Last night I finally had some free time to watch The Big Short. This movie was on my list since a long time. The movie was beyond amazing! It is about few eccentric traders who predicted the US housing bubble earlier and wanted to earn a profit from it. The film is a true story based on the book by Michael Lewis. You’ll see big names as stars like Steve Carrel, Ryan Gosling and Christian Bale, molding the serious financial movie into fun experience.
Considering the dry subject matter, it tries hard to make one understand how the housing market collapsed right under our nose. I am too late to review it, considering most of you must’ve already seen it. I will share the lessons that we can learn from it. There are too many btw!
Lesson #1: You can’t trust the ratings. AAA ratings can be bought with money to keep the clients happy so don’t bet your lifetimes savings on them. It’s always a good idea to research and think critically beforehand.
Lesson #2: Just because everyone is saying so, doesn’t necessarily mean that they are correct. Go with your instincts as an investor and even as an entrepreneur. Our brain has a natural tendency to give us warning signals when something is fishy. Listen to your brain first.
Lesson #3: Even if your predictions were correct, due to the involvement of big players and politics, the market can stay irrational for longer than they should be. Thus, make sure that single holding is not a larger part of your portfolio. Keep short investments on the side to meet short term cash flow needs.
lesson #4: Be patient and calm. Don’t get greedy or insecure when you see the numbers going up or down. Study the reasons and believe that some spikes are just a warning for an all time low.
Lesson #5: Stay wary of “hot hand fallacy”, a wrong assumption that a person who has had success is more likely to succeed again in future attempts. It’s not 1980s anymore!
Lesson #6: Be aware of the counterparty risk. These risks are often ignored although they are the ones that are more dangerous like what if the bank that you have agreement with is no longer in the position to compensate you. What then? Just like in the movie, both Mark Baum (Carell) and both investors Geller (Magaro) and Shipley (Wittrock) realise the risk that the other ‘party’ to their investments may not be able to pay them when it comes time to pay out. If they become too successful, they will end up bankrupting the banks they bet against so they had to take their profit before the banks become insolvent.
Lesson #7: There is an opportunity in everything, even when the market collapse. Just be ready to shift your mind and jump into something new. This world doesn’t give much to those who don’t know how to adapt.
I will recommend you to also watch Inside Job, an insightful documentary on the scenario.
And jeez, Brad Pitt looks old in the movie!
We will rate the movie 5/5