, with some disastrous consequences (Wework etc).

Now, it seems they are approaching trading with the same cowboy attitude; these high risk trades may work some of the time, when the market is in your favour, but when the wind changes, big losses may incur - this FT report is one indication of such losses.

>One recent development at SoftBank that worries some in Elliott is a new asset-management arm Mr. Son announced in mid-August as cash piled up, to which he will contribute himself. He now personally directs a team of traders using $20 billion of the cash pile to bet on daily moves in tech names including Alphabet Inc., Amazon.com Inc. and Netflix Inc., said people familiar with his trading.

It's ~$20B, though they had market exposure of over ~$50B.

I'm from outside the industry, but this seems outright bonkers to me, like completely unprofessional. Mega fund managers using $20B like a Robin Hood account for day trades?

Unless he literally has quasi inside information, this seems wrong.

I sort of wonder how much of this is embellished. Most of the time risk management products will try to stop this.

I'd have to think the internal risk team at SoftBank is not going to do anything but 'warn' the partners. If the parnters believe in their own koolaid ... (hey, we are 'world class investors, look how much money we raised') it's an easy trap for them to fall into.

Paradoxically - even just being a 'true series D/E fund before IPO' is a really great concept, they should stick to it. WeWork, Uber etc are actually good investments if managed properly. If they reigned in Adam at WW it might have worked out better.

Softbank has gone from 0 to $20Bn day trading in 6 months. I doubt their riks management is up to scratch to be honest. It's one thing to be evaluating single large long-term investments with seats on the board etc. It's quite another to be day trading options.

I think this is a different arm of SoftBank though, not the vision fund.

Also, even capital is sort of irrelevant because of gearing. I can go to the futures market and take the same risk with a $10m fund that you can with a $20m fund in the cash equity market.

Depends on the use. If you're evaluating the fund from an ROI perspective, sure. But the mental math I'm doing is how many perfectly good entrepreneurs could have gotten funded with that money.

But this is exactly what I mean: the title is worded to elicit an emotional response - and it clearly succeeds at that.

This is FT however, I'd expect them to be professional enough to avoid this crappy game of clickbait titles. If the NY Post wrote a headline like "SoftBank suffers a massive $4 billion loss!!!111" I wouldn't bat an eyelid.

From a purely informational perspective, this headline doesn't tell me anything about the actual severity of this loss for SoftBank.

Sorry, I don't agree. Billions of dollars lost are still billions of dollars lost. I agree that some people will want to know in percentages of this or that, and you are clearly one of those people. But you're not their only reader, and I think it's reasonable and appropriate for people to have an emotional response to somebody gambling and losing the equivalent of the lifetime earnings of a couple thousand people.

Context is very important because otherwise you can't claim that the money could've been feasibly spent better and can't even distinguish between loss from gross incompetence or just normal fluctuations.

The Norwegian Govt Pension Fund manages $1 trillion of assets. It's value is likely to fluctuate by billions each day. Would you level the same accusations against them?

Size matters tremendously for these things.

Nobody is saying that the percentage change should never be spoken of again. Nobody is saying that context is irrelevant. Nobody is saying that the topic doesn't deserve a full article, which it got.

For another perspective, two blockbuster drugs could have been funded from start to finish.

"Markets can remain irrational longer than you can remain solvent."

To be completely fair, there exists a justification for (at least some of) the action we're seeing: if developed economies' bond yields are correctly pricing in future nominal gdp, i.e. we will not be back to good times for the next 30-50 years, then owning anything that can grow is tremendously valuable. But it's such a stretch to assume 30-50 years of stagnation, even if the entire bond market agrees with you. I mean do you seriously expect property relationships to not be rewritten in some revolutionary way somewhere along the way if we get 30-50 years of misery?

That's really just the Disco Stu Fallacy of economics at play. Assuming that things _will_ get better and passing the buck onto your descendants is madness. Also how much growth has been stunted by the weight of ancestral spending?

Birth rates are declining and the cost of maintaining our infrastructure is at the point in most high-GDP locations (New York, California, etc) where obligations cannot be met and credit status changes were inevitable _before_ Coronavirus. Look at the insanity New Jersey has gone through with the criminal pilfering of infrastructure/development funds to pay pensions (aka, Christine Todd Whitman should have gone to jail).

We're looking at cascading failures in a complex system. Nobody can see enough of the picture to predict what's next or realize that it's already dead. To assume that we'll right the trend with growth will most likely require either war or (a technical) revolution.

The funny thing about the Disco Stu Fallacy is that Stu was right in the long run.

Disco music in various forms is immensely popular today. It dominates global streaming charts. Rock is the loser.

Stu was just an early adopter facing the through of disillusionment.

Bell bottoms still look stupid, though.

Sure, but none of that music is called Disco and his bet was still a losing one. :)

Kylie Minogue released a top-selling album last week that's literally named "Disco".

How long do you hold the losing investment from 1976?

It took decades for the industry side of Disco music to recover from Disco Demolition Night. Italo and Hi-NRG notwithstanding.

The music might have stayed four on the floor but the names and the people all changed.

Also Kylie Minogue doesn't set trends, she rides them. Most of us realized Disco was still alive 10 years ago.

Pop music, and pop culture in general, seems to operate on a cycle where fashions become vogue again 20-30 years after. Retro gets hip and nostalgia abounds.

