Editor’s Note: One of the biggest misconceptions in investing is that long-term success is about finding the next big winner. It’s not. It’s about surviving long enough to let your winners compound. That means managing risk just as seriously as you chase upside.
Today’s essay comes from Wall Street veteran Marc Chaikin — a market technician with more than 50 years of experience navigating bull markets, bear markets, crashes, and everything in between. Marc created the widely followed Chaikin Money Flow indicator and the Power Gauge stock-rating system, tools built specifically to measure what most investors overlook: underlying strength, capital flows, and risk.
In this piece, Marc revisits one of the most spectacular hedge-fund blowups in modern market history. The lesson is that intelligence alone doesn’t protect you when positioning gets crowded, and volatility is spiking. Without discipline and proper guardrails, even the pros can get wiped out.
And right now, with volatility rising and trades getting increasingly one-sided, that lesson matters.
Marc is hosting a free live briefing on Tuesday, February 17, at 10 a.m. Eastern to walk through what he’s seeing in today’s market — and how investors can better protect their capital while staying positioned for opportunity.
You can reserve your seat for Marc’s free broadcast here.
Brian Hunter made more money in a single month than most folks make in their lifetimes…
But he also caused one of the biggest hedge-fund blowups in history.
You see, Hunter was a commodities trader. But he wasn’t like the typical, brash Wall Street types.
He grew up in farm country near Calgary in Canada. He was quiet and kept to himself.
But Hunter loved crunching numbers. And he was good at it.
In college, Hunter majored in physics. Then he got a master’s degree in mathematics.
That gave him a major advantage over his future colleagues in the financial markets.
Soon after he graduated, he put his educational background to work. He joined the natural gas futures trading desk at a Calgary-based company called TransCanada (now called TC Energy) in the late 1990s.
TransCanada was an emerging player in the energy transmission business. It focused on transporting natural gas across North America.
Hunter quickly learned the fundamentals of the natural gas market. His experience at TransCanada prepared him to become one of the most profitable energy traders in the world.
In 2001, Hunter joined the natural gas trading desk at financial-services giant Deutsche Bank (DB). And he took off…
During his first year, he made the bank $17 million. The next year, he tripled that figure to bring in $52 million. By 2003, he headed Deutsche’s natural gas trading desk.
His division was poised to have another big year, but disaster struck…
The First Warning Sign
In December 2003, natural gas prices went in the opposite direction of where he bet. They went higher instead of lower.
It cost his desk – and the bank – more than $51 million in losses in a single week.
Hunter blamed the losses on Deutsche Bank’s electronic-trade-monitoring and risk-management software. He said it stopped him from exiting bad trades early, which could have mitigated the losses.
The next year, Hunter left Deutsche Bank. It didn’t take him long to find a new job.
But at his new firm, poor risk management and bad speculating eventually led to a colossal blowup…
A former natural gas trader at Goldman Sachs Group Inc. (GS) hired Hunter to work at the energy desk at a Connecticut-based hedge fund called Amaranth Advisors.
At first, Amaranth kept Hunter on a tight leash. The firm knew about his big swings at Deutsche Bank.
But Hunter was a pro. He and his group steadily brought in 20% to 40% annual returns. So Amaranth gave him more leeway to make trading decisions.
In 2005, Hunter saw an opportunity in his main market – natural gas…
Oversupply had driven natural gas prices down, which he thought was unsustainable. And he expected prices to rise. So he bought millions of dollars’ worth of options at bargain prices.
Then, Hurricane Katrina slammed into the Gulf Coast. Hurricane Rita followed not long after.
The two storms devastated America’s oil and gas production and transportation in the Gulf region. And natural gas prices soared.
Hunter’s bets on natural gas paid off massively. He made $1 billion for Amaranth that year. That earned him a nine-figure bonus.
Hunter’s hot streak continued into 2006. By April of that year, he helped Amaranth amass a roughly $2 billion profit.
He was so “bullish” on natural gas prices for the winter that he made huge leveraged bets. And he managed to get around Amaranth’s position-size limits. He used swaps and derivatives to hide the true size of his positions.
Because Hunter had brought in so much money for Amaranth, the firm didn’t closely watch him. Amaranth also allowed him to move closer to home to his own office in Canada.
Then, things unraveled…
Risky Bets Pay Off… Until They Don’t
An unexpectedly warmer winter sent natural gas prices plummeting.
Hunter was sitting on billions of dollars’ worth of options and derivatives on natural gas. And these were bleeding millions every time natural gas prices fell by even a single cent. He made such big bets that they were too large to get out of if the market turned.
Eventually, Amaranth was in the hole for $6.6 billion – all thanks to Hunter. The firm imploded.
Hunter single-handedly caused the collapse of one of the world’s largest and most successful hedge funds. Put simply, it was because of his overleveraged, one-way bet on natural gas in 2006.
Spectacular busts like Amaranth aren’t a regular thing on Wall Street. But they teach us a valuable lesson…
Losses like this can happen if money managers don’t have the tools they need to manage risk and exposure in the markets. That’s true for individual investors, too.
So make sure you have the proper tools – and a plan – to manage risk.
My Power Gauge tool makes it clear when a trade has turned against us. And that means, unlike Hunter, we won’t be riding our portfolios to zero.
And that’s especially important right now.
Because when markets shift — whether in commodities like natural gas, tech like AI, or the broader stock market — the biggest damage rarely comes from being wrong. It comes from staying wrong too long.
Next week, I’ll be stepping forward with a free live market briefing to explain why I believe we’re approaching a potentially volatile stretch for stocks… why not all companies will be affected equally… and how to identify both opportunity and hidden risk before it’s too late.
On Tuesday, February 17 at 10 a.m. Eastern, I’ll walk through what I’m seeing beneath the surface of today’s market — and share a powerful new tool designed to help investors manage risk and exposure far more effectively. (You’ll even be able to try that tool out for free.)
My partner and I will also share two free stock recommendations during the broadcast.
Click here to reserve your seat for this free live event — and I’ll see you there.
Good investing,
Marc Chaikin
Market Expert and Founder, Chaikin Analytics
P.S. Marc’s story is a powerful reminder that risk management matters just as much as upside potential. If you want to hear what he sees coming next — and how he’s positioning for it — be sure to sign up for Marc’s free live briefing on February 17 at 10 a.m. Eastern.
