To The Moon

No investor has epitomized 2026 like Leopold Aschenbrenner.

Through June, his $48 billion (at the time) hedge fund, Situational Awareness, was up 439% after fees, an incredible run by any measure.

This morning, Situational Awareness blew up.

What happened and what can we learn about leverage, buying dips, and investing today? That’s what I’m going to dig through today.

Blowing Up

In 2009, I was in MBA school and interned for a hedge fund in the Minneapolis area that did a little bit of everything. There was market making, high-frequency trading, options positions, and even leveraged bets on commodities.

It was a whirlwind of a learning experience, and at the end, I sat down with the owner, who had been in hedge funds for ~30 years.

We talked for over an hour, but one thing stuck out to me:

Everyone blows up, eventually.

The trick is surviving as long as you can.

A hedge fund manager I interned for in 2009

The acknowledgment that the conditions of your business lead to swings so violent that blowing up is a risk was wild to me. The fact that this was a commonly held view in the industry was even wilder.

It’s with that lens that I look at the situation today.

Here’s what I think likely happened.

1. Over the past few weeks, Leopold's positions started to lose money (both long and short).

2. Other hedge funds smelled blood and quickly took the opposite side (probably with leverage), putting further pressure on Leopold’s positions.

3. On Thursday, Leopold's book was shopped to potential buyers ahead of liquidation (which could have caused a panic), exacerbating the selloff.

4. The book was sold (today), and the short-term leverage unwind of Leopold being forced to close positions is no longer a risk, causing stocks to reverse, squeezing funds that took the opposite side of Leopold with leverage (#2).

Jim Cramer wrote about this in Confessions of a Wall Street Addict. When a fund is in trouble, everyone knows almost instantly

A prime broker calls a fund asking if they’d like to buy a large position in Bloom Energy.

“Is Leopold blowing up?”

They call another fund asking if they want to go in on the deal.

“Is Leopold blowing up?”

They build positions to bet against the company blowing up, increasing the likelihood it actually blows up. There’s a concerted effort to squeeze the troubled fund.

They squeeze and squeeze…

Until Leopold capitulated.

He was forced to sell.

What we saw over the past 48 hours is the end of the squeeze and the beginning of the unwind. Short positions are quickly being covered. Hedge funds are…hedging.

Situational Awareness has blown up. And it won’t be the last.

Buying Dips

The question now is: What’s a dip worth buying a what’s a falling knife for investors?

Some of Leopold’s biggest holdings are still down big over the past month.

$Bloom Energy Corp(BE)$ $NEBIUS(NBIS)$ $SharonAI Holdings Inc.(SHAZ)$ $IREN Ltd(IREN)$ $SanDisk Corp.(SNDK)$

Buying dips can be a great way to get a better price on a stock, but what’s the difference between buying a dip and catching a falling knife?

This question is why I do my research and build the Asymmetric Universe ahead of time. So, when $Hims & Hers Health Inc.(HIMS)$ ( ▲ 8.16% ) stock falls due to an FTC lawsuit, I can understand it’s an opportunity because the fundamentals that drive the business are strong.

It’s also critical to not be chasing a theme or a stock because everyone else is. Fear of missing out is real, so I choose not to play that game.

I focus on what’s sustainable.

I focus on companies that are growing profitably and generating free cash flow.

I also don’t use leverage.

Leverage gets investors in trouble. It’s also what turns a dip into a falling knife.

Catching Knives

I’m going to pick on a few stocks in Leopold’s portfolio to explain why it can be hard to see the difference between a dip and a falling knife. I know investors have thought the recent dip in $NEBIUS(NBIS)$ ( ▲ 27.13% ), $IREN Ltd(IREN)$ ( ▲ 30.54% ), and $CoreWeave, Inc.(CRWV)$ ( ▲ 21.51% ) were buying opportunities, but they may be more falling knife.

If you look at their cash flows, there’s no shortage of need for new cash. All three companies will have to go back to the market by selling either debt or equity, or both.

The cash on hand (shown at the end of 2025 for simplicity) won’t cover the bills.

But buying this dip is really a bet that capital markets will stay open. Stock prices will recover, and debt costs won’t get out of control, making the capex I showed above untenable.

But debt costs may already be spiraling.

Yield on Corewave’s 9% 2031 debt.

And debt is piling up.

Why have I missed most of the AI buildout pop? Because I think most of these companies are on unstable footing, either with leveraged balance sheets or unsustainable margins.

I’ve missed a lot of rockets, but I’m worried that dips in these companies are actually falling knives. And if I buy a position that goes up 400% and hold it to zero, I’m still left with zero.

That’s the mistake Leopold made.

A Simple Question

If you don’t want to blow up as an investor, don’t use leverage. It’s really that simple.

And how do you tell the difference between a dip worth buying and a falling knife?

Here’s a simple question:

Will management buy back stock aggressively if the dip gets worse, or will the company be in even bigger trouble?

Answer that, and it’ll go a long way to telling you if this is a dip worth buying or a falling knife to stay away from.