These days, the stock market is performing well above expectations. The Dow Jones is above 53,000 points and it seems like every day it is hitting new highs. All this despite volatile and climbing oil prices, uncertainty around AI, and rising conflicts around the world. This strong market is a good thing for passive investors like myself, but it also tempts people into becoming active investors. Economic theory says most of them will not beat the market, and if they bite off more than they can chew, they might lose more than they gained.
Leopold Aschenbrenner: German wunderkind turned Icarus
A prime example of this is Leopold Aschenbrenner, who runs the hedge fund Situational Awareness and wrote the essay of the same name. After raising billions of dollars in assets, Aschenbrenner made large, leveraged investments in companies benefiting from the AI boom. This led to unbelievable returns. The age-old saying tells us that if it looks too good to be true it likely is. In the summer of 2026, lots of people, including Aschenbrenner himself, learned about the downside of investing with leverage. Your returns might multiply, but so might your losses. And when you lose money that isn’t yours, you are bound to get into trouble. As a result, he had to sell large portions of his portfolio to Citadel.
I won’t judge Situational Awareness’ investment thesis or their ability to invest. But what happened to them is not exotic. Concentrate your portfolio, add leverage, then wait for one bad month in your sector, and you get a margin call. Being smart does not protect you from that. What is striking is who ended up with the assets: traditional Wall Street bought the book on the way down. Aschenbrenner is one of many who were pulled into the market by the AI boom. Success stories like this only attract more capital to the exchanges, but when the market turns, the buyers are the firms with the deepest pockets. And unlike Aschenbrenner, retail investors don’t have connections to call when they are margin called.
The Wild World of Day Traders
A while back, I saw a fascinating story on VRT NWS about Gert Wezenbeek, a former dock worker who wrote a book about investing. He had no formal education in finance, learned how to invest in companies by reading books, and has, by his own account, been quite successful at it. In the interview he comes across as a mature investor, certainly more so than Aschenbrenner. He talks about his wins and losses and explains that investing requires time to understand the companies you invest in, an approach called fundamental analysis.
However, things take a sharp turn near the end of the video when he explains his investment process. Using a Google stock chart and a triangle, he starts to analyze trendlines in the price. This type of investing is called technical analysis (TA for short) and it is a popular way for day traders to find investments. This contradicts his own advice to look at the company financials, and the research does not support it either. Some studies do find limited predictive power in particular technical rules, but the evidence that an ordinary investor can turn those signals into lasting profits, once you account for risk and trading costs, is weak (Bessembinder and Chan, 1998; Fifield, Power and Sinclair, 2005). It’s also the favourite strategy of scammers on YouTube who claim to sell you their TA secrets (if they can predict the stock market, then why are they selling a course instead of investing full-time?).
Some readers will know someone who made a lot of money with technical analysis. That is anecdotal evidence, and the stories that get passed around suffer from survivorship bias on top of that. You hear from the winners, not from everyone who tried the same thing and lost. It also helps that the market is performing as well as it is today. Most investment strategies will have a positive return right now and some might even outperform the market. That doesn’t mean the strategy works over the long term or in a bear market. Retail investors get lured in by high gains and success stories. Then they get presented with strategies that look advanced and safe. Driven by the high market, they might invest more or even use leverage and as a result lose a lot of money. It’s the same thing as Aschenbrenner, just with worse tools.
Sophisticated financial institutions also use TA, but not in the way a day trader draws triangles on a chart. They employ quantitative models, automated market-making, arbitrage, and immense computing power. Their algorithms outperform both the market and retail investors, and in many cases they actively exploit them. In India, the regulator accused one of these firms of going further than that.
Why India’s regulator went after Jane Street
Indian markets have far more volume in derivatives than in cash equity. Indian retail investors prefer smaller contracts with higher returns over large stock investments that appreciate over longer time periods. Young investors want to make money fast and don’t want to wait for long-term investments. Like Aschenbrenner, they love leverage. The results are stark. According to the Securities and Exchange Board of India, 93% of individual traders in equity derivatives lost money between 2022 and 2024.
Large trading firms use this to make big returns. Because of the low liquidity in the cash equities market, prices are relatively easy to move (if you have millions to invest). And because the options market is many times bigger than the shares the index is built from, a small push in the shares moves a lot of money in the options. That gap is the opportunity. According to SEBI, Jane Street bought bank shares heavily in the morning to push the index up, built a much larger bet in the options market that the index would fall, then sold those shares in the afternoon to push it back down. They lost money on the shares. That was the point. The loss bought them a far bigger win on the options, in the same market where 93% of individual traders lose money. In an interim order, Indian regulators told Jane Street to hand over ₹4,843 crore (around $566 million) in alleged unlawful gains and barred it from trading. Jane Street disputed the findings, deposited the money into escrow, and the ban was lifted with conditions attached. The case is not settled. Trading across related instruments is standard practice. What SEBI alleges here is something else: crossing the line from arbitrage into deliberate manipulation.
When the party stops
A hot market pulls investors in. Every day we see stories about amazing returns. But at some point the party stops, and there is no bail-out for retail investors. The high-risk, high-return stock market of today, propped up by the AI boom, might leave many investors stranded and the pockets of large financial institutions lined with cash. The remedy is boring. Don’t invest more than you can afford to lose, and don’t try to be clever. The sensible retail investor buys large diversified portfolios such as S&P 500 index funds and does not get excited by crazy returns.