My Favourite Movie: The Big Short

If you haven’t seen this film, it’s a look at the great recession from the perspective of three groups who, unlike many others, saw what was actually happening in the mortgage bond market. They essentially bet against the housing market, to enormous profit. The movie explains some of the complicated products in an easy to understand way, and it’s pretty entertaining. I saw it in the theatre when it came out and really enjoyed it.  

For those who haven’t read (or seen) it, The Big Short is the story of a few eccentric traders who anticipated the US housing bubble and worked out a way to profit from it.  The book was written by Michael Lewis who you may recognise from some other top-sellers like Moneyball and The Blind Side.

For me, The Big Short highlights lots of important investment lessons anyone can learn from the financial crisis and the protagonists who profited from it.

#LEARNING
  • There is no free lunch in investing

  • Do Your Homework

  • Don’t invest in something you don’t understand

#MARKET SAY
  • Just because everyone believes it, doesn’t make it so

  • The market can stay irrational longer than you can keep your job

  • Don’t fall for the hot hand fallacy and chase returns

  • Be conscious of counterparty risk

  • False Consensus Effect

  • Don’t be afraid to question what you are being told

#STRATEGY
  • Opportunity Cost

  • You can be right, but if your timing is off you can be stuck with big losses

  • The efficient market hypothesis is dead

  • Shorting the Market Is Very Risky

  • Stay away from illiquid markets

  • Eggs and Baskets

  • Trust Yourself

#FINAL WORD
  • Banks will always throw retail traders under the bus if they can improve their bottom line

  • If it seems too good to be true, it probably is

  • Every industry has shady characters, but the finance industry seems to be one of the worst


My Favourite Movie: The Big Short
James Wong
31 December, 2020
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