REGISTER HERE - https://forms.gle/HMqmg1vCaXkCogwEA

'Gripping' Economist

'Jaw-dropping' Sunday Times

'Riveting' Financial Times

'Fascinating' Reuters

We are entering an age of energy crises and food shortages. This book reveals why. Meet the swashbuckling traders who supply the world with energy, food and metal. Their goal: To make billions by buying and selling raw materials - flogging Russian gas to Europe, Saudi oil to America and Congolese metals to Silicon Valley. Their methods: Whatever it takes - whether funnelling cash to Vladimir Putin's sanction-stricken Kremlin, schmoozing Russian metal oligarchs after the collapse of the Soviet Union, or striking deals with the Libyan rebels at the height of the Arab Spring.

These are the commodity traders. You've probably never heard of them. But, like it or not, you're one of their customers.

Javier Blas and Jack Farchy are two of the world's best-known journalists covering energy, commodities and trading houses. They both work for Bloomberg News, where Blas is chief energy correspondent and Farchy is a senior reporter covering natural resources. Previously, they covered commodities for the Financial Times.

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© BREAKINGWATERS Media Ltd.

I want BREAKINGWATERS to be a conversation on equities but equally I don’t want to be bombarding you with emails - markets are always moving, thinking is updated daily and insights develop in real time so I’ve launched a BREAKINGWATERS WhatsApp channel!

A Whatsapp channel will allow me to keep emails to a sensible level while also offering a more nimble and personal experience where you will be first to see content, you can check in at your convenience on eveything that’s going on, you can emote, respond, reply, forward and interact as you see fit!

HOW TO JOIN

To get signed up, follow this link - https://whatsapp.com/channel/0029VbD3RAr4dTnMlKKI5q2h

or, if that won’t work, then this QR code will get you added:

Once it hits 100 followers, you will be able to go into your WhatsApp and beside “Chats” down the bottom, you will see “Updates”

Open the search function in “Updates”

And type in BREAKINGWATERS (Large or small caps shouldn’t matter)

PLEASE NOTE!!!!

Until the channel reaches 100 followers then it won’t be a searchable channel but it is there - you’ll have to use one of the first two methods above, the link or QR code in that instance but that will really help me out as getting it to be searchable will be a lot easier!

If you have any issues please let me know and I can help you get it set it up. I hope you enjoy the new experience.

Best,

Bryan

“𝙎𝙥𝙚𝙣𝙙 𝙚𝙖𝙘𝙝 𝙙𝙖𝙮 𝙩𝙧𝙮𝙞𝙣𝙜 𝙩𝙤 𝙗𝙚 𝙖 𝙡𝙞𝙩𝙩𝙡𝙚 𝙬𝙞𝙨𝙚𝙧 𝙩𝙝𝙖𝙣 𝙮𝙤𝙪 𝙬𝙚𝙧𝙚 𝙬𝙝𝙚𝙣 𝙮𝙤𝙪 𝙬𝙤𝙠𝙚 𝙪𝙥.”

- 𝘾𝙝𝙖𝙧𝙡𝙞𝙚 𝙈𝙪𝙣𝙜𝙚𝙧

The BREAKINGWATERS schedule for Autumn is out! We have some top-notch speakers for you!

The September calls are below - sign up now as spaces are limited!

BOOKS | THE WORLD FOR SALE

This coming Friday, we’re discussing 𝗧𝗵𝗲 𝗪𝗼𝗿𝗹𝗱 𝗳𝗼𝗿 𝗦𝗮𝗹𝗲 with authors Javier Blas, Energy and Commodities Columnist, and Jack Farchy, Chief Commodities Correspondent, Bloomberg. Their book outlines the rise of the global commodity trader, with incredible stories from behind the curtain of this opaque, morally ambiguous yet incredibly lucrative industry. We will also get their thoughts on where we are today and which commodity or commodities, if any, we should be focusing on! Sign up here - bit.ly/WorldForSale

EiC | THE FUTURE IS UNCERTAIN with SEAN PECHE

The following Friday (Sep 18), we have the excellent Sean Peche, PM Ranmore Fund Management Ltd. Sean has been operating a true value approach for 18 years. His performance has been exceptional, reflected by his ratings, but amplified when you realise it has been delivered with a highly differentiated set of exposures compared to the typical global equity fund. He is equally known for his insightful, entertaining LinkedIn posts and no-nonsense observations on some of the rationale at play in markets. These have earned him a minor cult following in the industry.

You’ll want to hear what he has to say - register at bit.ly/SeanRanmore

BOOKS | BUFFETT’S EARLY INVESTMENTS

Finally, our next BREAKINGWATERS book club event is officially lined up - complete with an author Q&A - so it’s time to get reading!

Most investors have a simplified and often misguided understanding of Warren Buffett’s investment approach, pieced together from the mountain of material out there. Author Brett Gardner wasn’t satisfied with second-hand explanations. Instead, he took a deep dive into 10 of Buffett’s early investments from the 1950s and 60s to recreate his perspective and understand exactly how and why those decisions were made. Thankfully, he shared his findings with us! His book reveals Buffett’s true framework: one that is ahead of its time and highly adaptable, shifting seamlessly across many frameworks, value, event-driven, distressed, and private equity, amongst others. Brett will be joining us on the 4th of November to talk us through it - so grab your copy, have a great read, take some notes, and join us for a great discussion! Call details TBA.

Stay up to date with BREAKINGWATERS by subscribing at breakingwaters.com or follow us on our WhatsApp channel, ‘BREAKINGWATERS’ using this link - https://bit.ly/3SSrlZn

It has come to my attention that someone has copied the imagery and branding of BREAKINGWATERS and is actively contacting my subscribers via Substack chat.

