Scott Galloway [Getty Images]
Scott Galloway [Getty Images]

Scott Galloway, a marketing professor at New York University's Stern School of Business and investment commentator, has taken aim at leveraged investors in the wake of the Kospi crash, warning that in good times "it's easy to mistake leverage for intelligence."

According to US investment media outlet Benzinga, Galloway made the remarks Monday on his YouTube channel "Prof G Markets," where he identified single-stock leveraged ETFs tracking Samsung Electronics and SK Hynix as one of the key drivers of the recent Kospi collapse.

South Korea launched single-stock leveraged ETFs in May that track Samsung Electronics and SK Hynix share prices at two to five times their daily moves. The products quickly gained popularity among retail investors riding the AI boom, but sentiment reversed as confidence in AI-related investments wavered.

Samsung Electronics shares plunged 32 percent and SK Hynix fell 40 percent, while the Kospi dropped as much as 40 percent from its peak — its worst decline since the 2008 financial crisis. The selloff wiped out roughly $2 trillion in market capitalization.

Retail investor losses totaled $39 billion (about 54 trillion won), according to tallies. Goldman Sachs estimated that 3.4 percent of South Korea's adult population received margin calls. Funeral wreaths bearing the message "Abolish single-stock leveraged ETFs" were placed on the sidewalk in front of the National Assembly building in Seoul.

Galloway described the episode by saying that "leverage doesn't create risk — it eliminates room for error when you're wrong," adding that "leverage is fun on the way up and horrifying on the way down." He also quoted a Charlie Munger maxim: "The reason smart people go broke is women, alcohol and leverage."

Galloway predicted that AI investors who used leverage would hit their first major obstacle in August, forecasting "six or seven" significant forced-selling events during the month. "It's like driving 200 miles per hour and hitting the first speed bump," he said. "We're going to find out who has an airbag."

Galloway is a marketing professor at NYU's Stern School of Business and an activist investor known for his blunt criticism of Silicon Valley and Big Tech. He has also built a record as a long-term investor in quality companies, having invested in Apple and Amazon in 2009 and reportedly earning 30-fold and 50-fold gains, respectively.


bbo@heraldcorp.com