The Big Short is a movie released in 2015, and it shines a light over the financial crisis from 2007-2008, some of the reasons behind those events, and how the smart people were preparing for the inevitable collapse.
The movie is based on the book with the same title written by Michael Lewis, and because both the movie and the book are based on real events it makes the following lessons even more valid.
Considering that we’re once again in a situation similar to the one from 12 years ago, and as many believe, about to enter another economic collapse, the lessons from this movie might end up being life-saving.
Pay attention to signs
Often, we consider certain situations and scenarios to be true only because those ideas are shared by many perceived authorities in the field, but they often end up being false. Only because a specific opinion is shared on TV constantly, and claimed to be true by “experts” it doesn’t mean that it is actually going to be true.
It is important to pay attention to all of the signs, and try to take action based on them, without taking in consideration your emotions, and even if those signs go against what you believe to be true.
Mark Baum’s team only learns about the possibility of betting against the housing market from a phone call to the wrong number. Even if they could’ve just hung up, and go on with their life, Baum starts to ask himself some questions, and to investigate the market, finding out about the opportunity.
You will often hear ideas contradicting each other but, if you take the time to question those ideas that sound different from what everybody else is saying, you might just stumble upon a gold mine.
Be in it for the long term
When Michael Burry, the manager of the Scion Capital fund, takes the decision to buy credit default swaps, he takes the risk to lose money for a period of time, having to pay premiums, hoping that he will come on top in the end.
As the payments increase and his deal gave him no returns, Michael is getting pressured more and more by his investors to get out of the deal and minimize his losses. Believing in the technicals, Michael stands by his decision and ends up being right against all of the contrary opinions that he heard before.
No one can see a bubble. That’s what makes it a bubble.
It’s easy to be a conformist since you will feel more comfortable with your opinions in the short term. But, as a change in the markets is coming due, contrarians, those who have long-term vision are the ones to win. People could be right in the short term but, only because something is right now, it doesn’t mean that it will be right forever.
Conclusion
These lessons might be applicable sooner than we expect considering the latest moves in the markets. We have no idea when a situation similar to the one from 2007 will occur again but, one thing is sure, things cannot keep on going up forever, they must take a turn at some point, and because of that it is always important to keep an eye out for that change.
With that being said, we highly recommend this movie since it’s a great opportunity to learn some fundamental things in an entertaining way.
