Survivor bias: If I let hell loose on enough monkeys to bet on financial market before the bubble bursted, some of them would eventually "beat the wall street" and "forsee the burst" and earned themselves interviews, book deals and recognition.
The monkeys could have a chance to talked about their models then.
Just to add: lots of people also bet against bubbles at any point of time of the bubble. But they were forced out of business before the bubbles could even burst( "Market can remain irrational longer than you can remain solvent"). Only a handful survived and we thought that they have special skills or magic formula.
You underestimate the element of luck in the world of investment.
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"
nsoonhui'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.
Comments
Survivor bias: If I let hell loose on enough monkeys to bet on financial market before the bubble bursted, some of them would eventually "beat the wall street" and "forsee the burst" and earned themselves interviews, book deals and recognition.
The monkeys could have a chance to talked about their models then.
Did you even read the article?
I did; what's the problem with my comment?
Just to add: lots of people also bet against bubbles at any point of time of the bubble. But they were forced out of business before the bubbles could even burst( "Market can remain irrational longer than you can remain solvent"). Only a handful survived and we thought that they have special skills or magic formula.
You underestimate the element of luck in the world of investment.
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"
He was successful because the bubbles burst before he went burst.
You'll never know when the bubbles will burst.
nsoonhui'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.