It looks like this;

This impersonator is sending messages claiming that I am setting up an "invite-only" chat and asking you to hand over your email address.

Please be aware that this is a scam.

I am not setting up a private chat in this manner, and I will never unexpectedly message you to ask for your email address, personal information, or financial details. All official communications from me will only ever come directly through this verified Substack newsletter.

If you receive one of these fake messages, please take the following steps:

1. Do not reply and do not provide your email address.

2. Do not click on any links they might send.

3. Block and report the account to the platform immediately.

Thank you so much to those of you who spotted this and flagged it to me. Your vigilance helps keep our whole community safe.

Best regards,

Bryan

Note: None of the material or content contained herein constitutes investment advice. It is solely for educational and informational purposes. Past performance is not an indicator of future performance. copyright BREAKINGWATERS Media Ltd.

As Summer Ends

As we say goodbye to the warmer, longer evenings, daily ice-creams and the near empty suncream bottles, sprays and roll-ons, there are 4 items we should be watchful of in markets right now. Below, I outline the concerning items, what’s driving them and at the end, I suggest 3 ways of positioning your portfolio for them.

1. IS THE AI NARRATIVE ALREADY TURNED?

Investors spent the first half of the year getting into and sitting firmly on the AI price wave but always with one eye open for any sign of trouble. July brought those first signs when AI price action turned and investors who were over exposed, suffered.

The poster child became Leopold Aschenbrenner and his fund Situational Awareness which lost over $30bn through highly levered bets on AI. He had to sell the public portion of his book to Ken Griffin’s Citadel in a distressed asset sale.

Scepticism over the AI story, at current prices, has been building since then and although everyone can agree that AI will change the world immeasurably, it is not yet clear how profitable LLM’s will be, or how defensible their offerings are. Revenues are growing, profits are unclear, competitive differentiation is unclear, but CAPEX is astronomical - the top five hyperscale tech companies are projected to spend c.$750bn on AI infrastructure in 2026, an 80% increase over 2025.

Speaking of Astronomy; SpaceX (xAI) and Meta recently decided that it is a better business for them now to rent their AI servers out to the other, more prominent LLM companies. Likely, they recognised they were not up there with the major players in terms of consumers adopting their LLM’s and they have yielded to the front runners, Anthropic, OpenAI and Gemini. The field has narrowed, so it stands to reason that the narrative around hyperscalers has too.

Most recently, Nvidia reported their revenues - $96bn in one quarter, up 106% year-on-year. Net income was $58bn, a 60% margin and earnings jumped 128% year-on-year. These are absolutely staggering numbers. Yet, the stock is only up 4.4% in the few days since to the time of writing this. Investor trepidation has set in and it looks like the needle has stopped moving - what if those numbers had missed, would the reaction but just as muted? I wouldn’t think so.

2. KEVIN IS IN AND JEROME IS OUT (ISH)

Jerome Powell has moved on from his role as chair of the Federal Reserve and he has been replaced by Kevin Warsh. Warsh has a different approach entirely. He favours strict inflation targeting, aggressive balance sheet reduction, and rejects forward guidance. Powell though, remains on the board as a voting member, creating a conflict within the voting.

While inflation has cooled significantly from its peak in recent years, it remains stubborn. The U.S. Consumer Price Index (CPI) registered at 3.4% in July 2026. Because inflation continues to be above the Federal Reserve’s 2% target, bond yields remain elevated, keeping borrowing costs restrictive and putting pressure on the US Consumer. Overall, the data around the consumer looks supportive, but there are areas of rising concern. Credit card delinquencies, student loan defaults and auto loan delinquencies are rising and at, or, approaching post-2008 levels.

A misstep here could set off a slew of issues, and the market is watching.

3. GEOPOLITICS, ENERGY AND INFLATION

We’re currently reading The World for Sale by Javier Blas and Jack Farchy - please join us for a chat with them on September 11th at 2pm UKT. They are the perfect people though, to try get a better understanding of this more volatile geopolitical landscape and what it means for energy and commodity markets. Energy prices have risen, albeit not as much as many feared but it is feeding through to inflation and creating margin pressure, except for Energy companies.

I recently asked the BREAKINGWATERS community what sectors they thought were doing best and worst year to date and only 16% got it right. Energy has been the best performing sector and Consumer Discretionary the worst performing (in the US).

Energy has been leading sector performers for the year with over 40% return in the US and over 30% in Europe driven by volatile Middle Eastern geopolitics - with further escalation only yesterday. Earlier in the year, the breakout of conflict in the Middle East saw the S&P 500 drop nearly 10%. Another drop like that would erase nearly all the gains for the year so far.

4. A RISING TIDE LIFTS ALL A SELECT FEW BOATS

A significant portion of index market cap in the US is driven by a very small basket of mega-cap technology and AI-related companies. This concentration risk means that if these specific leaders experience a correction (see point 1), it could heavily impact returns and portfolios with even the index amount of exposure to these names.

JP Morgan recently published a chart detailing the scale of the problem.

Source: JP Morgan, Q2 2026 Chart Pack, The Era of Transformation via Tilo Marotz on LinkedIn

Buybacks, the rise of retail, the power of passive, fewer IPO’s, the dominance of technology are all factors contributing to the fact that the top 10 companies by market cap in the S&P 500 now account for c.38% of the total index market cap. AI is also the primary theme running through the 10 companies. Clearly, if the theme falters or if the companies’ prospects falter it will have a major impact on the index and any portfolios holding similar exposures. I am currently putting together a separate piece on this phenomenon so watch out for that in the coming days.

