Zhongshi never expected that his casual words would become Andrew's investment philosophy. In the future, when Andrew achieved success, he would promote this set of investment ideas everywhere. However, he always remembered Zhongshi's teachings and never revealed any information about Zhongshi to the outside world.
After settling everything, Zhongshi instructed Andrew, "Your company should quickly prepare for the stock index futures positions, whether it's the Dow, Nikkei, or Hang Seng. I think it won't be long before these major global capital markets open up their index markets."
"Alright, I will pass your opinion to the higher-ups."
Andrew respectfully replied. At this moment, Zhongshi was like a deity in his heart. Just imagine, a child under ten years old causing a storm in the international financial market and accumulating wealth in just a few days that ordinary people could hardly achieve in their entire lives—what else could this be if not genius?
Zhongshi nodded and left with Liao Chengde. He now had nearly twenty million in cash and needed to find another securities firm to invest the money in the Japanese stock market. News of the yen's appreciation was spreading widely in the market, making it a great time to buy into the Japanese stock market at a low price.
At this time, the Hong Kong stock market was also in a bull market, making it hard to say which was better between the two. However, the yen appreciated by nearly five percent annually, which was something the Hong Kong dollar could not match.
After exchanging all his Hong Kong dollars for yen at HSBC and opening a Japanese stock market account with their securities firm, Zhongshi invested about ten million Hong Kong dollars worth of yen into the Nikkei index component stocks and then let it be.
Liao Chengde followed suit, buying the same stocks as Zhongshi. At this point, he followed Zhongshi's advice without question. Even if Zhongshi asked him to divorce his long-time wife and marry a young woman around the age of his son, he would do it without hesitation. Of course, he was very willing to do so!
After everything was settled, Zhongshi reunited with his parents and leisurely toured Hong Kong.
...
In Manhattan's Wall Street, Davis was not having an easy time. Although he had noticed the yen's appreciation and sold off part of his position last Thursday, he still held over a thousand contracts. Although he managed to close some positions on Tuesday by luck, he still lost tens of millions of dollars. Fortunately, the Japanese financial conglomerates pushed back against the yen's rise, but Davis was already like a frightened bird, selling his short positions at any cost, which infuriated the Japanese, who cursed "Bakayarou" from afar.
Finally, by the close of trading on Tuesday, Davis managed to reduce his losses to a seven-figure amount. Losing millions of dollars in a single day was already astronomical, and more critically, Davis's investment portfolio lacked any hedging, which severely violated the principles of hedge fund operations.
Such people are not uncommon in later times, and they are often called "rogue traders." A rogue trader is someone who operates independently in transactions, disregarding others' opinions, acting rashly and recklessly, and typically causing significant damage to customers and the institutions that employ them.
For example, Jérôme Kerviel, a trader at Société Générale, made unauthorized investments in European stock index futures, causing a pre-tax loss of 4.9 billion euros (7.16 billion US dollars) for Société Générale. When Société Générale discovered Kerviel's unauthorized trades and began to unwind them, it sparked market speculation, leading to a significant drop in global stock markets. The Federal Reserve then announced an emergency 75 basis point interest rate cut, and some joked that this might be the "turning point" that prevented the world economy from falling into recession.
Another example is Nick Leeson, the "King of the Nikkei," who in 1994 incurred a loss of 1.4 billion US dollars in the Singapore futures market, leading to the bankruptcy of the 233-year-old Barings Bank.
These incidents occurred decades ago and may seem a bit dull. However, just last year, in 2012, a trader nicknamed the "London Whale," Bruno Iksil, was exposed for his positions and targeted by hedge funds. The result was a massive loss of 2 billion US dollars for JPMorgan Chase.
Davis's losses were naturally not as significant as those of the aforementioned traders, but the institutions behind these traders were immensely wealthy banks, far beyond the scale of the small hedge fund he worked for. Davis could already imagine his fate.
As he was packing his belongings in a cardboard box, he heard a voice calling him, "Hey, Davis, the boss wants to see you!"
Davis felt a pang of bitterness, thinking that the inevitable had finally come. He straightened his back, put on a calm expression, and walked straight to the largest office, knocked, and entered. "Boss, you called for me?"
"Hey, look at our hero! The incredible genius!"
An elderly man with thick-rimmed glasses stood up and introduced Davis to two middle-aged East Asians.