I think almost nobody wants to believe in the picture that bond yields are painting, because that world with all its ramifications is so far outside of what we consider acceptable or even possible. Kind of like the "Minsky moment".

PS. I agree that this is not just a covid problem.

Complete layman's take here, but wouldn't a simpler explanation be that bond yields have been artificially manipulated by central banks for the last 12 years, and that they thus don't truly represent the market's expectations for the future of the larger economy?

People have always been saying that the bond market is manipulated, that it shouldn't be trusted, etc. It's up to you to interpret the data. I think it is actually remarkably accurate. Yield curve inversions work like a charm to detect slowdowns and recessions (not just in the US), and if you think for a second then a yield curve inversion is exactly what the market should price in if there's an "air pocket" ahead in nominal gdp. Then, there's the story of Japan, which was predicted early on (1995) to be in stagnation for decades. And guess what, over 2 decades later it turns out the JGBs were right!

There are times when the bond market is very explicitly manipulated, such as towards the end of WW2 in the US. The country's economy was getting seriously inflationary and rates were pegged at 2% (the rate should have been probably over 10% without the manipulation). Thankfully there was much collective sacrifice and the country managed to win the war in time before its economy imploded. Then the typical post war recession and later the baby boom solved everything.

You can detect such situations by things like: wage freezes, rationing, shelves not completely full in shops, large premium on gold bullion particularly small coins, the politicians' talk of "great effort", things like that

I'd like to learn more about how to understand all of this. Is there some resource you can point me to so I can begin the journey to have this intuition?

The tips I would give are: 1) focus on correlations in hard data, there's a lot of bullshit out there and wishful thinking, but as we know causation means correlation, 2) look at further away situations - your own country 100 years ago, 200 years ago, historic empires, other major economies, minor economies. Human behavior is similar across time and space and political arrangements.

Also, reach out to the source. Want to know if "China is hoarding dollars?" Well try to verify it yourself via Treasury data or IMF data. Want to know how does Apple actually make money? Read their statements at sec.gov

Also, if you want names:

Ray Dalio puts out a lot of good research for free as a means of building his legacy. Robert Shiller wrote a lot of good econ. As far as investing goes it's really tough to beat the common sense logic of Warren Buffett and co. and Benjamin Graham and co. The true masters of speculation include George Soros and Jesse Livermore.

So I guess Chris Christie can steal money by stretching interpretations and credulity to rebuild the Pulaski Skyway and it's all justified?

I'm not excluding him. New Jersey finance/politics used to be a success story until the 80s and it's been an unmitigated disaster ever since.

> If developed economies' bond yields are correctly pricing in

Bwahahahahaha....

Oh wait I fell of my chair laughing.

:)

I feel you, but I do have some respect for the markets no matter what they say. At least enough respect to be cognizant of what is being priced in, despite my personal views.

Oh come on, soverign debt is about as far from being "a market" as possible....

I'll believe the yields mean something when the US Treasury issues a special series of bonds that are forbidden to be owned by the Fed or any entity with access to the discount window.

The benefit of a large, well-equipped military is that you get to tell people whether or not you're/they're going to pay your/their debts. For as long as your population is willing to pay for its prosperity in blood.

There's a lot of countries with lower nominal yields that are not known for their military prowess ... like Greece. Yes, greek bonds have negative yields.

Greece has the miliary power of the entire fucking European Union (and its allies) behind them, for as long as they're willing to suffer for the benefit of France and Germany.

In this case, with interest rates near zero, it may be rational for markets to converge on prices that discount the transient effects of a pandemic recession.

Yup, exactly. Low yields increase the duration of equities. This also means that prices become more random (because who's to judge what will Google ads sales look like in 20 years? or what will the iDevice of the 2050 look like? with low enough yields things like these become more and more important).

I don’t know what google’s ad sales or idevice will look like in 20 years, but I am betting the US government will do whatever it can to keep broad market equity index values rising.

Just like the Chinese believe that the China government will keep their apartment prices high.

Maybe, if all of China’s political leaders are invested in apartments.

China’s political leaders are invested in avoiding their version of the French Revolution.

> risk capital has somehow been convinced to stay in the game during this recession

The Fed messaged its willingness to buy bonds. They never had to. The market took the message and ran with it. But it’s a tool borne out of Bernanke’s work the last time around which was borne of his scholarship on the Great Depression.

> It's not Masa that pulled this company from the brink, but the fact that risk capital has somehow been convinced to stay in the game during this recession. Look what corporate bond spreads or IPO/VC underwriting did after March - truly unheard of in the depths of a recession

Which means they are insane

Not to say it isn't insane, but what was the alternative?

Gold bars under the mattress

> the fact that risk capital has somehow been convinced to stay in the game during this recession.

I believe tales of our "recession" are greatly exaggerated. Since COVID-19 took hold, roughly around March 2020, the market hasn't really been depressed, has it?

Recessions are defined reductions in economic activity, usually detected by GDP shrinking. Not by the stock market shrinking.

One would hope that the stock market reflected actual economic activity, but that doesn't really seem to be the case anymore.

> Since COVID-19 took hold, roughly around March 2020, the market hasn't really been depressed, has it?

That's because the Fed said "money printers go brrr!". If it weren't for massive massive massive repeated cash injections into the market to maintain liquidity, we would have had a crash.