BEFORE THE LEAVES CHANGE

There are 3 things you should do before the leaves, and the markets, change.

Firstly, review and adjust your AI exposure to sensible levels if you’re overexposed to hyperscalers.

Second, accept that geopolitical volatility will remain elevated for the near to medium term and position accordingly. Remember the US suggesting the takeover/acquisition of Greenland? That was this year. A lot has happened and my expectation is that more will continue to happen. Energy is a great hedge if you haven’t already got exposure.

Third and finally, review your exposure to the US/Mag 10. There is no need to be overly reliant on these names, there are returns to be had all over the world and they come with much better risk characteristics.

If you enjoyed this piece please give it a like and/or share it with someone you think might enjoy it. Also, make sure you’re subscribed to breakingwaters.com to hear about the range of conversations we have lined up over the coming months with top tier Fund Managers and successful authors.

It's happening at 🌊BREAKINGWATERS too!

⛵ ⚔️ We're reading Emily Martins translation of The Odyssey and it's so much fun.

📖 If you've seen the movie or read the book, join myself and Dr. Martine Cuypers, Professor in Greek literature for a conversation on the book, it’s hot epic summer, the raging debate between academia and entertainment and more.

Register here: https://forms.gle/aaLRNQTuZ4VfCJXLA

And to keep it linked to business we will touch on Tyler Cowens 3 part Economic approach to The Odyssey, looking at it through the lens of preferences and constraints - https://www.econlib.org/library/columns/y2025/cowenodysseypart1.html

I began my career in 2006 on the graduate program of the Bank of Ireland. It was the heyday for Irish property and for Irish banks. They were expanding into international markets, the loan books were bloated yet growing and at that time it was still unheard of to question the boom that had been occurring in property and banks. Our first week was an initiation week and during lunch one day, one of my new colleagues was preaching the merits of Bank of Ireland stock to the table. This thing was a rocketship and we all needed to get on it he evangelised. He was so convinced of the prospects of Bank of Ireland he was going to borrow, pretty heavily, to purchase the stock. Many on the table agreed with him. I was too sceptical and too broke to give it any more thought after lunch so I didn’t think much more about it. We all know how that story ended and my grad program colleague and several others may have had a serious lesson from it.

This is similar but different to the Situational Awareness situation.

Leopold Aschenbrenner, if your not aware is a wunderkind who graduated Columbia at 19, joined OpenAI, was let go (according to reports) before penning a 167 page essay entitled “Situational Awareness” outlining his diehard belief that the next decade of advances in AI would herald a new age of advanced technology and productivity for humanity. His essay went viral and attracted huge investment from Silicon Valley and Wall Street. Without any investing experience, Leopold started a 2 and 20 hedge fund, launched with $225m, leveraged at 4x - 5x and finished out the year with assets of $20bn, exposure of $45bn and returns of c.439%. That was just before markets moved against him in July, “crashing” his returns to 80% for the year, and causing a liquidity crisis forcing him to sell his public equity book to cover margin. His remaining investments are privately held. He issued a new culpa letter and vowed to do better.

Many in the industry cheered his comeuppance and issued I told you so’s citing the obvious foolishness of using so much leverage. They've pointed at Aschenbrenner as naive and out of his depth and the Silicon Valley Investors to be even more so. But that's just not right. The fact is, Aschenbrenner has done more in his first two years than most do in a career.

At 24 he convinced people to invest billions in him and his vision and for the most part he grew that investment at an outstanding pace. He got caught out by margin calls but he made the right decision for his investors to sell his public equity book to Citadel and he survived. He did everything a fund manager should have done.

You might say, how could he be so blind to the risks. But that was the strategy he was selling. Those investing in him knew what he was doing and undoubtedly accounted for such an outcome. They transferred the risk of conviction and leverage away from their book and onto his. This is why it is so different to my Bank of Ireland story above. Situational Awareness investors could reap the upside gains but only lose what they put in. An individual or fund who levers up can lose more than they have but their investors are not exposed. It’s most likely they allocated an appropriate amount from their own exposures to such a fund, 1% - 2% and noted it’s a highly volatile allocation. Investors that did that are not going to be concerned with what happened, they’ll have lost a chunk of their investment for now but it will still form part of their investment strategy. They will look at this and will think that the manager of their AI exposure demonstrated professionalism in the face of a crisis and has gained incredible experience.

There is another lesson here for us. The whole episode was a great case study in the power of conviction.

just wrote an excellent paper on Situational Awareness and I recommend you read it. In it, he dedicates a lot of the paper to discussing conviction in investing. It's a deeply fascinating topic. Investors must have high conviction but they can never really have complete conviction because the future always carries uncertainty. An investor must know where conviction ends and doubt begins and the potential value and cost of each respectively.

Complete conviction is irrational and naive for the most part but conversely, most great fortunes are made through complete conviction. Famously, Bill Gates would have made more if he had left his shares in Microsoft instead of diversifying into a range of investments. There is also a powerful additional benefit that comes from complete conviction - the marketing edge. People who say they are all in on something when others agree with them, can do very well, whether the thesis ultimately holds or not. The last 7 or so years have had many great examples of this. History is littered with operators who preach a complete fate in a certain idea being rewarded by the masses. It is human nature. When we see someone go all in on something, and that person appears intelligent, is heavily validated by previous achievements or by high profile supporters then we reasonably assume they're on to something and it makes sense to back them.

And in Silicon Valley, complete conviction and a failed first-run are the cornerstones of going on to greater things. Many of the great investors stumbled early and most of the great tech entrepreneurs did - in silicon valley it's expected.

