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If you had given a 22- year-old in Chicago one million dollars in November 1990, by early 2023, that million would have grown to 328 million. That same million, invested in the S&P 500, would have yielded you only 23 million. 14 times more with the same money, the same starting point and the same 23 years.
The young man's name was Ken Griffin and his company, Citadel, is today the fund that has generated the most money for its investors in all of history. Now, that figure is easy to say, but that million had a year in which it was halved and in which you, its owner, would have wanted to take it out of there.
And Griffin wouldn't have let you. That decision, the one that made him the villain to many of his own customers, is probably the reason why that million eventually reached 328. So let's trace that million dollars, starting from before it even existed. In the fall of 1987, at Harvard, there was a second-year economics student with a rather particular problem.
I needed real-time stock market prices. And in 1987, that wasn't achieved by opening an application, it was achieved with a satellite dish. The thing is, Harvard didn't allow its students to have businesses on campus. Griffin asked for permission. He argued that his fund was a Florida-registered corporation and therefore an external activity.
And the residence ended up accepting him. The antenna was left hanging outside the window of his room, on the third floor. Inside he had a computer, a fax machine, a telephone, and $256,000 that he had saved up from his mother, his grandmother, and two other investors. Asking your grandma for money for an Uber is one thing, asking her for money for a fund is quite another.
What Griffin was buying is called a convertible bond, and it's worth understanding because it's the basis of everything that happened afterward. A regular bond is a loan. You lend money to a company, they pay you interest and in the end they return what you lent it to you. A convertible fund is the same, but with an extra step.
You can exchange that loan for company shares under the conditions that were set from the beginning. Imagine you lend money to the taco stand on your block. It pays you interest every month, but if one day that taco stand becomes a national chain, you have the right to exchange your loan for a piece of the business.
If things go badly for you, you're still a creditor. If it goes really well, you become a partner. That right to switch places is worth money, and in the 80s the market miscalculated it quite badly. Convertibles used to be sold for less than their individual parts were worth , because very few buyers knew how to put a price on that hidden option inside.
Griffin did know. Therefore, their strategy was to buy the convertible at a low price and at the same time short sell the stock of the same company. And what are both things for? So that he wouldn't care so much whether the stock went up or down. What he wanted was to collect the difference that the market had miscalculated.
In other words, it protected itself against the risk of the stock falling, and thus its bet was much more asymmetrical. And the antenna was used precisely for that purpose, to see when that difference appeared and to capture it before others noticed it. On October 19, 1987, a few days after Griffin turned 19, the Dow Jones fell 22.6% in a single day.
It remains the worst daily drop in its history. Most of the world's funds lost money. The one of a sophomore with an antenna hanging from the window won. And not because he had predicted the collapse. Their position was designed to reduce the impact of a stock market crash. And when the market did its worst, the short side did exactly the job it was there to do.
By his last year, he was already managing around one million dollars from investors. He graduated in 1989, in 3 years instead of 4. From there, he went to Chicago to work with Frank Meyer, the founder of Glenwood Capital. Meyer saw the boy's numbers, introduced him to his clients, and ended up putting a good portion of the initial capital into his own fund.
It started in November 1990 with $4.6 million . It was called Wellington Financial. In 1994 it changed its name to Citadel. Yes, the same Ken Griffin who decades later would buy everything from Leopold Ashenbrener before the market opened. If you saw that video, you already know him. This is where our million dollars comes in .
And for almost 18 years it was the easy story to tell. The fund grew, opening up strategies in stocks, bonds, and commodities. And by 2007 it was already managing around 16 billion dollars. Then came 2008. In 2008, Citadel investments that, in theory, had nothing to do with each other, began to move together.
All in the same direction. By November, their main funds were down 55% for the year. What our million was worth at the beginning of that year was reduced by almost half. And in December, Griffin did what no investor wants to hear: he suspended withdrawals. In other words, if you were their customer and wanted your money back, you couldn't get it out.
In the industry, that's called putting up a fence. Imagine the courage. You're in the worst financial crisis since 1929, your money has already lost half its value and you need it. And the person who manages it tells you that you can't take it out. But think about what would have happened if he had opened the door.
To pay everyone who wanted to leave, I would have had to sell positions at the worst possible time of the century, positions that nobody wanted to buy at any price . And each sale at a fire-sale price would have further depleted what remained for those who stayed inside the fund. Therefore, the fence also protected customers who remained from sales caused by those who wanted to leave.
In 2009, the fund rose around 62% and here's a detail that says a lot about how things are paid in this industry. A hedge fund typically takes a portion of the profits it generates for you, but only from new profits. If your million dropped to 500,000, the fund must first return it to its original value of one million before charging you any performance fees again.
That mark is called the high water mark, which is something like the highest line that water has reached. Citadel took until January 2012 to cross that line again. 3 years without receiving a single penny for performance. And then came 2022, one of those years in which he lost almost everything. The S&P 500 fell 19.4%.
Bonds had one of their worst years in decades, and the average hedge fund ended up in negative territory. Citadel's main fund gained 38.1%. That was $16 billion in profit for its investors in a single year. The largest sum ever returned by a hedge fund in 12 months, even surpassing John Paulson's famous bet against mortgages in 2007.
With that, Citadel overtook Ray Dalio's Bridgewater fund as the one that has generated the most net money for its clients since its founding. And that's where the million from 1990 reached 328 million. When this story is told, it almost always includes the antenna, the 19-year-old genius, the satellite in the window, or the crash that made him rich before he finished his degree.
And the antenna matters, of course. It's the part where Griffin paid to see what others couldn't see. But if you review what happened to the million, what decided his fate was not the antenna, it was two moments in which Griffin protected himself from the worst. In 1987, with a position armed to reduce its exposure to one of the steepest stock market declines, and in 2008 with a fence that nobody wanted.
The first one made him famous, the second kept him alive until 2022. A great year can produce an extraordinary figure, but to reach 32, you first have to survive the falls. And if you want to see the other side of the table, the one about the person who had to sell everything to Griffin in a single morning, I'll tell you that story here too, right here on this channel.
I'm Eddie Ruiz and I love talking to you about finance. If you enjoyed today's story, I invite you to subscribe so we can continue chatting sometime soon . See you.
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