Gooaye EP684: Water Carries the Boat, and Water Capsizes It
Notes on Gooaye EP684: July's sharp drawdown had no matching fundamental trigger — it was a market-wide deleveraging. A highly levered AI-thematic fund was liquidated; its longs were the year's best-performing AI hardware and its shorts were software, so both sides broke at once. My extensions: why the diversification I thought I had may be fictional, why a 50% drawdown carries no information by itself, and why position size is a risk dimension of its own. Educational notes, not investment advice.
The ruler is the boat; the common people are the water.
Water carries the boat, and water capsizes the boat.
—— Xunzi, On the Regulations of a King (Warring States period)
These are my personal notes on Gooaye EP684 (released 2026-08-01). This is not a transcript and not official content. Please support the original show for the full episode. What follows is what the episode prompted in me, plus my own thinking.
What the episode is about
In one line: July’s sell-off was not about fundamentals. It was about leverage and liquidity.
One passage made me stop and replay it — roughly, that the water of a market both lifts you and turns you over. Which is exactly Xunzi’s line: water carries the boat, and water capsizes the boat. On the way up, your own buying is the thrust. On the way down, your own selling is the pressure. Same mechanism, opposite sign.
The main points
1. The driver was deleveraging, not deteriorating fundamentals. There was no macro or industry event that fits the size of the move. The trigger was the liquidation of a highly levered AI-thematic fund — and notably, not the amateur operation people mocked it as. Its returns since inception were remarkable, and even through this drawdown it remained positive on the year. What broke it was leverage, nothing else.
2. Both legs broke at once. The fund was long the AI hardware names that had run hardest, and short software. Software rallied while the longs collapsed — so both sides lost simultaneously, and that is what forced it out. This is the part worth keeping: a hedge is not necessarily a hedge in an extreme tape. It can become a second loss sitting next to your first one.
3. It was never one fund’s problem. Large multi-strategy platforms run many independent teams, and the momentum-oriented ones hit their own limits — tolerances are tight (the episode mentions roughly 5–10%). They were forced to cut longs and cover shorts, which meant selling exactly what had risen most and buying exactly the software that was already squeezing. The move amplified itself, which also explains why some software names bounced violently off the lows.
4. Mean reversion is honest. Whatever rose most from April to June fell most in July. Not a coincidence — the same leveraged positions, running in reverse.
5. Taiwan’s trading-suspension mechanism makes it worse. The host’s argument: a name goes vertical or falls apart partly because liquidity is thin, so lengthening the matching interval and withdrawing liquidity further does not cool anything down. He gives his own example — holding two thousand lots and being able to sell only a few dozen on a limit-down day. That kind of trap is invisible until your position is large enough to feel it.
6. Being able to get out is itself a capability. His drawdown stayed manageable, he says, simply because he could exit; genuine large shareholders cannot. Same stock, same percentage decline, entirely different event depending on the size of the position.
Extensions
The diversification I thought I had may be fictional
I have always checked concentration the obvious way — different industries, different business types. This episode pointed at something I had not properly considered: those names may be sitting in the same leveraged accounts.
When a fund is forced to liquidate, it does not sell “an industry.” It sells everything it holds. If your carefully spread positions happen to appear on the same long book, your diversification does not exist on that particular day — they fall together, and by similar magnitudes.
So diversification is not only about what these companies do. It is also about who holds them, and how. That second dimension is one I had barely thought about, and it explains why a portfolio that looks unrelated on paper sometimes falls in unison.
A 50% drawdown is never the test
Plenty of names fell 50–60%, and the jokes about a “down fifty club” started circulating. But a drawdown carries no information on its own — it tells you how much other people sold, not whether the business got worse.
I split it into two questions:
- First: did the fundamentals change? Revenue, earnings, competitive position, customer concentration — anything materially different? If not, this is a fact about the price, not about the company.
- Second: at this price, are those unchanged fundamentals actually cheap? These are different questions. Many people get the first one right (the company is fine) and jump straight to the conclusion (so it is a buy), skipping the second — after a 50% decline the multiple may still be thirty times.
The mean reversion the episode describes is precisely this: valuation runs ahead on the way up and unwinds on the way down, while the business itself may not have moved at all.
If you never owned the strongest names, you were always going to track the index
One line lands hard because it is true: if you never touched any of the names that fell 50%, your performance over the past year probably looked a lot like the index. Because those were the names that led it.
Two sides of the same coin — you cannot take the upside without the drawdown. Excess return requires sitting through how much it hurts on the way down. There is no version of this that is free.
Position size is a risk dimension of its own
This is the biggest update for me. I used to think about risk as “could this fall” and “can I survive it if it does.” Liquidity risk is a separate axis: at a certain size, the same decline takes away your ability to respond at all.
The two-thousand-lots example makes it concrete. And the threshold is lower than you would guess — in a small or mid-cap Taiwanese name, a position of a few hundred thousand dollars is already enough to be stuck.
At my size this is not yet my problem. But it is a useful thing to internalise early: liquidity is something to consider when you build a position, not when you want out. Buying is never the hard part. Finding someone to take the other side is.
Where my thinking has moved this year
The change, looking back, is from “I want to catch the strongest name” to “I want to be sure I can hold it.”
I used to see someone catch a big winner and think how did I miss that. Now there is a second thought: at what position size, and with how much leverage? If someone made 200% using triple leverage, what I am looking at is not their insight — it is their risk tolerance, and that is not necessarily something I can afford.
This episode also settled something for me: being right about direction but not surviving to see it is the same outcome as being wrong. The liquidated fund picked names that were arguably correct, and may still prove correct over time. It simply got cleared out before arriving.
So the order of my checks has changed. I used to ask “will this go up.” Now I ask first: “if it falls 40% before it recovers, am I still holding it?” If the second question has no answer, getting the first one right does not help.
One honest boundary
All of the above is my own synthesis after listening, checked against my own portfolio — not a recommendation to anyone. I cannot verify any of the market rumours mentioned in the episode, and I have deliberately left those details out. The publicly established fact is that a fund was liquidated over leverage; who else was involved and at what scale, I do not know and will not speculate about.
I should also be clear: I was in this drawdown too. My holdings went through declines in the 20–50% range. I am writing this not because I avoided it, but because I did not — which is exactly why understanding what happened is worth the effort.
References
- Gooaye EP684 (released 2026-08-01) — the source of inspiration for this piece. Please listen to the original episode in full and support the creator.
- Xunzi, On the Regulations of a King — origin of “water carries the boat, and water capsizes the boat”
Disclaimer: This article contains personal listening notes and study reflections for educational purposes. It does not constitute investment advice, an offer, or a solicitation. No specific securities are recommended and no price targets are given. Investing involves risk; past performance does not indicate future results. Please make independent decisions based on your own financial circumstances and risk tolerance, and consult a qualified professional where appropriate. The author may hold positions in the types of assets discussed.
This article is an educational discussion of investment method. It is not advice to buy or sell any individual security, offers no target prices, and does not analyze any current holding. Investing carries risk; make your own decisions or consult a qualified professional.