Uploaded August 2026 | Updated September 2026, 1 week ago
If you have been reading the financial press or tracing social media, the story of Leo Aschenbrenner and the rise and fall of his hedge fund, Situational Awareness, has been widely covered, with different views on causes. I use the story of this fund, created to monetize Leo's vision of AI as an immensely successful disruption in the near term, to talk about investment conviction, words often used as positives, when talking about investing. I look at the continuum of conviction from absolute certainty to complete mush, as well as the forces that cause variations in conviction across investments as well as across investors. I then follow up and argue that conviction drives two major investment choices - the sizing of an investment and how much leverage you take, with stronger (weaker) conviction leading to more concentrated (more diversified) portfolios with higher (lower) leverage. I end the session by drawing three lessons from this story: (1) that investment actions (on concentration & leverage) that are out of sync with investment conviction is deadly, (2) that momentum is a force that can upend conviction and (3) that as investor, you will be better off trusting humble money over smart money.
Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/LessonsfromLeo.pdf
If you have been reading the financial press or tracing social media, the story of Leo Aschenbrenner and the rise and fall of his hedge fund, Situational Awareness, has been widely covered, with different views on causes. I use the story of this fund, created to monetize Leo's vision of AI as an immensely successful disruption in the near term, to talk about investment conviction, words often used as positives, when talking about investing. I look at the continuum of conviction from absolute certainty to complete mush, as well as the forces that cause variations in conviction across investments as well as across investors. I then follow up and argue that conviction drives two major investment choices - the sizing of an investment and how much leverage you take, with stronger (weaker) conviction leading to more concentrated (more diversified) portfolios with higher (lower) leverage. I end the session by drawing three lessons from this story: (1) that investment actions (on concentration & leverage) that are out of sync with investment conviction is deadly, (2) that momentum is a force that can upend conviction and (3) that as investor, you will be better off trusting humble money over smart money.
Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/LessonsfromLeo.pdf
