In June 2024, a young former OpenAI researcher named Leopold Aschenbrenner published something that captured the imagination of Silicon Valley.

It was called Situational Awareness: The Decade Ahead.

At 165 pages, it was an extraordinarily ambitious piece of work about artificial intelligence and where the world might be heading. Aschenbrenner argued that AGI by 2027 was strikingly plausible, followed potentially by an intelligence explosion and superintelligence. The paper travelled rapidly through the technology world, and Aschenbrenner became one of the most closely watched young thinkers in AI.

He then did something even more interesting.

He turned those ideas into an investment thesis and launched a hedge fund with the wonderfully appropriate name Situational Awareness. And for a while, the results were spectacular.

The fund made enormous bets around the AI infrastructure boom. As the AI trade exploded, so did the fund. By the end of June 2026, it had reportedly returned 439% for the year after fees. The young man who had written about seeing the future appeared to be doing exactly that with other people’s money.

Success has a fascinating effect on human beings.

When you make a prediction and it comes true, you become more confident. When you make several predictions and they come true, you begin to trust your judgement. When those predictions make you extraordinary amounts of money, other people begin trusting your judgement too.

Then when the world starts calling you a visionary, there is perhaps an even greater danger. You may eventually start believing that you are one.

This is where the story becomes fascinating for investors.

Because by July 2026, the very fund called Situational Awareness suddenly found itself in a situation for which it was not adequately prepared.

AI-related stocks fell sharply. Positions moved against the fund. Liquidity deteriorated. Leverage magnified the damage, and what had produced spectacular gains on the way up became brutally unforgiving on the way down. The portfolio fell 67% in July. Aschenbrenner later told investors that the fund had come closer to permanent capital impairment than was acceptable (meaning it cannot recover its original value) and acknowledged, simply, that they had let investors down.

Eventually, the fund sold the bulk of its public stock portfolio to Ken Griffin’s Citadel and removed the leverage from its portfolio. The most interesting lesson here is not whether Aschenbrenner was right or wrong about artificial intelligence.

It is whether being right about the future is enough and I don’t think it is.

You can be remarkably right about a trend and still construct a portfolio that cannot survive the journey. You can correctly identify one of the greatest technological transformations of our lifetime and still underestimate what leverage, liquidity and human behavior can do to you along the way. You can have extraordinary situational awareness about the world and insufficient awareness about yourself.

That is the real story.

Investing history is filled with intelligent people who understood something important before almost everyone else.Their problem was not necessarily that their thesis was wrong. Sometimes they were too early. Sometimes they borrowed too much. Sometimes they concentrated too heavily. Sometimes they constructed portfolios that required the world to behave in a particular way within a particular period. Sometimes success itself became the source of their vulnerability.

This is one of the great paradoxes of investing.

Failure often makes us question ourselves… Success often stops us from doing so.

After a poor investment decision, most thoughtful investors ask what they missed. They examine their assumptions, reconsider their position and become more cautious. But after a string of successful decisions, something very different can happen. The feedback loop begins reinforcing our beliefs. Each success becomes additional evidence that our way of seeing the world is superior.

Then other people join in.

Investors give us more money. The media tells our story. Our predictions get circulated. People quote us. Invitations arrive. Our assets under management grow. What began as an investment thesis gradually becomes a reputation.

Reputations as we all know can be dangerous things to carry into markets. This is because markets do not know your reputation and they do not care about it either. They don’t know how intelligent you are, how many followers you have, how accurately you predicted the last technological revolution or what nickname somebody gave you.

Markets simply move.

That is why I have always believed humility is not merely a pleasant personality trait in investing. It is a risk-management system.

The humble investor builds a portfolio around the possibility that he may be wrong. A wise investor also builds a portfolio around the possibility that he may be right and still lose money.

That sounds contradictory until you understand the role of leverage.

Suppose you correctly believe that an asset will be worth substantially more five years from now. If you buy it with your own capital and the price falls dramatically before eventually recovering, you may have the ability to wait.

Introduce large amounts of borrowed money and everything changes.

Now it is no longer enough to be right eventually… You must be right before your lender loses patience.

This is one of the reasons leverage is so seductive during good times. It appears to amplify intelligence. If your investment rises 20%, leverage can transform a good return into an extraordinary one. As long as the direction remains favorable, leverage makes the investor look smarter. 

However, leverage does something else that receives far less attention. It reduces time but time is one of the greatest advantages an investor possesses.

A patient investor can survive being early. A leveraged investor may not be given that privilege. Markets can remain irrational longer than your financing arrangements remain friendly. Prices can fall further than your models assumed. Liquidity can disappear precisely when you need it most.

Suddenly, you are no longer deciding whether to sell… Someone else is effectively deciding for you.

This is why the reported sale of Situational Awareness’s public portfolio is so instructive. The fund did not simply wake up one morning and decide that its entire AI thesis had been invalidated. As positions moved sharply against it and liquidity dried up, the structure of the portfolio itself became the problem.

There is an enormous difference between being wrong and being unable to stay in the game long enough to find out whether you were right.

We all would do well by reflecting deeply on that distinction.

We spend far too much time discussing what will happen next.

Will AI stocks continue rising? Will gold outperform? Will interest rates fall? Will small caps recover? Will America continue dominating global markets? Will India compound faster than the rest of the world?

These are interesting questions, but none of them may be the most important question.

The more important question is: What happens to me if I am wrong?

An even better one is: Can my portfolio survive long enough for me to discover whether I was right?

That is situational awareness of a very different kind. It is easy to look outward. It is much harder to look inward.

