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In July, roughly 360,000 Korean retail accounts were sold out of their positions. Their brokers made that call, because those investors had borrowed money to buy stocks and the stocks fell.
Around the same week, a hedge fund that had reportedly grown to about $45 billion at its peak handed its entire public stock portfolio to Citadel in a single morning. Same cause.
A 20-something in Seoul and one of the most-watched AI investors on the planet, taken out by the same mechanic within days of each other. That mechanic is worth understanding cold before you ever touch it.
What a margin loan is
Your broker lends you money and holds your stocks as collateral. You keep the upside, you pay interest, and the loan sits underneath everything you own in that account.
The closest everyday version is a home equity line of credit, with one difference that decides the whole story. If your home's value drops, the bank doesn't sell your house that afternoon. Your broker can sell your stocks that afternoon, and the paperwork you signed says they don't have to ask.
The math, with real numbers
You have $10,000. You borrow another $10,000 and buy $20,000 of one stock.
The stock falls 25%. Your position is worth $15,000, the loan is still $10,000, and your slice is $5,000. A 25% move in the stock cut your money in half.
Brokers set a floor on how thin that slice gets, usually somewhere around 25% to 30% of the position value, though it moves by broker and by stock. At $15,000, your $5,000 is a third of the position, so you're hanging on. Another bad session puts you under the line, and the margin call arrives: wire in cash by a deadline, often the next morning, or the broker sells enough stock to fix the ratio.
The company's fundamentals get no vote in this. Neither does your time horizon.
Now scale that up. Margin debt across Korean brokerages hit a record near 38 trillion won in late June, per figures cited from the Korea Financial Investment Association, and press reports put a large share of it in the same few names, Samsung Electronics and SK Hynix among them. When most of the borrowed money in a market sits in one handful of stocks, one investor's forced selling pushes the price down for every other investor holding the same thing on margin. Reports put the count at about 1.2 million accounts hitting a margin call over a few weeks, with roughly 360,000 liquidated.
The part that stings
Forced selling lands at the worst available price. The broker sells when your slice is thinnest, and your slice is thinnest when the stock is lowest.
Leopold Aschenbrenner's fund is the clean illustration. His book had reportedly returned 439% net through June, then his largest positions in memory, AI power, and data center names fell more than 30% in about a month. He reportedly ran gross exposure of around 4 times his capital, so a 30% drawdown in the holdings was more than enough to eat the cushion. Citadel bought the entire public book in one block on July 30, and several of those positions were reported to jump more than 20% within days of changing hands.
His thesis may well be fine. His financing wasn't. Owning the right company with borrowed money means you also have to be right about the timing, and nobody is right about the timing.
That's the lesson underneath both stories. Leverage charges you your patience, and patience is the single advantage a self-directed investor holds over a fund.
Three ways people take on leverage
Margin loans. Real debt, real interest, and the broker holds the sell button. This is the one that produced both stories above.
Leveraged and single-stock ETFs. No margin call here, and a different problem instead. These funds reset their exposure daily, so a choppy or falling market grinds value out of them even when the underlying stock ends flat. Korea's Financial Services Commission halted new single-stock leveraged ETF listings during the July drop, and a minister publicly apologized to investors sitting in them. You can lose most of your money in these without a phone call ever coming.
Long-dated call options. You pay cash upfront, so there's no loan and no margin call. Your worst case is the amount you paid, and you know that number the day you buy. This is the only form I use.
Worth a quick check of what you already own. If you hold a 2x or 3x fund, a single-stock leveraged product, a portfolio margin account, or you buy before your cash settles, you're using leverage whether or not you'd call it that.
How LEAPs work
A LEAP is a call option that expires a year or more out. LEAPs stands for Long-Term Equity Anticipation Securities, which is a lot of syllables for "a call option with a long fuse."
A call gives you the right to buy 100 shares at a set price (the strike) by a set date (expiration). You pay for that right upfront, and that payment (the premium) is the entire amount you can lose.
Say a stock trades at $200. Buying 100 shares costs $20,000. A call with a $150 strike expiring 2 years out might cost $60 per share, or $6,000 for exposure to the same 100 shares. Above $150, that contract tracks the stock closely.
The number that tells you how closely is delta: roughly how much the option moves for each $1 the stock moves. A deep in-the-money LEAP, where the strike sits well below today's price, might carry a delta near 0.80, so it moves about 80 cents per dollar. The deeper in the money, the more it behaves like the shares themselves.
Cheap out-of-the-money calls, where the strike sits above today's price, are a different trade wearing the same clothes. The stock has to travel before the contract is worth anything at expiration, and if it stalls, the premium goes to zero.
The costs are real, and they show up differently from margin costs. Time works against you, because a piece of what you paid burns off every day and it burns fastest in the last 2 months. You collect no dividends. Thinly traded contracts carry wide spreads, so you pay to get in and give some back to get out. And a LEAP carries a deadline that shares never have.
What you buy with those costs is the absence of a margin call. Nobody rings you at 9am. Nobody sells your position while you're asleep. The worst outcome is the premium, and you signed up for that number knowingly.
How I hold it
My public equity money sits in two layers. The larger layer is broad diversified ETFs, and it's there to carry the portfolio whether or not I'm right about anything. The smaller layer holds the high-conviction names I actually research and write about.
Leverage lives inside a slice of that second layer and nowhere else. I use long-dated calls, never margin loans, and only on companies I'd be glad to own outright in shares. I add them after big drawdowns rather than into a hot run, because that's when time value is cheaper and the thesis usually hasn't changed.
The split does one job: a bad call in the conviction sleeve costs me a quarter instead of the plan.
What July actually taught
Borrowed money buys you size today and takes away your ability to wait. That trade can be worth making, and I make a small version of it.
It's worth making when you can say out loud, before you enter, the exact price at which you get sold out and what you'll do the morning it happens. If that number won't come to you, the honest amount of borrowed money is zero.
Shares you own outright can fall 60% and still be yours. Everything in this issue comes down to that one difference.
Stay disciplined, Koh
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Disclaimer: Nothing in this email, the Reset and Invest newsletter, the Make Your Own Alpha book, or any course or digital product from Starshine Media LLC constitutes investment advice or a recommendation to buy or sell any security. Numbers and observations are as of publication. I may hold positions in companies discussed. Always do your own research and consult a licensed financial advisor before making investment decisions.