savageinfidel

Michael Lewis, whose writing I generally enjoy, has a new book out. It’s not about the financial crisis per se, but about a handful of traders who made huge amounts of money from the crisis. There’s an excerpt available on the Vanity Fair website, in which Lewis talks fairly admiringly about one such trader, Michael Burry. I haven’t read Lewis’ book beyond this extract, nor do I know Burry personally (though I do know the trade he executed – it was a simple yet powerful idea, and full credit to him for conceiving it). But I do want to emphasize a couple of points that the VF article glosses over: First, any story of this sort suffers from a huge amount of survivorship bias. For every Michael Burry or John Paulson who foresaw the crash and made money off it, I can name ten – nay, a hundred! – hedge fund managers who knew full well that there was a bubble in the housing market but could not get their timing right, and hence went bust 1 . (Either they bled to death on the negative c...