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I think that Burry is simply arguing that the methods he and other shorts used to call this crisis (which Taleb refers to as a gray swan -- since so many called

by jakarta 17y ago

I think that Burry is simply arguing that the methods he and other shorts used to call this crisis (which Taleb refers to as a gray swan -- since so many called it) should be more closely examined, rather than being simply dismissed as statistical aberrations. Maybe investors/wall street can learn a useful thing or two from them. To me, spotting bubbles is not so difficult. There are a few great investors who have excellent track records when it comes to dodging bubbles/crises. They may not profit immensely, but their downside is usually protected and they are cash rich to pick up securities on the cheap. The real difficulty comes from figuring out when a bubble will burst -- which is really anyone's guess. Burry himself ran into trouble on this end which created friction and eventually lawsuits with his investors.

ugh 17y ago
This could be total confirmation bias but I myself was somewhat amazed that everyone seemed to have been so surprised by the crisis. I don’t care all that much about what’s happening in the US (not being from there and all) but I have been clicking through the current New York Times cartoons for the past few years or so. In retrospect it looked to me as though there were constantly crumbling houses in those cartoons (I was always confused by them, it was only later that it made ‘click’), years and months before the bubble burst. If even the cartoonists knew it …
mistermann 17y ago
Figuring out the "when" is definitely the most difficult part. I had been watching the markets and the housing bubble very carefully for years before the crisis finally arrived. It is so amazing how long these things take to play out, and how distorted the markets can get before they finally snap. Despite the attention I paid to it, I still failed to make a profit. When things finally started unravelling, I took several put option positions (assuming the price would decrease) in the obviously doomed companies, for really cheap prices. But my mistake was not goibg out further time wise. I was up substantially (500% was my best) in almost all my positions within a week or two, but when the fed and other players weighed in with changes to the rules of the stock market, and CEO's taking actions that are blatently fraudulent but not enforced by the SEC, things turned against me and I ended up selling for a 40% loss. Of course if I had simply taken a boring short position I could have made a guaranteed 40-60 percent, but how exciting is that?? :) Making money in the market, even when you KNOW what is going to happen, is amazingly hard. Especially when the FED and SEC are literally changing the rules on a daily basis, as they were back then, and when CEO's can lie, cheat, and steal with impunity.
- jakarta 17y ago
  For ordinary investors, the housing bubble was a tricky thing to play. There were two public companies that had CDS portfolios where they stood to make a lot of money. A direct equity investment or LEAPS would have worked well there. I took this approach. Alternatively, it seems like out the money puts on financial institutions would have done really well. Michael Lewis chronicles a few guys from Cornwall Capital that made something like 100:1 payouts on out the money puts for Bear Stearns. These guys crushed it when Bear went BK. This cheap insurance approach is used by a few really well known investors and it is the one I'm gravitating towards for the future.
  - mistermann 17y ago
    Ya, out of the money puts was the route I took as well. However, when the company you buy puts in suddenly takes on a couple hundred million of new debt in order to do a share buy back so the CEO can cash his shares out, puts don't perform too well. Nor do they do so well when the SEC decides to suddenly ban short selling on a certain subset of stocks.

by jakarta 17y ago

ugh 17y ago

This could be total confirmation bias but I myself was somewhat amazed that everyone seemed to have been so surprised by the crisis. I don’t care all that much about what’s happening in the US (not being from there and all) but I have been clicking through the current New York Times cartoons for the past few years or so. In retrospect it looked to me as though there were constantly crumbling houses in those cartoons (I was always confused by them, it was only later that it made ‘click’), years and months before the bubble burst. If even the cartoonists knew it …

mistermann 17y ago

Figuring out the "when" is definitely the most difficult part. I had been watching the markets and the housing bubble very carefully for years before the crisis finally arrived. It is so amazing how long these things take to play out, and how distorted the markets can get before they finally snap. Despite the attention I paid to it, I still failed to make a profit. When things finally started unravelling, I took several put option positions (assuming the price would decrease) in the obviously doomed companies, for really cheap prices. But my mistake was not goibg out further time wise. I was up substantially (500% was my best) in almost all my positions within a week or two, but when the fed and other players weighed in with changes to the rules of the stock market, and CEO's taking actions that are blatently fraudulent but not enforced by the SEC, things turned against me and I ended up selling for a 40% loss. Of course if I had simply taken a boring short position I could have made a guaranteed 40-60 percent, but how exciting is that?? :) Making money in the market, even when you KNOW what is going to happen, is amazingly hard. Especially when the FED and SEC are literally changing the rules on a daily basis, as they were back then, and when CEO's can lie, cheat, and steal with impunity.

jakarta 17y ago
For ordinary investors, the housing bubble was a tricky thing to play. There were two public companies that had CDS portfolios where they stood to make a lot of money. A direct equity investment or LEAPS would have worked well there. I took this approach. Alternatively, it seems like out the money puts on financial institutions would have done really well. Michael Lewis chronicles a few guys from Cornwall Capital that made something like 100:1 payouts on out the money puts for Bear Stearns. These guys crushed it when Bear went BK. This cheap insurance approach is used by a few really well known investors and it is the one I'm gravitating towards for the future.
- mistermann 17y ago
  Ya, out of the money puts was the route I took as well. However, when the company you buy puts in suddenly takes on a couple hundred million of new debt in order to do a share buy back so the CEO can cash his shares out, puts don't perform too well. Nor do they do so well when the SEC decides to suddenly ban short selling on a certain subset of stocks.