HX Weekly: October 19 - October 23, 2026

Hello reader, welcome to the latest issue of HX Weekly!

This week for HX Weekly, we are going to share a very important note. This is an idea we have been working on for quite some time.

In it, we discuss how the largest hedge funds in the world are impacting your stock holdings in ways that are not clearly obvious. They are also creating opportunities for you as investors!

Given the length of the note, we will not be publishing a Redux or Biography note this week but will return to our regular format next week.

Have a great weekend everyone!

The world of Wall Street is a complex one.

There are trillions of dollars moving around every day moving the stock market.

If you watch the financial media and listen to the “smart” money, they will talk about interest rates, the price of oil and elections.

Pay close attention, though, and you will see it often doesn’t add up.

What is moving the market in one direction one day can be moving it in the exact opposite direction the next. On the SAME news.

The reality is that many of the short-term (a few days or weeks) moves on Wall Street are driven by the flow of money by the big players.

The flows most often don’t have anything to do with what the “smart” money is selling you.

In this week’s HX Weekly, we are going to tell you about the biggest funds on Wall Street and how they are impacting your investments.

The funds are called “multi-strategy” hedge funds.

You may have heard of many of them including Citadel, Millenium, Balyasny and Point72.

They are run by some of the most successful investors of all time. Billionaires like Ken Griffin and Steve Cohen.

Each of the funds has different origins but today their largest strategies are similar.

They go out and hire the smartest analysts and portfolio managers on Wall Street. The ones who understand the stocks and industries the best.

They then create teams they call “pods.”

These usually consist of a portfolio manager and up to a dozen analysts.

They then give that pod access to capital. Usually, they may start new managers out with a couple $100 million.

Teams with a track record of success might have billions available.

While the specific goals and rules of the game for these individual teams might vary, they all have one overarching goal – make money consistently and do NOT lose REAL money.

Let me explain what that means in practice…

These pods focus on a specific industry group like financials or industrials. Some pods can do multiple groups, and a few can do almost anything. Most of the money, though, is focused on a particular group.

They then both buy (go long) and sell (go short) stocks in that group.

There are variations of the strategy, but they are looking to find stocks that will go up both in the short and long term. It is important to emphasize this NOT long-term investing.

While they could hold a stock for years, very few positions are held that long. Most are held for weeks or months and sometimes even just a few days.

On the other side, they are trying to identify stocks they think will go down.

The idea is that they take out the market risk of that particular industry and the stock market overall by owning roughly as much stock as they have sold.

This allows them to focus on the particulars of each stock and isolate the “alpha” or their research or trading edge.

So, a pod that has $100 million of capital to deploy might own $50 million in stocks while also being short $50 million in stocks in that same industry.

They have $100 million of risk deployed in the strategy but, in theory, their industry and stock market risk is lower. It is not necessarily zero despite the same amount being deployed long and short, but it is definitively lower.

So far, this doesn’t impact you all that much.

It is the “rules” of the game of how these big firms manage these pods that impacts you.

First, it is important to understand that these funds manage a huge amount of money. The four I have highlighted manage over $250 billion. Estimates are that the total amongst all the funds employing these strategies approaches $1 trillion dollars.

Compared to the $80 trillion market capitalization of the US stock market, it doesn’t sound like much.

What gives them a much greater impact is LEVERAGE.

These funds will typically deploy financial leverage of 5x to 10x.

This means that while Millenium may have $90 billion of assets-under-management, they may have up to $500 billion of exposure to stock positions.

They feel comfortable with this type of leverage for two reasons.

First, as we described above, they work to “hedge” out the exposure to the industry group and overall stock market. This gives them comfort on taking this type of exposure.

The second reason we will discuss below because it is the one that impacts you.

With this type of leverage, this means these funds may employ $5 trillion to $10 trillion of capital. This makes them 6% to 12% of the total market. THAT is a much greater impact.

In fact, their impact in the short-term can be even larger.

Here is a great podcast from famed investor Bill Ackman discussing various subjects including the impact of these funds.

Bill discusses the impact of these funds and we will outline them below.

He also talks about why the funds can have even more of an impact than the numbers I referenced above.

Index funds and other passive investment strategies likely make up more than 40% of the US stock market now. These funds only sell when changes are made to the indices and as they have capital flows.

This means that in the short term, for the most part, they are not active participants in the markets.

Another 30% is owned by foreign investors, who for several reasons, are also unlikely to be trading actively.

Subtract out this 70% and the capital deployed by multi-strategy funds becomes 17% to 34% of the market.

These funds may be up to one-third of the active trading in the market at any time.

The problem for retail investors is that during periods of market selloffs they are even MORE of the volume and make the decline worse!

How?

The second reason these funds are comfortable deploying the financial leverage they use is they use tight risk controls.

If one of the pods draws down -15%, -10% or even -5% - they quickly reduce the capital given to that strategy. Regardless of what is happening to the underlying fundamentals.

This makes sense because if you have just five times leverage and were to see a -5% decline across all your teams, it would be a -25% drawdown.

Remember, these funds are built on the idea that they will NEVER lose investors a lot of money. Forget -25%, losing -5% in a month for one of these funds would be a disaster.

This means that when the stock market sells off across the board, these funds may trigger their risk controls. This creates even MORE selling.

This was one of the drivers of the big sell off in the AI related stocks back in July.

It is also a big driver in the selloff in them here recently.

Many of these pods owned a lot of these stocks.

Not just in technology. In other industries like industrials, utilities, and financials. They have been buying companies that are benefitting from the build out of the AI infrastructure.

This has worked out well for them as the build has fueled positive earnings momentum.

The combination of earnings growth, beating numbers and positive earnings revisions (sound familiar?) has led to higher share prices.

This brought in even more money.

This is how many of these non-technology, yet AI impacted, companies have seen their share prices go up many fold in the last 18 months.

The problem is that these funds became very “overweight” in these winning ideas.

This has left them vulnerable to these funds taking down their exposure.

Again, regardless of what is happening to the underlying company.

In my view, this is why many of you have so many companies in your portfolios that are down severely in the last few months despite GREAT fundamentals.

The bad news is that SUCKS.

The good news?

These funds are NOT selling because these companies have seen a negative change in their business.

They are selling purely as a risk management process and to de-leverage their portfolios.

Eventually they will bring the leverage down enough that they are comfortable and STOP selling.

Then, if the fundamentals remain solid, they will go back in and begin to slowly rebuild these positions.

To many of you this sounds inefficient, but from a trading perspective it makes a ton of sense.

Run high leverage on winning momentum positions but cut them quick if they lose money. Then wait for them to reassert themselves and go back in…

Yes, these funds can be “whipsawed” in many individual positions but the money they make on the leverage on the established trends more than makes up for that.

More importantly, the risk of a knockout blow is eliminated with the risk management.

The ultimate impact of this for you as an individual investor is that many good companies with great fundamentals can trade down much faster and much more than you would expect.

Most of the time this is a BUYING opportunity.

We think what is happening right now is one of those types of opportunities.

These mega-money masters may control the most money in the market but you can control your own trading account.

You can turn their risk controls into your profits!

We hope that you’ve enjoyed this week’s issue of HX Weekly…

Do you have any thoughts, questions, or feedback? Tell us more in the comment section or at [email protected].