The Big Short - Michael Lewis

The Big Short was definitely a book worth reading if you believe in the efficient market hypothesis.  It is a very similar type story to Liar's Poker and you can tell that Michael Lewis continues writing in the same way.  There are many different themes that come up and some are very similar to those in the 80's within Liar's Poker.
Themes

• Greed - Within this book we see many different occasions where well educated, rich employees are willing to jump into an investment they really don't understand.  Once again we saw many people wanting to join the crowd and many that believed these crazy BS investments would lead to great wealth.  What they didn't put together was the knowledge needed to double check the loans.  Michael Lewis does a great job of showing us the people that correctly predicted the collapse of the industry, at the same time he shows us some of the people that were suckered into selling the CDO's that pushed the problem on to other parts of the industry, such as the big banks.  There was a lot of money lost, and many people didn't think it was possible for the housing market to tank due to recent history.  We start thinking about how history impacts what is to happen next, but with new inventions of securities it is almost impossible to compare.  The one thing we have to do is become very cautious and hesitant with our investments and make sure that we are double checking each and every loophole where there could be a problem.
• Knowledge - It is crazy to think that some of the people that flooded the big banks with debt due to their stupidity were also graduates of great schools such as Harvard or Wharton.  The more and more I learn about the business, the more and more I believe that if you get wrapped up into specific investments it can easily lead you to your downfall.  I think it is very important for us to not get attached to specific investments because they will at some point let us down.  My uncle once told me, "Never fall in love with a stock...they never love you back".  This is definitely the case, and when we look for our investments in the future it should never be a personal battle to keep a stock.  We as people tend to grow attached to the specific stock picks we come up with.  If you continue that attachment you lead yourself to be biased.  Don't let this happen.  
• Market is not all knowing - In the mid to late 2000's, we started to see people jumping on MBS's, CDS's, and CDO's.  The crazy reality was that the market had not allowed for these different securities to be priced efficiently.  The main reason for this was the fact that many of the sellers and buyers didn't have a clue what they were buying and didn't understand the mortgage industry that backed these securities.  This was obviously not a little problem and the more you think about the fact that some of these securities were issued with a AAA rating the more you see where the trap was set.  The assumption of Housing Prices going up at a steady 8% rate was incredibly optimistic and obviously overly incorrect.  Because of these insane ratings many people who believed in the rating system were set up to fail.  The Market is not all knowing and we can not believe in the AAA/no risk type of investment.   
• Always think ahead - Something that really struck me within this book was the potential profits that many of the people who foresaw the problem were able to obtain.  While it is important to have an opinion on the specific industry and specific stock I think it is also incredibly important to have a macroeconomic view of the world as we see it.  In this case, was it realistic for us to assume that the housing market was going to continue to rise?  Was it realistic to give out loans to people with little money?  If one was to think logically, they could have come to the conclusion that housing prices most likely were not going to continue on such a dramatic run up and that the market would eventually stable out.  This was probably not a hard realization to come to, but what the people we read about in the book did that was so different than others was that they acted on it and tried to find a way to use it to their advantage.
• Instincts - As I recognized in the last theme, it is important to recognize a trend and make your move. Throughout the book we see many different professionals who question their thinking because they think no one else is seeing it the same way.  It is important to recognize the problem and to be able to have the self confidence to push your realization forward and make it into an investment.  There are not many books that more accurately show the reluctance of the characters to believe in news that ostracized by the public.  They continued to think "Are we crazy?  This can't be!" but at the end of the day they were brave enough to act on it.  
• Betting - Another interesting topic that continued to come up while I was reading was the topic of risks and odds and betting.  They were trying to bet on different classes failing by looking at the odds of default.  They tried to lower their risks by picking the trenches of mortgages that were most likely to default.  They played the odds and hoped that their bet would pay off.  They were betting on different defaults that they were getting odds of 100/1 when they really should have been 10/1.  Obviously this is not a normal type of investing and is more of a hedge fund type approach, but it is absolutely crazy that you could find disparities like this within the market.  

Overall, The Big Short is a book that is really worth reading to gain a better understanding of what has led us to a recession.  It has many great insights into the thinking behind the people that made millions/billions and the people that were setting our country up for a dramatic problem that impacted all Americans.  Great read and Michael Lewis is a great writer and fun to read!