If Leopold could get $20bn AUM on $45bn notional at 24, with zero experience and generate incredible returns with it (before losing a lot of it through hubris), imagine what he'll do in the next 5, 10, or 15 years having learned all he’s learned.

Well done Alyx and the team at Kernow AM!

All Expert-in-Conversation recordings can be found here, on Spotify, and YouTube

Don’t miss out on the next one - subscribe now!

First,

The World for Sale by Javier Blas and Jack Farchy - Sep 11th 2pm UKT

REGISTER HERE

‘Gripping’ Economist
‘Jaw-dropping’ Sunday Times
‘Riveting’ Financial Times
‘Fascinating’ Reuters

We are entering an age of energy crises and food shortages. This book reveals why. Meet the swashbuckling traders who supply the world with energy, food and metal. Their goal: To make billions by buying and selling raw materials - flogging Russian gas to Europe, Saudi oil to America and Congolese metals to Silicon Valley. Their methods: Whatever it takes - whether funnelling cash to Vladimir Putin’s sanction-stricken Kremlin, schmoozing Russian metal oligarchs after the collapse of the Soviet Union, or striking deals with the Libyan rebels at the height of the Arab Spring.

These are the commodity traders. You’ve probably never heard of them. But, like it or not, you’re one of their customers.

Javier Blas and Jack Farchy are two of the world's best-known journalists covering energy, commodities and trading houses. They both work for Bloomberg News, where Blas is chief energy correspondent and Farchy is a senior reporter covering natural resources. Previously, they covered commodities for the Financial Times.

CPD

For this session, I will also be supporting informal/unstructured CPD requirements so if you would like a record of your attendance please select accordingly on the registration form.

Second,

Emily Wilson’s The Odyssey with Dr. Martine Cuypers - Sep 4th 2pm UKT

REGISTER HERE

It’s categorically not a business book, nor an investment book but as it’s summer and Christopher Nolan’s blockbuster has taken over, I thought it would be fun to read one of humanities greatest stories alongside seeing it depicted on screen. Wilson’s translation has been reported to be the source of inspiration to Nolan making it a great place to start. We can then discuss it’s themes, messages, and Wilson and Nolan’s interpretations in the context of the modern world and why it has held up so well.

For the extra keen among you, and to keep it in a business context, Dr. Cuypers sent on a link for an essay entitled: An Economic Approach to Homer’s Odyssey which we can also discuss.

• As majestic as literature gets - Max Porter

• Fresh, unpretentious and lean - Madeline Miller

• A cultural landmark - The Guardian

• A revelation. Never have I been so aware at once of the beauty of the poetry, the physicality of Homer’s world, and the moral ambiguity of those who inhabit it.--Susan Chira

The first great adventure story in the Western canon, The Odyssey is a poem about violence and the aftermath of war; about wealth, poverty and power; about marriage, family and identity; and about travellers, hospitality and the changing meanings of home in a strange world.
This vivid new translation the first by a woman matches the number of lines in the Greek original, striding at Homer’s sprightly pace. Emily Wilson employs elemental, resonant language and a five-beat line to produce a translation with an enchanting “rhythm and rumble” that avoids proclaiming its own grandeur. An engrossing tale told in a compelling new voice that allows contemporary readers to luxuriate in Homer’s descriptions and similes and to thrill at the tension and excitement of its hero’s adventures, Wilson recaptures what is “epic” about this wellspring of world literature.

Dr. Cuypers holds a Ph.D. from Leiden University and has previously worked as a lecturer and research fellow in Hamburg, Leiden, Groningen, Chicago and Washington DC. Her research focuses on epic and the Greek literature and culture of the Hellenistic period and Empire.

N.B. Physical copies of Emily Wilson’s translation are taking a long time to source so ereader and audiobook may be required to get ahead of this one.

Very excited to read these and discuss them in person next month!

Any questions - bryan@breakingwaters.com

Also available on YouTube and Spotify.

Thank you to everyone who joined this session for our June-July book, The Curious Case of Mike Lynch by The Times' Tech Editor, Katie Prescott. In this second part we discuss the HP acquisition, the court cases, the tragic weekend that befell those involved in this story and answered audience questions.

British tech billionaire Mike Lynch rose from humble beginnings to sell his company Autonomy for billions, only to find his reputation shattered by one of Silicon Valley's largest fraud cases. After a decade of legal battles and a surprising US exoneration, Lynch's life was tragically cut short when his yacht sank off the coast of Sicily, inexplicably coinciding with the accidental death of his co-defendant. Award-winning journalist Katie Prescott forensically investigates this maverick's extraordinary life and bizarre death, unravelling a high-stakes tale of corporate subterfuge where nothing is quite as it seems.

To hear about future sessions, please subscribe at www.breakingwaters.com

Also available on YouTube and Spotify.

Thank you to everyone who joined this session for our June-July book, The Curious Case of Mike Lynch by The Times' Tech Editor, Katie Prescott. In this first part we discuss the early days of Mike Lynch, from donning a suit as a teenager to his tactics to aggrandize his early venture, Neurodynamics and then to Autonomy, his UK tech leader built on sheer will and at times, breaking of the rules.

British tech billionaire Mike Lynch rose from humble beginnings to sell his company Autonomy for billions, only to find his reputation shattered by one of Silicon Valley's largest fraud cases. After a decade of legal battles and a surprising US exoneration, Lynch's life was tragically cut short when his yacht sank off the coast of Sicily, inexplicably coinciding with the accidental death of his co-defendant. Award-winning journalist Katie Prescott forensically investigates this maverick's extraordinary life and bizarre death, unravelling a high-stakes tale of corporate subterfuge where nothing is quite as it seems.

