Mr. Son is the King of leveraged beta (he was briefly the richest person in the world in 1999) and thus far has managed to bounce back from monster-sized drawdowns but the current situation is wild even for him.
First up, Softbank's last earnings report, February 12:
Where Will SoftBank Get The Money To Fund Their Commitment To OpenAI?
By writing-up their stake in OpenAI, naturellement.
From Nikkei Asia, February 12:
SoftBank profit quintuples as OpenAI bet lifts Vision Funds
IPOs set to to deliver 'significant value' to Japanese tech investor, says CFO
SoftBank Group on Thursday reported a net profit of 3.17 trillion yen ($20.7 billion) for the nine months through December, five times that of a year earlier, boosted by a rise in the value of its stake in ChatGPT maker OpenAI....
And the headline story from TipRanks, March 5:
SoftBank SFTBY -4.02% ▼ is looking to borrow up to $40 billion to keep pouring money into OpenAI. This would be the biggest dollar-based loan in the company’s history, showing just how far founder Masayoshi Son is going to keep his firm at the center of the AI boom.
The loan is expected to last for one year. SoftBank is currently talking to banks like JPMorgan Chase JPM -1.95% ▼ to get the deal done. This cash is meant to act as a bridge, giving the company the immediate funds it needs to meet its huge investment pledges while it manages its other assets.
Son Makes OpenAI the Main Focus of SoftBank
Masayoshi Son has made his bet on OpenAI the main focus of SoftBank. With this new $30 billion pledge, SoftBank’s total investment in the AI maker is set to hit roughly $64.6 billion, giving it a 13% ownership stake. This means the Japanese firm’s stock price is now tied directly to how well ChatGPT performs against rivals like Gemini and Anthropic.
To find the money for these massive payments, SoftBank has sold off its stake in Nvidia NVDA +0.16% ▲ , used its shares in Arm Holdings ARM -2.81% ▼ and SoftBank Corp (JP:9434) to get loans, and spent billions on data centers and robotics to build out the physical tools needed for AI.
Analysts Express Growing Credit Concerns...
....MORE
If interested see also:
June 2019's - "Something is not quite right with SoftBank"
Additionally, SoftBank investee WeWork was out looking for a few billion dollar line of credit.
Shades of another disruptor, Sam Insull, leverage at the holding company level, leverage at the operating company level, leverage all the way down...
The leverage in all this, with Softbank lending money to Son and other Softbank employees to invest in Vision Fund 2 and the margining of assets is eerily familiar to folks who know the Insull story.
November 2025's - "SoftBank shares slide as Nvidia stake sale highlights AI funding needs"
That was a rookie fund manager's move, using your most liquid asset to fund your least liquid.
In the olden days proprietary traders/stock jobbers/proto-market makers would keep their share and bond certificates in a box—hence short against the box etc. And in that box the most speculative, least-liquid-in-a-crash certificates were on top ready to be tossed into the maw of a descending market, with the highest quality, most liquid shares at the bottom of the box.
It was a tell as to either the individual trader's finances or to the depth of a downturn to see certs from the bottom of the box coming onto the market.
As a side note, you can still get your stock in certificate form but it will cost you at least $500 per cert. The powers that be, Depository Trust, the brokers et al. really prefer you don't ask for the paper.
November 2025's - "SoftBank stock broke before the market during the dot-com bust, and Citi warns that might be the case this time as well"
December 2025's - SoftBank races to fulfill $22.5 billion funding pledge to OpenAI by year-end (may sell Didi; margin ARM Holdings)
October 2024's - SoftBank’s Masayoshi Son Sees AI Evolving To A Point Where Your Happiness Will Be its Greatest Reward
And possibly related:- "SoftBank is in talks to invest $15B to $20B in WeWork for a majority stake"
- SoftBank In Talks To Acquire U.S. Treasury
Previously on Baby need a new pair of shoes:
Dreamtime Finance (and the Kelly Criterion)
I've been meaning to write about Kelly for a couple years and keep forgetting. Today I forget no more.What Proportion of Your Bankroll Should You Bet? "A New Interpretation of Information Rate"
In probability theory the Kelly Criterion is a bet sizing technique used when the player has a quantifiable edge.
(When there is no edge the optimal bet size is $0.00)
The criterion will deliver the fastest growth rate balanced by reduced risk of ruin.
You can grow your pile faster but you increase the risk of ending up broke should you, for example bet 100% of your net worth in a situation where you have anything less than a 100% chance of winning.
The criterion says bet roughly your advantage as a percentage of your current bankroll divided by the variance of the game/market/sports book etc..
Variance is the standard deviation of the game squared. In blackjack the s.d. is 1.15 so the square is 1.3225.
As blackjack is played in the U.S. the most a card counter can hope for is a 1/2% to 1% average advantage with much of that average accruing from the fact that you can get up from a negative table.
Divide by 1.3225 and you've got your bet size.
It's a tough way to grind out a living but hopefully this exercise will stop you from pulling a Leeson, betting all of Barings money and destroying the 233 year old bank.
I'll be back with more later this week.In the meantime here's a UWash paper with the formulas for equities investment....MORE
How did Ed Thorp Win in Blackjack and the Stock Market?
Journal of Investment Consulting: Interview With Edward O. Thorp
Markets, Risk and Gambler's Ruin
"Not in my house: how Vegas casinos wage a war on cheating"
Finally, another rule of life:
Cassandra's (Not so) Golden Rules About Investing (And Not Investing)
#21. NEVER double-down (except when you have material non-public information and deep pockets) or if you're Ed Thorp, or if you're playing at The Martingale Room.
Don't double down, double up.
