THE INVESTMENT ROAD LESS TRAVELLED
It’s all in the risk action. Anyone can make money when investment markets boom, but who can protect you when they go ‘boom!’?
‘DON’T SHOOT THE messenger’. The provenance of this phrase is uncertain but may date back to ancient Greece, when emissaries bearing bad news were put to death upon reception.
It seems a strange code of conduct and even stranger for the messenger doing the news bearing. Conscious of the fact that the dispatch may have been suboptimal, and knowing his fate, he would have been forgiven for getting lost and heading to Mykonos to start a Bed & Breakfast. There was, however, a sense of duty back in those days, and life was less valuable than it is today, according to market analysts.
Naysayers and harbingers of gloom and doom have been legion in the investment world since the Dutch East India Company offered a batch of shares at the start of the 17th century. People have been analyzing markets ever since, trying to predict movements predicated on the news (good and bad) and buying or selling based on the information procured.
In 2005, Michael Burry, a hedge fund manager who was either a ‘visionary’ or a ’crackpot’ depending on who you talked to, considered that the US housing market based on sub-prime loans was unstable, and created a credit default swap. He saw a pattern; recognized that there might be bad news ahead as far as mortgage-backed securities were concerned, and put his clients’ shirts on it.
He was right. The market collapsed in 2008, and his fund increased by 500 percent with a near US$2.7 billion profit. Michael Lewis wrote a book about it in 2010, The Big Short: Inside the Doomsday Machine. It’s difficult to follow if you do not finance industry-savvy because the investment world is complex. The 2008 crash was suffused with mis-and lack of understanding, not to mention incompetence, negligence and downright fraud.
We’re all familiar with the concept of boom-slump cycles. They’re central to capitalist economics. But predicting patterns that others don’t see is something that everyone wishes they could do because when the market is sick and ailing, there’s gold in them ills.
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