To hear about future sessions, please subscribe at www.breakingwaters.com

Details and registration here

Book Website here

Sun Tzu, The Art of War

In my latest poll I asked if $META’s pop of 10% on reports that they would start selling excess AI capacity was good, bad or neutral for the AI narrative. Bad slightly edged it but broadly it was evenly split between the 3 views.

This is incredibly interesting. It flies in the face of the efficient market hypothesis for one (if that’s still a thing people believe in). It also revealed how we look at singular important events through different lens’. Several of those who responded also emailed me to express their views and there was one respondent who put their thoughts in the comments and across all responses there was a spread of thinking.

If I can summarise, the high level arguments are:

GOOD: It is more capacity for AI, signifies growth, promotes wider adoption and is a sign of a maturing sector.

BAD: overbuilt for AI demand and is now repositioning to limit losses potentially signalling a broader repositioning as AI Hyperscalers struggle to generate the returns on investment for the massive capex outlays. Cheaper Asian offerings and reports of token costs exceeding the engineers replaced support the view.

NEUTRAL: Meh. More of the same.

My own view is that it is BAD for the story but could be great for one of the players. To me this shows a levelling out of demand and the herd being culled. Those hyperscalers who have seen little take up in demand and are clearly not in the race are starting to hedge their exposure. Meta and xAI are the two operators who have begun to sell their excess compute and they account for just over 1% each per below.

LLM Revenue Share Q1 2026

Source: Counterpoint Research, April 2026

it should be noted are still reeling from the metaverse fiasco which had reduced the stock price to $89 and consumed over $80bn of capex. AI guidance for 2026 is $120bn - $145bn. It’s no surprise that they are one of the first to flinch. Grok have also indicated they would be selling compute capacity albeit they framed it as having an excess of build rather than insufficient demand. Neither Meta’s Llama and xAIs Grok have broken through on market share and as such, like a political race, are bowing out to others and rightfully so.

This is where things get interesting. Until now the question was whether AI would succeed but now the question itself is bifurcating into whose AI will succeed and is that worth anything. This is shakier ground for the broader narrative that markets have been moving on and for which IPO’s are being positioned for. Meta is relatively insulated because of its major cash generation and Grok is also insulated behind the SpaceX and Starlink shields (see previous piece SpaceX: Musk vs reasonable stock valuations here) albeit this should under normal circumstances impact the narrative but that’s not a normal price setting. This leaves - of the companies on extended valuations - , , Open AI and Anthropic. As competition bows out it leaves fewer to share the spoils. My feeling is that, based on unit economics there is more bowing out to happen but my current thoughts are as follows:

Read more

Just under 2 weeks to go to our Q&A with Katie Prescott, senior Tech Editor of the Times to discuss her book The Curious Case of Mike Lynch: The Improbable Life and Death of a Tech Billionaire.

Buy it here: [Book] [Audible] [Spotify]

There is still time to catch up with (most) of the story but even if you haven’t had a chance to read it, please join us for the Q&A as it is sure to be incredibly interesting.

Register here: https://bit.ly/4uT0j0W

Look forward to seeing you there!

Also available on YouTube and Spotify.

Thank you to everyone who joined this session for our May book, Money Men by FT Investigative Journalist, Dan McCrum.

Links to where to purchase the book can be found here or for those who prefer to listen it is available on Spotify, Audible and Apple.

“Are you interested in some German gangsters?” was McCrum’s first introduction to questions around the rising German tech payments company. That led him on a journey over 6 years, from chasing fictitious clients in sandstorms in Dubai to surveillance operators following him all over London to bribe attempts, threats and connections to several secret service agencies. Ultimately, it came down to a disgruntled single mother who was the key to unlocking the story.

And if you missed reading along for May then don’t fret;

📖 From now until July 17th, we will be reading The Curious Case of Mike Lynch: The Improbable Life & Death of a Tech Billionaire by Katie Prescott

REGISTER: The Curious Case of Mike Lynch, Author Q&A

To hear about future sessions, please subscribe.

If you have any queries or comments, please do not hesitate to reach out bryan@breakingwaters.com.

Sun Tzu, The Art of War

Note: None of the material or content contained herein constitutes investment advice. It is solely for educational and informational purposes. Past performance is not an indicator of future performance.

The IPO of SpaceX set off a global avalanche of commentary, much of it in writing.

Newspaper articles, social media posts, reports, magazines, texts, emails, maybe even some handwritten letters. Of the thousands, maybe millions of articles and of the millions, billions, maybe, dare I say it, trillions of words written about this company and it’s unique IPO, I have not seen 3 particular words written anywhere. Nothing written, nothing on video, no discussion across the panels yet they are arguably the 3 most important words in the whole discussion:

Key. Person. Risk.

It seems to have flown under the radar. It is normally a dedicated piece of analysis in professional investment assessments but the focus seems to be on the valuation and the business rather than the key person here.

Elon Musk is the general at the head of the army of SpaceX, Tesla, Starlink, xAI, X, The Boring Company, Nueralink etc. He manouevre’s the army and he is the person people follow. He delivers the grand visions that people get behind. People dedicate their lives and their money to him and his ideas and that has paid off handsomely for many.

If something should happen to him and he can no longer lead in the same way, what does it mean for his multitude or for these stratospheric valuations? I don’t think many people have asked themselves that. Without Musk’s once in a generation vision and ability to deliver, I believe we would be left with, not quite an undisciplined multitude but a multitude with an inability to affect the valuations even a fraction of how Musk can affect them. In such an instance, I would expect those valuations to collapse.

