macrocephalopod

Obviously Archegos did not lose anywhere near $110 billion - they lost something like $10-15 billion plus maybe another $7-10 billion lost by prime brokers (CS, Nomura etc). So did the FT or Bespoke fuck up?

No! Pink line on the chart shows an estimate of Archegos' portfolio size (reconstructed from bank 13-F filings) assuming *constant 5:1 leverage* The constant leverage is important as it means that portfolio size grows/shrinks very quickly even when gains/losses are modest.

As an illustration assume a $100 portfolio which is levered 5:1 so has $500 of stock and $400 of debt. If the stock rises 20% you now have $600 of stock, $400 of debt and portfolio value of $200. So you have a 100% return (= 5 x 20%) but you are now only levered 3:1

To maintain leverage you need to buy another $400 of stock using a loan, giving a portfolio of $1000 stock and $800 of debt. If the stock rises 20% again (gains of $200) you need to buy another $800 of stock, and if it rises 20% a third time you need to buy another $1600.

After three 20% rises you have increased your portfolio size from $500 to $4000 -- an increase of $3500, of which $700 was investment gains and $2800 was new purchases.

Now if the stock falls 20%, your portfolio falls to $3200 (loss of $800) but it completely wipes out your equity. You need to sell the remaining $3200 of stock because you can no longer meet margin calls.

On the round trip the stock was up 38.2%, you bought $3300 of stock, sold $3200, and lost your initial account balance of $100. Leverage!

The *right* way to read the FT/Bespoke chart is that there was a loss of about $22 billion (not totally accurate, but ballpark if you think Archegos lost $15 billion and banks lost $7 billion) and around $88 billion of stock sold (not far off the $85 billion estimates)