Friday Feature Book Review: "The Big Short" by Michael Lewis 世紀の空売り―世界経済の破綻に賭けた男たち: マイケル・ルイス

This book is a great follow up to Flash Boys, Moneyball, and Liar's Poker. The author has a great way with words, and you get a real sense of the traders he speaks to. I was very impressed with this very detailed overview of what really took place in frothy global credit markets. They lead to the big mess we discovered later on. Ending of course both Bear Stearns, and Lehman Brothers. I was not aware of many of the implications he touches on and how they changed prices for all markets.

We learn about who saw the storm coming well ahead of the trouble to follow. Also how difficult it was to put on the right trade even if you wanted to. It reminded me of the old saying, "thinking of a new idea is not the difficult part of business, it is making the new idea a reality, and profitable, that is the difficult point". 

The most curious insight was how three amature investors behind Cornwall Capital, did so well shorting CDS, and related trades. For these three to put together a trade so innovative and small in scale at first, but so attractive ultimately, is a David & Goliath story in many ways. The profile of Michael Blurry, from Scion Capital is very revealing. You often have to be a clear outsider, in order to see what others do not, or refuse, to see around them. There is not always wisdom in crowds in a true sigma event. Being able to see a bigger picture can be quite painful. There is no easy way to make a fortune. Mr Market always respects reality in the end. He was also fascinating as he is far from "typical". He is not who you could describe as one of the first doctors, turned financial blogger, and turned hedge fund manager. 

It was the personalities and details of each character, along with their individual struggles, that makes this a page turner. I know how the sad story ended, but that did not matter. I wondered about what I would do in a similar situation. If I could see the future in any financial sense so clearly, yet in such a anti-social manner to so many others in the market, would I continue? Would I just give up and not follow through like these remarkable people? I am not sure given what I have read, and given how long it took to be redeemed in the end. It seems in many ways like a pyrrhic victory for some. This was a great profile of the key players in this doomed market, and so many others in the background. It was a fascinating book in order to better understand what it took for them to get their goals and not give up a clear goal that few would widely support. The resistance by many to their correct, but anti-market ideas was often fierce.  Many pioneers go through a similar experience with new ideas no matter what they take on. We all benefit from resistance, but we rarely see how badly it can impact others at the time.

The Top 3 Takeaways from this book that impact any reader are:

1) There is no limit to being too careful with your beliefs on investment opportunities. Ethics and counter trends are a true test of any financial firm long term.

2) Reputation can be a weapon, but can also be a weakness. Conviction in any single trade needs to be rock solid the more radical is seems to others in the same market.

3) The long history and legacy of original thinkers making a fortune. George Soros, is one of many examples of top-tier risk takers seeing a chance and going "all in".

This is a real life account of both historic facts and events that were all part of the pre-Lehman Brothers crisis. This is not a story about the Great Financial Crisis of 2008. In fact, it is about what lead to it. Other books like "Too Big to Fail" go into that aspect in much more detail. This book is about what lead only a few, to see opportunity in the frothiness of financial markets around them. I enjoy absorbing whatever views and biases they had before the big credit party ended. It gives a great multi-layered viewpoint of how a real strong minority really saw the crash clearly, but did not look forward to it despite profiting from it ultimately. This was a very worthwhile read, and now a very compelling movie out with a fantastic cast. Deal junkies will be very satisfied.

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