There are no signs that this will happen anytime soon, he is fit and still operates at his unrivalled level of productivity without issue it seems. But as I learned on my 14th birthday when I went to the glorious space opera, The Fifth Element, life is vulnerable to king and pauper alike.

Make sure you are considering this in any assessment of SpaceX because it will drastically affect the valuation should it ever come to pass.

Also available on YouTube and Spotify.

Thank you to everyone who joined this session for our May book, Money Men by FT Investigative Journalist, Dan McCrum.

Links to where to purchase the book can be found here or for those who prefer to listen it is available on Spotify, Audible and Apple.

“Are you interested in some German gangsters?” was McCrum’s first introduction to questions around the rising German tech payments company. That led him on a journey over 6 years, from chasing fictitious clients in sandstorms in Dubai to surveillance operators following him all over London to bribe attempts, threats and connections to several secret service agencies. Ultimately, it came down to a disgruntled single mother who was the key to unlocking the story.

And if you missed reading along for May then don’t fret;

📖 From now until July 17th, we will be reading The Curious Case of Mike Lynch: The Improbable Life & Death of a Tech Billionaire by Katie Prescott

REGISTER: The Curious Case of Mike Lynch, Author Q&A

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🚀 Excited for SpaceX’s IPO today?

Before it launches (!) at 3pm UKT, join me at 2pm for 45 mins for a live Q&A with Dan McCrum, Financial Times Investigative Journalist to discuss his book Money Men, the incredible, truly wild, story of the Wirecard fraud.

🕵 Spies, collusion, fear mongering, threats, surveillance and so much more. It’s gonna be great and will run right into the SpaceX float!

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Sun Tzu, The Art of War

Note: None of the material or content contained herein constitutes investment advice. It is solely for educational and informational purposes. Past performance is not an indicator of future performance.

In The Art of War, Sun Tzu observed:

There are not more than five musical notes, yet the combinations of them give rise to more melodies than can ever be heard.

In the equity markets, the fundamental drivers of a company’s value are similarly limited - revenue growth, margin expansion, free cash flow generation, capital return, and competitive advantage. Yet, from these basic elements, the financial industry has engineered tens of thousands of mutual funds, smart-beta ETFs, and complex portfolio strategies.

For decades, we have been sold the idea that to be “safe” investors, we must own every colour, taste, and note simultaneously. We call this diversification. But as the structure of public markets rapidly shifts, it is time to ask a difficult question: Is broad equity diversification actually protecting us, or is it just diluting the upside?

The Case For Diversification: The Only “Free Lunch”

The consensus view, rooted in Harry Markowitz’s Modern Portfolio Theory, is that diversification is the only “free lunch” in investing. The premise is mathematically sound: by combining equities that do not move in perfect lockstep, you can reduce the volatility of your portfolio without necessarily sacrificing expected returns.

Mitigating Idiosyncratic Risk: No matter how deep your research, individual companies are vulnerable to unpredictable shocks - accounting scandals (see our upcoming book club conversation), abrupt regulatory changes, or sudden technological obsolescence. Holding 30+ stocks ensures that a catastrophic failure in one business doesn’t wipe out your portfolio.

Capturing Market Beta: Broad diversification ensures you participate in the long-term upward drift of human progress and corporate profitability.

Behavioural Protection: Highly concentrated portfolios are volatile. Even if a concentrated portfolio outperforms over a ten-year horizon, the violent drawdowns along the way often cause investors to panic and sell at the exact wrong time. Diversification, in theory, smooths the ride, keeping you in the seat.

The Case Against Diversification: Protecting Against Ignorance

The counter-argument, championed by legendary investors like Warren Buffett and Peter Lynch, is that extreme diversification is simply a hedge against not knowing what you are doing.

“Diworsification”: If you have done the rigorous work to identify five truly exceptional businesses with wide moats and excellent management, why would you allocate capital to your 40th or 50th best idea? Every stock you add beyond your highest-conviction ideas dilutes your overall return.

Diluting Your Edge: In the equity market, alpha (market-beating returns) is a zero-sum game. If you hold 200 stocks, your portfolio closely mirrors the benchmark. By definition, you cannot beat the market if you *are* the market.

The Attention Deficit: A portfolio manager can deeply understand the mechanics, threats, and opportunities of 15 to 20 businesses. Nobody can intimately track the micro-economics of 150 companies.

What the Latest Research is Saying vs. The Consensus

The consensus heavily favours passive, broad-market index investing - buying the whole haystack. But recent academic research and modern market dynamics paint a more nuanced, disruptive picture of *why* markets behave the way they do.

The cornerstone of modern equity research is Hendrik Bessembinder’s landmark study, which revealed a brutal power law: just 4% of publicly traded companies account for all of the net wealth creation in the stock market above Treasury bills since 1926. The other 96% of stocks, collectively, were dead weight.

How this is interpreted depends entirely on what game you are playing and what level you are playing it at. If you have an informational or analytical edge, true wealth is generated by avoiding the dead weight, not buying it.

Why the Industry is Set Up This Way

If concentration is required for outsized returns, why does the average actively managed mutual fund hold over 50 stocks? The answer lies in the structural realities of the asset management industry.

1. Career Risk and “Tracking Error”

John Maynard Keynes famously noted that it is better for a reputation to fail conventionally than to succeed unconventionally. In the institutional world, portfolio managers are judged against a benchmark (like the S&P500). If a concentrated manager is wrong and underperforms the benchmark by 15%, they lose their job. If a highly diversified manager closely hugs the benchmark and underperforms by 1.5%, they get a bonus. The industry optimizes for career survival, which mandates looking exactly like the crowd.

