The big short

24/01/2016 | By | Reply More

Went and watched the big short last night. I enjoyed it.

The film

I thought they dumbed down elements a bit, but that’s to be expected to broaden the appeal. I’d imagine it will go over the heads of a few people that are not interested in financial markets, but it was entertaining and enjoyable if you are into trading in any manner.

As a traditionally comedic actor, I thought Steve Carrel’s performance was particularly good.

Like most dramatisations there are slight inaccuracies, but the film should take credit for pointing them out during the film. I think it works well.  I’d recommend it.  A highlight for me in the film, apart from seeing Margot Robbie (Wolf of Wall street) in a bubble bath, was when Richard Thaler appeared. I’ve been deep into Richard’s work for quite a few years now and I’m accumulating expert status. I’m doing so because I want to know why people make bad decisions, despite the logical choice staring them in the face. It was a pleasure to see this interjected into the film.

My history in sub prime

I have an interesting history with the financial crisis. Early on in my investing career I became deeply interested in the financial crashes of the 30’s and 70’s. When I visited Warren Buffett, I quizzed him on how he behaved in the 1970’s crash because I wanted to know his thought process during those times. I was preparing for that moment.

In 2003 he was already talking about ‘Weapons of financial mass destruction‘ and in 2004, when I got to meet him in person, I later hooked up with some other guys to discuss various options and strategies for the markets. That group have become good friends since then and I have served in an advisory role on one of their funds.

In 2007 I was still writing for Shares Magazine, but I was increasingly busy on sports markets. I had already made up my mind to drop the writing, as producing a weekly column of insight was pretty stressful. So one of the last articles I wrote was about the banking system. It was pretty heavily toned down at the editors request. He didn’t think the original was appealing enough for broad readership.

The original included detail from a presentation I had seen from Pershing square capital management. It was all about CDO’s and synthetics. If you read the presentation you will see why I had to tone down the article.

The crash

When the crash came it didn’t surprise the group I was in. We had been focused on what the trigger would be and lead by Buffett’s warnings we were on the look out for the trigger. Even Pershing didn’t quite nail the full effect, but they got the trigger.

What we couldn’t do was what you see in the film. We didn’t have the means, or guts, to short the mortgage market. So all we did was build up cash, wait for the crash and then start buying targeted positions. I’ll do a post in a month or so with one of those, so you can put it into context. The thing we hadn’t cottoned onto was how bad it would get. At one point it looked like cash could be trash and that wasn’t anticipated. Fortunately that didn’t end up as bad as it could have.

The future

From that first meeting in Nebraska in 2004 the little group of like minded people has now grown into something much bigger and two of the guys run their own hedge funds now. We constantly talk about market opportunities and how best to act on them. We also have much more leverage to act and experience to do something with an opportunity. We are trying to do a few things now, that will set up bigger opportunities in the future. So I reckon that is what will catapult me into different territory in the future. We just need to wait for the right opportunities.

Given the way the market behaves, I’m sure the opportunities will arrive.

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Category: General

About the Author ()

I left a good job in the consumer technology industry to go a trade on Betfair for a living way back in June 2000. I've been here ever since pushing very boundaries of what's possible on betting exchanges and loved every minute of it.

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