SoftBank's $21B+ Vision Fund loss, signals of a bubble, macro picture, Trump raided by FBI

Episode 91 opens with loose chatter. One host says he has just been wakeboarding on a lake at Tahoe, another describes a trip with five kids around the island of Sardinia, and the group teases a host about how many shirt buttons are undone, joking that the number rises with his bullishness on the market. The introductions poke fun at each host in turn, including a quip about a $9 clip-art backdrop.

The banter drifts to a host's linen shorts and whether they are too tight, and it stays purely comic. Nothing in this stretch bears on the episode's substance, and the host leading the show moves on by saying there is a lot to cover.

The lead topic is the Vision Fund's $21,000,000,000 investment loss for the quarter. The host says Masayoshi-san released a roughly six-minute interview on SoftBank's earnings page, and notes that none of the others seem to have watched it. He sets context from what he says are the facts: Vision Fund 1 was a $100,000,000,000 fund, the largest venture fund ever raised, while SoftBank's current market cap is $66,000,000,000.

He then reads from a press article, which he cites by an abbreviation that is unclear in the transcript: SoftBank would subject itself to dramatic cost cutting after a $59,000,000,000 gain at the two Vision funds almost completely reversed over six months, having peaked at almost $60,000,000,000. The presentation opened with portraits of Tokugawa, whom the host calls the founding shogun of Japan, before he plays a clip of about 68 seconds.

In the clip, as transcribed, Masayoshi says Tokugawa suffered a big defeat against a much larger army after refusing to stay in his castle, as allies advised, because he did not want to lose face. Tokugawa later had a portrait made to remind himself of the lesson. Masayoshi applies the story to SoftBank: two consecutive quarterly losses of about 3 trillion each, around 6 trillion in six months, and a need to remind himself of the lesson. The transcript does not state the currency.

The host calls it a spectacular loss and highlights a line from the question-and-answer part, which he quotes as saying that when profits were big he became "somewhat delirious" and is now "embarrassed and remorseful". The host adds his own view that Masayoshi complained about a giant bubble without acknowledging his part in it.

As evidence of that role, the host cites a $4,000,000,000 check to WeWork at a $47,000,000,000 valuation after what he describes as a 20-minute meeting with Adam Newman, using the spelling in the source. He then describes a quarterly net income chart, explaining that SoftBank can be seen as a holding company with assets such as Alibaba, formerly Uber, and the Vision Fund holdings.

A second chart shows a 97% decrease in capital deployment. In the first quarter of 2021 SoftBank put $20,000,000,000 to work, while in the first quarter of this year it is putting $600,000,000 to work. The host adds that nobody has ever put this much money to work, especially in private companies, and suggests that deploying $100,000,000,000 at the top of the market may have effectively created the top.

Asked for lessons, Chamath argues that anyone attempting to be great will sometimes look the opposite. His comparison is that the player who takes the final shot is the same one who can miss it. He says Masayoshi's 50-year career has had huge ups and downs: the same person who, in Chamath's telling, turned a check of 25 or $30,000,000 into $125,000,000,000 from Alibaba, and who was briefly the richest person in the world before losing 99 percent of his wealth in the dot-com bubble. These figures are his own and were not checked.

Chamath says he has enormous respect for the courage this takes and criticizes people who talk about investing but crumble when it matters. He calls Masayoshi resilient and someone who tends to land on his feet, and the same person who can make $125,000,000,000 can lose $30,000,000,000.

He adds a point he says nobody discusses: Saudi Arabia and Abu Dhabi structured their Vision Fund investment smartly, with more than half in preferred equity, which he describes as effectively debt paying a coupon, perhaps 6% on $50,000,000,000. In his account, even a break-even Vision Fund leaves them ahead. He also says SoftBank has used derivatives and forward swaps to sell down 25 percent of Alibaba and manage liquidity, so that if another swing connects it could end up with half a trillion.

Pointing to a chart of gains and losses at the Vision Fund, the host sees an early rise, a peak run-up in 2021 and then a crash. His lesson is that SoftBank apparently sold no portion on the way up, and that trimming 10 or 20% of winners could have produced a very different outcome. He still agrees that Masayoshi swung from the fences, and says downside protection was built in for some of the limited partners.

Another host, answering the question about lessons, says Masayoshi did something the questioner could never do, which is admit a mistake. The quip draws a teasing reply about waiting for the first mistake to admit. He then asks the host to imagine running $100,000,000,000 for sovereigns instead of $100,000 for doctors and dentists, and to put himself in Masayoshi's position. The others tease him for being sharp so early in the morning.

Speaking more seriously, the host agrees SoftBank made peak decisions that were a little bubbly and did not take chips off the table when it probably should have. He says the psychology of a bubble is powerful. Citing Bill Gerley, as spelled in the source, he describes bull markets as a sawtooth: they climb gradually for 9, 10, 11 or 12 years and, when they end, fall like an elevator going down.

He adds that if the market had run a couple more years, Masayoshi would have made a lot of money. In any event, he notes that Masayoshi took responsibility for the losses in what he calls a culturally Japanese speech, joking that he did not commit seppuku but was heading in that direction.