2. The Asset Gathering Machine

Asset management is a business of scale. Firms get paid a percentage of Assets Under Management (AUM). If a brilliant manager runs a concentrated portfolio of 15 mid-cap stocks, the strategy has strict capacity limits - if they manage too much money, they end up owning too much of the underlying companies, destroying their liquidity. To manage $50 billion, a fund *must* buy hundreds of stocks. They are diversifying not because it makes for a better portfolio, but because it is the only way to absorb more fee-paying capital.

3. Closet Indexing

Many active funds are essentially “closet indexers.” They charge active management fees but hold so many equities at weightings so close to the benchmark that they mathematically cannot justify their cost. They sell the illusion of active oversight while hiding behind the safety of extreme diversification.

The Verdict

Ultimately, determining your stance on diversification requires profound self-awareness.

If your goal is capital preservation, market-average compounding, and peace of mind, broad equity diversification is a beautiful tool. But if you are seeking genuine capital accumulation and market-beating returns, you have to acknowledge the math: alpha requires taking a differentiated stance. You cannot paint a masterpiece by blindly mixing all the colours together - you just end up with grey.

Sun Tzu, The Art of War

Note: None of the material or content contained herein constitutes investment advice. It is solely for educational and informational purposes. Past performance is not an indicator of future performance.

In 2017, I was at my desk watching the Tesla story play out in real time. I was following analysis and opinion closely, industry analysts, fintwit analysts, office analysts. My own analysis clearly pointed to the collapse of the company at any moment. Missed guidance, shambolic production, a litany of broken promises, troves of service horror stories, high capex burn, a lack of supporting infrastructure etc. I waxed lyrical to colleagues about the imminent demise of Tesla. But, I was completely wrong. It soared to levels that were greatly disconnected from fundamentals and appropriate risk tolerances. Today it sits at $420, the eponymous 2funding secured figure. It has a market cap greater than all the other major car companies combined and commands a market cap over 14x that of peer BYD, who sell nearly 25% more EV’s than Tesla.

The Tesla experience was a vital one for me and my investment philosophy. Every now and then prices will develop in a stock or stocks that can’t be justified by optimistic fundamentals - or even visionary ones, but equally, being deadly sure that it can’t possibly last - let alone grow in value is naïve.

On June 12th, SpaceX is set to IPO in a record breaking and controversial float. It is a story of risk, genius, innovation, science fiction and above all, money.

The SpaceX story is fascinating and will undoubtedly be required reading on finance courses in the near future. It is likely to be the most valuable IPO in history by a wide margin ($2T vs Saudi Aramco in 2019 for $1.7T). Before we outline why this fits the bill for the Sun Tzu quote - The supreme art of war is to subdue the enemy without fighting - we have to step back and understand the background to SpaceX.

🏗️ 2002: The Founding

Musk funded the inception and early development of SpaceX entirely himself with roughly $100 million of his own capital, which he had earned from the sale of PayPal to eBay.

During its first few years, SpaceX operated independently, aiming to prove that a small, vertically integrated team could build a cheaper, reusable rocket from scratch.

The stated, long-term goal was to make humanity multi-planetary and colonize Mars, but the immediate business problem was that traditional aerospace contractors were too expensive and moved too slowly.

🚀 2008: Orbit and Survival

By 2008, SpaceX had attempted to launch its small Falcon 1 rocket three times. All three launches had failed, and Musk was virtually out of money. Everything inged on the fourth launch succeeding in September 2008. Failure and the endeavour was over or success and the dream could continue. Thankfully, it was a success and on the back of that success and SpaceX’s participation in NASA’s Commercial Orbital Transportation Services development program, NASA awarded SpaceX a $1.6 billion Commercial Resupply Services contract in December 2008 to fly cargo to the International Space Station, effectively saving SpaceX and providing the capital to develop larger rockets.

📉 2015: The Economics Shift

7 years later in 2015, SpaceX fundamentally altered the economics of spaceflight by successfully landing the first stage of a Falcon 9 orbital rocket back on Earth. And it can’t be denied, when the light clears and we see the first stage standing upright it is a truly inspiring moment, a true leap forward for space exploration. By proving that orbital-class boosters could be recovered and reflown, rather than discarded into the ocean, SpaceX began driving launch costs down to a fraction of the competitors’. For example, since 1981 with the Space Shuttle to 2026 with SpaceX Starship, the cost of getting a kilogram to space will have fallen by a factor of over 200x, from $54k per kilo in 1981 with the Space Shuttle to c.$200 per kilo for Starship.

Historic cost of getting a kilogram to space

Source: https://www.visualcapitalist.com/the-cost-of-space-flight/

The cost of getting freight to space via SpaceX is now so low it can best be demonstrated by the space selfie. CrunchLabs sent a satellite into space on a SpaceX rocket for the sole purpose of allowing people to get their selfie taken in space - you can check it out here. This is truly an incredible leap in economic accessibility and SpaceX and Musk can be entirely credited with that.

🛰️2019: The Connectivity Network

On the back of the successful launch program, SpaceX launched the first operational batch of Starlink satellites into Low Earth Orbit, beginning the assembly of a mega-constellation designed to provide low-latency, high bandwidth, broadband anywhere in the world. It could even be achieved on Ryanair flights if needed but not at a cost O’Leary would tolerate.

Starlink has not been without serious concerns either - e.g. Musks influence over war zones but it has proven to be a highly profitable business.

The following year, SpaceX’s Crew Dragon spacecraft successfully carried NASA astronauts to the International Space Station, ending a nearly decade-long US reliance on Russian Soyuz rockets for crew transport.