"What's going on?"
Davis was momentarily confused, looking at the smiling boss, Taylor, and the two smiling East Asians. His mind quickly turned, and he vaguely guessed who these two might be.
If his guess was correct, these two were representatives of a Japanese financial conglomerate, here to collaborate with Space Capital on the yen market. Looking at the two who were respectfully standing before him, Davis did not dare to feel the slightest bit of complacency. These Japanese appeared humble, but their cultural background was just a facade; their power behind the scenes was not to be underestimated.
"Hey, Davis, why don't you introduce your performance in the yen futures to our Japanese friends?"
Taylor looked smug as he gave Davis an order. He already knew about Davis's losses in the yen short futures and had initially planned to fire him. However, in the afternoon, the Mitsubishi Group called, expressing interest in investing in Space Capital and looking for a good trader to manage their arbitrage and hedging.
This news immediately quelled Taylor's anger. The shrewd Taylor quickly decided to keep Davis, as attracting a large amount of capital would also bring in significant management fees.
"Here's the situation, gentlemen. My strategy in the yen market is..."
Understanding the situation, Davis was invigorated and was about to speak confidently. Suddenly, a loud noise came from outside, followed by a deathly silence.
"What's going on? Can someone tell me?"
Taylor, who was used to a noisy work environment, was uncomfortable with the sudden silence. A sense of unease rose in his heart. Space Capital was the result of his life's work. He had started as a trader at a bank and, after gaining enough experience, founded this hedge fund. With the connections and relationships he had built, he had thrived in the capital markets. He often lit a cigar in his office, looking at the busy traders in the hall, reminiscing about his younger days.
"I'll go check."
Davis volunteered and opened the office door. He saw two white men in suits, each holding a briefcase in their left hand, walking straight toward him.
Behind them were traders with stunned expressions, each showing a mix of sympathy, pity, and perhaps even schadenfreude. Davis couldn't quite put his finger on the exact emotion.
The two men stopped in front of him and asked expressionlessly, "Jeremy Davis?"
"It's me. What's happening?"
Davis still didn't understand what was going on. He just felt that the two men in front of him were too serious, which made him very uneasy.
"We are from the U.S. Securities and Exchange Commission (SEC). We suspect you of insider trading and price manipulation. Please cooperate with our investigation. I suggest you get a good lawyer!"
The older investigator pulled out his badge and flashed it in front of Davis, then coldly said. Of course, he didn't forget to mention the "Miranda warning."
The "Miranda warning" is the familiar "You have the right to remain silent, but anything you say can and will be used against you..." based on the Fifth Amendment of the U.S. Constitution, which must be stated by law enforcement when arresting a suspect.
"SEC... Oh no!"
Although Davis had generally followed the rules in the futures market, he had engaged in some unethical behavior in the stock and bond markets in the past. As the saying goes, "If you walk by the river often, how can you avoid getting your feet wet?" Davis felt a darkness cloud his vision, knowing he was finished.
Upon hearing that the man was from the SEC, the fifty-something Taylor jumped up from his chair, rushed to Davis, grabbed his collar, and shouted, "You son of a bitch, you're fired!"
At this critical moment of negotiations with the Japanese financial conglomerate, being targeted by the SEC would ruin the deal. Taylor knew that the charges would not just affect Davis but could potentially drag the entire Space Capital into the mess. He could already imagine the fate of his life's work.
The two investigators escorted the dazed Davis out, and soon a large number of law enforcement officers rushed in, seizing computers and documents, causing the remaining staff to tremble with fear.
"Since this has happened, let's put our discussion on hold. We can talk again in the future."
The two Japanese men exchanged a glance, said some polite words, and then left, bowing deeply before they went.
Taylor, now a limp figure, slumped onto the sofa, weakly waving his hand as a farewell to the Japanese guests. His mind was filled with words like "redemption" and "closure."
Sure enough, after six months of investigation, Space Capital reached a settlement with the SEC, paying a hefty fine of 45 million dollars. During the investigation, Space Capital's clients redeemed their shares, and by the time the settlement was finalized, the hedge fund's funds were nearly depleted. Soon after, Space Capital announced its closure. As for Davis, he was stripped of all illegal gains, sentenced to three months in prison, and banned from the market for life. (Thank you for your support! Please recommend and follow the book.)