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Timing is everything, but Burry was careful to find a long-term bet with limited downside. He wasn't shorting stocks - he was buying credit-default swaps which
by jim-greer 17y ago
Timing is everything, but Burry was careful to find a long-term bet with limited downside. He wasn't shorting stocks - he was buying credit-default swaps which are essentially insurance policies.
"For instance, you might pay $200,000 a year to buy a 10-year credit-default swap on $100 million in General Electric bonds. The most you could lose was $2 million: $200,000 a year for 10 years. The most you could make was $100 million, if General Electric defaulted on its debt anytime in the next 10 years"
- nandemo 17y agonsoonhui's comment still applies. For instance, call options also have limited downside, but still the limit is 100% of your investment. And most of the time you do lose 100%. Apparently, Burry's achievement was that he found a way to "short" something when there was no "off-the-shelf" product to do so. Even so it's not easy to separate skill from luck.
- nsoonhui 17y agoHe was successful because the bubbles burst before he went burst. You'll never know when the bubbles will burst.