5 lessons about investing from the film The Big Short

Lessons about investing may arise from a variety of sources, such as the film The Big Short (2015), directed by Adam McKay, which became a landmark in cinema for presenting, in an engaging and intelligent way, the events that culminated in the 2008 financial crisis. 

Based on the book by Michael Lewis, the work follows a group of investors who predicted the collapse of the real estate market and profited by betting against it. 

Although the film has a dramatic tone, it offers valuable lessons about the world of investing.

So today we will explore five important lessons that The Big Bet teaches us about investments, showing how the film reflects the reality of financial markets and highlighting the mistakes that many make when investing. 

Remembering that each lesson covers financial concepts in depth, but in an accessible way, so that you can apply them to your investment decisions.

Lesson 1: Understanding risks is one of the main lessons about investing 

One of the biggest investment lessons that The Big Short brings is the importance of understanding the risks involved.

This is because, in the film, Michael Burry, a hedge fund manager, realized that the real estate market was based on high-risk mortgages, and he studied the data in depth and understood that many of these securities were doomed to fail.

This shows that investing without understanding the risks can result in huge losses, and it is not enough to follow trends or blindly trust third-party advice. 

Therefore, it is essential to thoroughly analyze the assets in which you intend to invest, either through your own studies or with the help of specialized consultants.

Table: types of risks in investments

Type of Risk	Description
Market Risk	Price variations due to economic factors
Liquidity Risk	Difficulty in selling the asset quickly
Credit risk	Default by the asset issuer
Operational Risk	Problems in management or company structure

relevant given: A study carried out by the CFA Institute (2022) revealed that 74% of investors underestimate the risks related to complex financial assets, such as derivatives. 

This data reinforces the need to understand the risks before making any decision.

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Lesson 2: question market consensus

Another important point highlighted in the film is that, often, the market consensus can be wrong. 

This is because most investors, including large banks, believed that the real estate market was safe and could not collapse. 

However, characters like Mark Baum (played by Steve Carell) questioned this logic and realized structural problems in the system.

So this is one of the lessons about investing most powerful: don’t blindly trust what the market is saying. Instead, do your own analysis and be willing to go against the grain if necessary. 

After all, many of the greatest investors in history, such as Warren Buffett, adopted this contrarian stance to find opportunities.

“When everyone is winning, that’s when we should be most cautious.” This quote from Buffett sums up the concept that excessive optimism can lead to a sharp drop in markets.

Lesson 3: diversification is not just an option, it is a necessity

In the film, we see how many investors concentrated their assets in a single sector: real estate, and when that market collapsed, their portfolios also collapsed.

Therefore, diversifying investments is a fundamental practice to mitigate risks and increase the chances of success in the long term.

This is because, by diversifying, you reduce dependence on a single asset or sector, and if one of them fails, the impact on your finances will be smaller. 

Diversification can include a combination of stocks, fixed income, real estate and even cryptocurrencies, depending on your risk profile.

relevant given: A Vanguard report (2023) showed that diversified portfolios can reduce risk by up to 30%, without significantly compromising expected return.

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Lesson 4: Insider trading is more common than it seems

In several scenes, The Big Short exposes the insidious nature of insider trading. 

This is because, while large financial institutions were selling toxic mortgages, many of them knew the true condition of the assets, but preferred to maintain their profits rather than alert investors.

This lesson about investments reveals that, in the financial market, information is not always clear and transparent for everyone. 

Therefore, it is essential to seek reliable sources, stay up to date and think critically about what is published in the market.

Therefore, there are finance applications and platforms that can help investors monitor the market and identify relevant information. 

Here are five finance app options that can be useful for investors of all levels:

1. Trademap: One of the best for tracking quotes and news in real time.
2. Investing.com: Offers detailed analysis and alerts on market movements.
3. Bloomberg: Global reference in financial news and economic analysis.
4. Yahoo Finance: Ideal for tracking stock charts and trends.
5. MetaTrader 4: Powerful platform for investors operating in the foreign exchange and derivatives market.

Lesson 5: opportunities arise in times of crisis

The film shows that, even during severe crises, like the one in 2008, there are opportunities for profit, after all, investors like Burry and Baum made massive profits by predicting the crisis and betting against the market. 

Although these situations are rare, financial history shows that crises are often followed by opportunities for recovery and growth.

Therefore, one of the most important investment lessons is that, in times of crisis, those who are prepared, well informed and with available liquidity can benefit. 

After all, buying undervalued stocks or assets during crises can result in big gains in the long term, as long as careful studies are carried out and a clear view of the recovery potential is maintained.

Relevant quote: As Warren Buffett said: “Be greedy when others are fearful, and be fearful when others are greedy.”

Conclusion

The Big Short presents us with powerful lessons about human behavior and the pitfalls of financial markets, such as understanding risks, questioning market consensus, diversifying investments, recognizing the presence of privileged information and taking advantage of opportunities during crises are essential practices for any investor.

So whether you are a beginner or an experienced investor, these lessons about investing are timeless and can help you make more informed and strategic decisions in the financial market. 

This way, by applying these ideas, you will be more prepared to face the challenges and uncertainties of the markets, in addition to increasing your chances of financial success.

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