7 Investing Lessons From The Big Short

Kim Snider  |

Last night, I couldn’t bear to watch any more mid-term election prognosticating. So I decided to be productive and watch a movie instead.

I know you are probably thinking to yourself, how on earth was watching a movie being productive?

The Big Short is based on a book, by author Michael Lewis, of Blind Side and Money Ball fame, both of which I love!

But many may not know his first book, Liar’s Poker, was based on his year’s as a bond salesman, at Salomon Brothers, during the late- 1980s.

That book featured, very prominently, Lewis Ranieri, considered the father of the mortgage-backed securities… the same mortgage-backed securities that later almost caused the collapse of the world’s financial system.

Which was the subject of his seventh book and the movie I watched last night, The Big Short: Inside the Doomsday Machine.

If you haven’t read the book or watched the movie, I highly recommend it.

The Big Short is an easy and entertaining way to understand exactly what almost lead to a global financial collapse in 2008.

It is also a stark reminder of the fundamental disconnect between the profit motives of Wall Street and well-being of average investors… who mistakenly believe that Wall Street’s job is to make them money.

Nothing could be further from the truth.

Wall Street’s job is to make themselves money. And their shareholders’ money.

If you happen to make anything along the way, that is just a happy coincidence for everyone, just like the gambler at the Vegas slot machine.

And yet, the conundrum is that you HAVE to invest. Because you can’t possibly save enough money to retire unless you do.

It is also relevant to cryptocurrency, which is why I went back to watch it.

Many people suggest that Bitcoin, as a trust-less system, is an antidote to a financial system which is based on trust, and which destroyed that trust.

We can debate whether or not bitcoin replacing the fiat financial system is even feasible and, if it is, how long it might take. (I don’t think it is.)

Regardless, the movie does raise some interesting questions relevant to bitcoin investors:
  • How do you have the courage to take a multi-billion dollar short position, when everyone else in the world is betting the other way and thinks you are crazy?
  • During that period, how do you decide if you are just early or wrong?
  • Maybe more difficult… how do you stick with that position when it doesn’t immediately go your way and, in fact, for a while, looks like it is going against you?
  • How do you stick when it finally seems you are right but Wall Street is big and powerful enough to manipulate something that goes against their self-interest?
  • Does it make sense to base the entire global financial system on something so thin and so fragile as trust? What happens when that trust is destroyed? Then what?
Fortunately, there aren’t just questions. There are also answers. Here are my 7 Investing Lessons From The Big Short…These lessons apply to all investing, not just cryptocurrency or shorting the U.S housing market.
  1. You lose money in markets because your emotions overtake discipline
    Fear and greed are an investor’s worst enemy, causing you to consistently buy and sell at the exact wrong time.
  2. You MUST have a “business plan” for each investment
    My template is what I call the 5 Questions. This puts in writing why I am investing, how much, in what, under what conditions will I sell and under what conditions will I buy more?
  3. You must be able to execute that plan without emotion
    Having a plan is easy. Executing is hard. Again… emotions overtake discipline. You can’t succeed without a system. The best systems work without you having to do anything other than to keep your hands off.
  4. You must release attachment to the outcome
    Understand that sometimes good decisions can still produce bad results. Sometimes bad decisions will produce good results. A successful investor can detach from individual results by knowing over time good decisions produce good results and vice versa.
  5. Investing is not a sprint. It's a marathon.
    It’s a cliche but true.
  6. Money is the last great taboo. Don’t be afraid to question the experts or go against the herd.
    Sometimes the bigger the education, the bigger the ego, the bigger the mess… take long term capital or Enron for example.
  7. You alone are responsible for whatever financial situation you find yourself in
    Not the schools, Not your spouse. Not your CPA. Not the market. Not your employer. You! If you don’t like it, figure out what needs to change and do something about it.

As always, I hope you find that helpful.

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If you’d like to learn more about investing in cryptocurrency for retirement, I would encourage you to register for my free online training, How To Hedge Against Financial Crisis While Increasing Expected Return.

If you have any questions at all, about this topic, or anything else, just email me at askkim@sanecrypto.com. I read and answer every email personally. Or leave it in the comments below.

DISCLOSURE: This article was originally posted on my personal site and is intended to increase traffic to my site.


The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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