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In this episode, we continue our INVERT focus with an all-time classic, "The Big Short". We'll dive into the misaligned incentives that encouraged banks to pursue growth at all costs and led to the Great Financial Crisis. We'll explore the value investing strategies of Michael Burry, the first big short investor, who spotted the trouble ahead and bet on it through credit default swaps. We'll say "these shitty loans" A LOT. Most of all, we'll walk away with a deep understanding of the catalysts behind the GFC, and the recurring mistakes made across crises. I hope you enjoy this eye-opening journey into Michael Lewis's "The Big Short"
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The Big Short: Inside the Doomsday Machine - Michael Lewis
The Big Short - 2015 Movie
INVERT episodes: When Genius Failed, Liar's Poker, Bull! A History of the Dotcom Bust, A Short History of Financial Euphoria, Zeckendorf, The Liar's Ball ----
Recommendation of the Week: Costco - Acquired
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Please share with a friend or rate 5 stars if you enjoyed this episode! | Find me at ReadnRepeat.com and on Twitter @ReadnRepeatPod
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The Web of Ideas: The Big Short (my notes on the book)
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Show Notes:
3:40 - The growing subprime mortgage-backed bond market
6:43 - Michael Burry - spotting the ticking time bomb before anyone else
12:20 - "Ick" investing
18:43 - A level of preparation beyond any of his peers
24:33 - Collecting fees while ignoring fat tails
29:20 - Synthetic CDOs = unlimited exposure
35:34 - Targeting less-educated immigrants to grow volumes
44:05 - Eisman finds his fool
46:47 - Correlations go to one during a crisis
50:10 - "Be aware that information flows down a food chain, with those who get it first EAT and those who get it late BEING EATEN" - Ed Thorp
55:53 - The last buyer of subprime mortgage risk had stopped buying
1:01:00 - All it takes is a slight decline of assets to go bankrupt
1:05:42 - The transferring of risk from execs to shareholders
1:09:38 - NEVER be dependent on the kindness of strangers
