Leopold Aschenbrenner’s Short Seller Fairy Tale

Leopold Aschenbrenner’s hedge fund, stuffed like the ass of a Thanksgiving turkey with every trendy AI name you could throw a dart at, reportedly suffered one of the most spectacular drawdowns of recent memory, losing roughly 67% in July after a series of heavily leveraged bets went violently against it.

According to the Wall Street Journal, the losses became severe enough to trigger margin calls, forcing the firm into emergency asset sales. Public positions were reportedly sold to Citadel to raise liquidity, and the fund even negotiated a multibillion-dollar sale of its prized Anthropic stake before apparently changing its mind the following morning.

It is, in every sense of the word, the kind of month that reminds people leverage is not just a way to make returns bigger…it’s a way to make your mistakes arrive all at once.

What’s remarkable isn’t that the fund blew up just weeks after everyone in the media started slobbering over Aschenbrenner as if he was some visionary for figuring out the “strategy” of buying crap featured daily on CNBC using leverage. Markets have been humbling overconfident investors since the Dutch were trading tulips. What’s remarkable is that, according to reports describing the investor letter, Aschenbrenner partially blamed short sellers for accelerating the collapse, likening the experience to a bank run:

Aschenbrenner partially blamed short sellers who targeted the firm’s positions for exacerbating the fund’s losses, the letter said. The letter compared Situational’s experience to a bank run. Aschenbrenner told investors that the firm had removed all leverage from the portfolio.

And that is where this story stops being about investing and starts becoming about accountability. There is perhaps no bigger bitch move in finance than levering yourself to the eyeballs into the most crowded, most euphoric, most narratively beloved sector on Earth, riding the momentum all the way to the top tick of a genuinely pornographic stock bubble, detonating your own portfolio when the inevitable correction arrives, and then looking around the room for someone else to blame.

That’s not what investors pay hedge fund fees for. They don’t wire you billions so you can discover, after the fact, that markets occasionally go down and that other participants are allowed to disagree with your positioning.

Let’s clear something up, because this myth refuses to die every goddamn market cycle: short sellers do not possess mystical powers to force stocks lower simply because they dislike them.

A short sale is not the financial equivalent of Voldemort casting a spell over the tape. A short seller borrows shares, sells them into the market, and eventually has to buy those same shares back. That’s the entire trade. If enough genuine buyers exist who are willing to absorb that selling pressure, the stock doesn’t go down, it goes up and the short seller gets obliterated. Ask me how I know.

We’ve watched this movie countless times. Tesla. GameStop. Nvidia. Countless biotech squeezes. The market has an extensive history of taking arrogant short sellers, introducing them to the concept of unlimited losses, and escorting them directly into bankruptcy.

The reason stocks collapse isn’t because shorts are somehow overpowering reality. Stocks collapse because the marginal buyer disappears. They collapse because valuations become impossible to justify. They collapse because the people who spent months insisting they would “buy every dip” suddenly become strangely unavailable once the dips become serious.

Shorts don’t create that dynamic. They participate in it. If they could simply dictate prices through force of will, every dedicated short seller would be richer than Warren Buffett, and every bubble in history would have ended before it began. Clearly that’s not how markets work.