The great investors understand businesses, economies, valuations and market cycles. But the very best investors eventually learn that they must understand something else too.

Themselves.

They understand how much volatility they can tolerate rather than how much they imagine they can tolerate when markets are rising. They understand how easily recent success can influence their judgement. They understand the seduction of narratives, the danger of concentration and the extraordinary human temptation to confuse a favorable outcome with superior skill. Most importantly, they understand that intelligence does not immunize anyone against human nature.

Sometimes it makes the problem worse.

An intelligent person can construct a far more sophisticated explanation for why he is right. He can defend his thesis more eloquently. He can find more evidence supporting it and dismiss contradictory evidence more convincingly.

Intelligence can help us discover the truth. It can also help us rationalize our beliefs. That is why self-awareness becomes so important.

There is another part of the Aschenbrenner story that I find particularly interesting. On July 24, even after the sell-off had begun, he reportedly described the situation to investors as presenting some of the most attractive opportunities since early 2025 and invited additional capital. Less than a week later, the fund was selling most of its public-equity book.

Think about that for a moment.

This does not necessarily mean his assessment of those investments was wrong. Those securities may ultimately prove to have been extraordinary opportunities.

Investing is however not merely about identifying opportunity. It is about ensuring that you remain financially capable of owning that opportunity long enough for your thesis to play out. Those are two very different skills, and many investors discover the distinction painfully. You can be right about where a business, technology or market is ultimately heading and still lose if the structure of your portfolio does not allow you to survive the journey. There is no prize for eventually being proven right about an investment you were forced to sell. Being right matters but staying in the game long enough to benefit from being right matters even more.

This is where success itself becomes dangerous. When the world begins telling you that you possess unusual foresight, maintaining intellectual humility becomes extraordinarily difficult. You don’t need to become arrogant for this to happen; it can happen quietly, almost invisibly. Confidence accumulates with every correct call, while risk begins to feel smaller simply because the risks you took previously worked. Position sizes become larger; concentration begins to feel like conviction and leverage appears manageable because it has always been manageable before. Yesterday’s success gradually becomes today’s risk budget, and the very experiences that created your confidence can begin creating the conditions for your vulnerability.

This is why some of the most important disciplines in investing can look unnecessarily conservative during great markets. Diversification feels foolish when one asset class keeps soaring, cash appears wasteful when everything is going up, and rebalancing becomes irritating when it repeatedly asks you to sell some of what is working best. Risk limits appear to hold back returns, while avoiding leverage can make the prudent investor look timid beside someone producing spectacular numbers. For a while, caution can look remarkably similar to stupidity. The problem is that we usually discover the difference only after the environment changes.

When it eventually does, all those boring disciplines suddenly reveal why they existed. Diversification, rebalancing, liquidity, position limits and the avoidance of excessive leverage were never designed to maximize how rich you could become if everything went right. They were designed to make sure that no single thing going terribly wrong could remove you from the game altogether. That is one of the most important ideas in investing. The purpose of risk management is not to prevent you from ever losing money. It is to prevent a temporary mistake, an unexpected event or even an extraordinary conviction from becoming a permanent financial outcome. The first job of an investor is not to maximize returns. It is to preserve the ability to continue investing.

Good investing is built not upon certainty but upon respect for uncertainty. That is why I keep returning to the name of Aschenbrenner’s fund.

Situational Awareness.

It is a wonderful description of what every investor needs.

Situational awareness cannot merely mean awareness of AI, technology, geopolitics, interest rates, markets and everything happening around us.

There is another form of situational awareness that matters just as much, and perhaps even more. It is awareness of our own fallibility, of what repeated success may be doing to our confidence and of how much risk we are taking rather than how much risk we believe we are taking. It is the awareness that our portfolio must be capable of surviving outcomes we consider unlikely, because unlikely things have an inconvenient habit of occasionally happening. Most importantly, it is knowing where conviction ends and overconfidence begins and remembering that exceptional intelligence does not somehow exempt any of us from being human.

I don’t know whether Aschenbrenner’s predictions about artificial intelligence will ultimately prove right. Some of the central claims in his 2024 essay, including his timeline for AGI, remain predictions about a future that has not yet arrived. The purpose of this story is not to mock someone after a spectacular drawdown. Markets have humbled investors far older, wiser and more experienced. The lesson is far more interesting than that, because an investor’s greatest risk may not always be ignorance. Sometimes it is knowledge accompanied by too much certainty. Sometimes it is a brilliant thesis attached to a fragile portfolio. Sometimes it is extraordinary awareness of everything happening around us without enough awareness of what is happening inside us.

Perhaps the wisest investors eventually realize that the objective was never to become Nostradamus. It was to build a financial life that did not require them to be Nostradamus in the first place. You do not need to know exactly what AI will look like in 2030, predict the next market correction or identify every future winner before everybody else does. You need a portfolio that allows you to participate in progress while surviving uncertainty, enough humility to accept that even your strongest conviction may be wrong and enough patience to allow time to work in your favor. Above all, you need the self-awareness to recognize when success itself may quietly be changing the way you think about risk.

That is the situational awareness that matters most. We spend enormous amounts of time trying to understand markets, businesses, economies, technologies and the future, believing that the next great investment advantage lies somewhere out there waiting to be discovered. Sometimes it does. 

Occasionally, though, the greatest investment advantage comes from understanding something much closer to home: our own confidence, our own behavior, our own capacity for being wrong, and the risks we can convince ourselves are perfectly reasonable. Before you learn to see the future more clearly, you must first learn to see yourself more clearly. In the end, the most important investor you will ever need to understand is the one staring back at you in the mirror.