💪 2024: Market Dominance

By 2024, SpaceX was routinely flying refurbished Falcon 9s and executing over 130 launches a year taking Starlink satellites to space along with paid slots for other companies, capturing more than 50% of the global commercial launch market. Meanwhile, the fully reusable, super-heavy-lift Starship vehicle began hitting major developmental milestones, paving the way for much heavier payloads and lunar missions. Starship will truly be a breakthrough for humanity. It is expected to be able to carry over 100 metric tonnes into space - this is important for delivery the parts needed for larger scale structures such as lunar bases, datacentres in space and the colony on Mars, Musk has dreamed of.

🤖 2026: The AI Pivot

In February 2026 the story changed however, SpaceX acquired xAI, Musk’s AI venture - more commonly known as Grok. The messaging around the combining of these businesses suggested SpaceX was no longer just a space operations company but was now going to be an artificial intelligence and orbital computing infrastructure business. The move added complexity to the vision and muddied the clear story of SpaceX but it also boosted the valuation. Some say the motivation was for a vision like never before, AI and Space under one roof but others are concerned it is a convenient way to shield the capex hungry and less attractive xAI story behind the strength of the SpaceX story.

This is where Musk is subduing the enemy without fighting.

People associate SpaceX with launch services - in which they have a monopoly. Starlink and xAI however, are most certainly not monopolies. Starlink is profitable with a good future ahead of it but faces competition from domestic telecoms and data networks. xAI is in a land war with Anthropic, OpenAI, Google, Meta and a host of Chinese AI models and only a few will survive when the dust has settled. It is also devouring capital and revenue growth is patchy at best. By putting xAI into SpaceX that story has been shifted and is no longer part of the hyperscaler land war conversation but now part of the inspiring sci-fi story. Bold visions sell stocks and Musk knows this. But what of the numbers? Let’s look at the basic headline figures.

Estimated valuation of SpaceX (launch services + Starlink + xAI) on IPO - $2trillion

Based on these numbers and accounting for the rate of growth currently being experienced, it would take 11.5 years for REVENUES to reach $2 trillion, let alone profits. That’s also assuming that growth momentum continues at the current pace which it rarely does. It is one of the more stretched valuations you will find, going well beyond the “priced to perfection” label that is often associated with such valuations. I would go as far as to say that the valuation of $2T is a nonsense compared to fundamentals but that is not to say it will not hold its value or even grow.

As I learned through my Tesla experience and as was discussed in our recent Boom and Bust conversation with John Turner and William Quinn, these dynamics occur with some regularity.

THE MUSK EFFECT

The Musk premium is an important factor. The combination of the great vision laid out, his previous achievements in innovation, his cult-like following and his history of delivering incredible stock performance against all odds are all in play. Maybe not as brightly as was with Tesla or maybe there is a new guard of devotees minted in the last few years who can send SpaceX stock - to the moon.

NAUGHTY NASDAQ

A second factor, which has been a controversial one is how Nasdaq have altered the rules to include SpaceX into the Nasdaq-100. They changed three major rules to win the SpaceX listing and they are worth understanding because structurally they enhance the probability of SpaceX performing.

SEASONING - Historically, companies were required to trade publicly for three to 12 months before they were eligible to be added to the Nasdaq-100. This “seasoning” period existed to allow the market to discover the stock’s true price before passive index funds were forced to buy it but for SpaceX, Nasdaq introduced a “Fast Entry” rule that allows megacap stocks to be added to the index just 15 trading days after their IPO. The consequence is that there is a 15 day window of free price action - not typically enough to find a proper level - before the passive tap is switched on and the wave of passive flows bouy and boost the price.

FREE-FLOAT - Nasdaq eliminated the rule requiring a minimum 10% free float for index inclusion, clearing the way for companies with massive valuations but tightly held ownership to join immediately. Because SpaceX is expected to float only about 5% of its total equity at listing, it would have failed Nasdaq’s previous requirements. Only having 5% of your shares setting the price is a structural advantage as that 5% sets the price for whole 100%, largely held by Musk. If the buyers of the 5% are predominantly fanboys who are not interested in fundamentals and passive funds then the level is likely to be distorted upward.

INDEX WEIGHTING - The Nasdaq-100 has been until now a market-cap-weighted index but if they included SpaceX, with only 5% of shares of a $2T market cap available to buy, this would cause a host of problems. As passive indexes buy shares to try replicate the index they would be driving demand for the shares through the roof as there would not be enough shares for them all to fulfil their allocations. To mitigate this, Nasdaq introduced a rule that if the available amount of shares is less than 33% of the total shares in a company, the market cap would be 3x the valuation of the listed shares valuation (i.e. 5% x 3). It could still cause some issues and will need to be watched.

WINDOW of ACCOUNTABILITY

Another advantage to Musk and the stock price is the inherent timeline to Space. 11.5 years (for revenues to reach valuation) isn’t a long time when it comes to space, things take time - even SpaceX will take time to get things done. This dynamic works to the advantage of lofty valuations and promises of them delivering science fiction like outcomes in the future. If the valuation ultimately gets accepted by the market - which is likely due to the gaming of the Nasdaq rules, then Musk has vastly wider time horizons to keep the story spinning than he did with Tesla, where, for example, missed visions of autonomous vehicles and cybertrucks could only be excused for so many quarters.

CONCLUSION

In conclusion, the valuation is a nonsense. That rules me out of buying it. But I would also not short it. The structural elements at play mean this IPO has been engineered to maximise upside and minimise downside. In addition, the exuberance from those who idolise Musk and believe wholeheartedly in his ability to deliver science fiction in a matter of years will keep the stock elevated. I believe that it is very probable that the SpaceX stock price defies gravity and goes ad astra. But I won’t be onboard.