My first lesson in risk didn’t come from a finance class.
It came the day I told my parents I was abandoning a law degree in pursuit of one in English literature.
I wasn’t naive about the employment prospects. What I wanted (that I couldn’t articulate at the time), was to learn how the minds that came before me had made sense of uncertainty, ambition, fear, desire. All the things that added meaning to the otherwise mundane. Years later, when I found myself studying a postgraduate degree in finance, I realised the two disciplines weren’t as far apart as they seemed.
During those literature years, I was a William Blake devotee. Perhaps most famous for his poem "The Tyger", an analysis on the creation and coexistence of good and evil.
In a brutally oversimplified description, Blake rejected Enlightenment rationalism and argued that without duality, there was no progress. I think, better than anyone, he understood that the human condition was permanently at war with itself. Now, it’s unlikely Blake was an investor, but he certainly understood the role of excess and appetite.
The road of excess leads to the palace of wisdom
I recently had a stretch of time off.
Somewhere over the Pacific Ocean, after suffering from altitude-induced introspection, I called time on my thoughts and logged onto the airline Wi-Fi. I stumbled across a clip of Warren Buffett’s latest interview with CNBC. With as much gusto as a person can muster at 95, he lamented about the difficulty of finding value when “everybody is preferring gambling.”
It reminded me of something he said earlier this year, when he described the modern market as “a church with a casino attached.” A rather vivid image.
There’s a common observation in theology that a church is not defined by its walls, but by what people believe happens inside them. A sacred space becomes profane when the rituals lose their meaning and the congregation forgets why they gathered in the first place. What Buffett seems to be describing is the desecration of discipline, replaced by spectacle. And he might have a point.
Retail participation is as high as ever. In many ways, entry to the casino has never been more brightly lit, inviting anyone with a smartphone and an impulse for financial gain. The most recent spectacle has been South Korea.
A painful lesson
The South Korean market has just lived through one of the most violent episodes in modern financial history. Last week, the Korea Composite Stock Price Index (KOSPI) fell 44% from its June high, to then rebound 18%, marking its largest ever one-day gain.
What appeared like a booming renaissance in early 2026 has unravelled into a fragile, self-reinforcing ecosystem built almost entirely on leverage, AI hype and the fervour of retail traders who believe they’ve found a one-way bet.
For months, the Korean equity market had been rising on a tide of optimism centred almost entirely around semiconductor players Samsung and SK Hynix, the twin pillars of the KOSPI. Their fortunes had become synonymous with the global AI boom and traders poured into these stocks with enthusiasm. At the same time, the number of retail trading accounts in South Korea also exploded.
The real spark came in May when Korea launched single-stock 2x leveraged ETFs on Samsung and SK Hynix. Soon enough, leveraged ETFs for Samsung and SK Hynix made up 70% of stock trading value. The products sat on top of an already leveraged ecosystem, all concentrated in the same two semiconductor names.
But when sentiment finally faltered, there was an immediate and brutal unwind. The leveraged ETFs collapsed with the SK Hynix 2x product losing ~70% of its value from its peak and nearly half from its launch. Goldman Sachs estimated over 1.2 million leveraged retail trading accounts in South Korea triggered margin calls with around 30% being wiped out entirely. The violence of the crash wasn’t simply the result of falling semiconductor prices. It was the consequence of a market structure that had become overly dependent on retail leverage.
There are a number of incredibly sobering stories behind the collapse. These are not abstract losses on institutional balance sheets and I take no pleasure in the demise of the optimistic. But as the saying goes, there is no crying in the casino. Such rules are written in advance, even if no one reads them.
The government’s response was swift and unusually apologetic. Regulators admitted they had not fully considered the risks of single-stock leveraged ETFs and apologised publicly. New rules have been proposed to limit how much retail investors can allocate to such products, as well as the introduction of higher trading costs for speculative instruments. Another inquiry has been launched into the ease with which margin loans were granted through mobile apps. Much too little, too late.
And in a strange way, this brings me back to Buffett and Blake. In the Proverbs of Hell, Blake writes “The road of excess leads to the palace of wisdom”. This was never meant to be read as an endorsement of indulgence. Blake saw wisdom as something earned only after going too far, yet Buffett proves that with experience, some learn to spot the excess long before the rest of us reach the palace.
Simonelle Mody
Also in this week's edition...
The recent pickup in inflation has reignited debate on the falling living standards in Australia. Shane Oliver from AMP discusses why this has happened and how we go about fixing it.
Australia’s golden age of dividends may be ending. Mark LaMonica explores four options for an income investor's next dollar.
Recent CGT reforms tax real gains to inflation, however, they fail to index losses. Jason Nassios and James Giesecke argue this leads to inefficiencies in the tax system.
Phil Strano from Yarra Capital Management prepares investors for the increasing influence of AI funding demands on Australian bond markets.
Jason Teh from Vertium explains why active managers confronting today's markets need to bring a gun to the gun fight.
Kaye Fallick interviews a leading pension fund innovator and poses the question - What can Australian super funds learn from the UK?
Chris Cuffe shares what ten fund managers believe the market may be missing.
Curated by Simonelle Mody and Leisa Bell
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