The Big Short
The Big Short.
The Big Short.
"Senior!"
There was something you came to realize once you'd been investing long enough.
Did you really always have to buy stocks?
"I figured out something huge."
"Sounds like something everyone already knows."
"Ugh!"
Sora came running toward me, her chest bouncing with every step. They were so firm that if they hit me in the face, I was pretty sure I'd lose a few teeth.
There was a manga like that once.
Boobs used as sandbags to pound a guy's face. And at the end, missiles launched straight from the nipples.
"In a bear market, you don't buy stocks — you buy shorts."
"Oh."
"What do you think? Pretty solid strategy, right?"
"It's like your IQ just hit three digits."
She puffed herself up with the look of someone who had just grasped the fundamental laws of the universe. In truth, it was obvious if you thought about it.
Shorting is just another investment strategy, after all.
In Korea, it was heavily restricted. Individual investors were blocked from short selling and short bets. Overseas, it was routine. Any retail investor who felt like it could slap on a 3x Tesla short.
"You mean inverse ETFs?"
"Heh heh. I'm thinking of going for the double inverse."
What you could actually do was inverse and KOSDAQ inverse. Inverse was an ETF that tracked the KOSPI in reverse; the KOSDAQ inverse did the same for the KOSDAQ.
And the double inverse was just inverse times two.
If the index dropped 1%, you made 2%. A leveraged ETF, in other words.
"What made you think of that?"
"Is it not allowed?"
"I just figured there had to be a reason."
"I watched the movie The Big Short!"
The most common reason of all. She had gone and watched one of the three movies investors should never, ever see.
The Big Short, The Wolf of Wall Street, Margin Call.
You'd be better off watching a stock-manipulation flick three times over. Those three were useless for anything practical.
"I'm going to get rich off shorts too!"
"An investor who will change the era has been born."
"You've got to dream big."
All it did was plant useless preconceptions. The Big Short in particular came with some serious side effects.
You start deluding yourself into thinking you've become a brilliant investor.
A bear market. Everyone loses money. You go the other way and actually make a profit. Making money while everyone else is bleeding it out delivers a high comparable to drugs.
"Did you watch The Big Short all the way to the end?"
"Of course I did."
"Then you know how it ends, right?"
"What do you take me for, an idiot?"
"No — the real ending."
"?"
The movie The Big Short. A stock film set against the 2008 subprime mortgage crisis. The protagonists foresaw the disaster and made a fortune betting on the collapse.
And it was based on real events.
It actually happened. The characters were based on real people. Living, breathing humans. Their stories continued long after the credits rolled.
"So... what happened?"
"They went under."
"They died?!"
"As investors, yeah."
One of the protagonists of The Big Short. Mark Baum's real-life counterpart was Steve Eisman.
Old habits die hard.
He put a massive short on Tesla. The stock price defied every expectation and skyrocketed. His fund got liquidated. For all practical purposes, he retired from the industry and became a washed-up old man in the back room.
Click.
I lit a cigarette. Even the most famous investors could collapse in an instant.
Not that I'm in any position to talk.
In this business, it was just another day. Still, it was something you never quite got used to.
"Ah, I told you not to smoke!"
"Then stop me with your mouth."
"I can't do that here."
I was dying for a smoke. Sora fretted over me like a wife fretting over her husband's health.
Not that you're in any position to lecture either.
Not if she was going to start shorting. Going against the market was far more dangerous than people imagined.
"What's so dangerous about it? If it looks wrong, you just cut your losses."
"You ever tried drugs?"
"Like I would have."
"Sigh. Of course a virgin like you hasn't even tried coke."
"?"
Shorting was compared to drugs. Once you made money on a short, you got addicted.
Like those "Don't eat ramen, people — it'll change your constitution" warnings.
A short investor's entire constitution really did change. Every situation started looking like the prelude to a crash.
"No way."
"Have you ever seen me joke around with you?"
"You joke around and then try to just plain take me."
"True."
This time, though, I was dead serious. Once you shorted even once, you understood why mental fortitude mattered so much in investing.
Humans are never rational creatures.
Confirmation bias. It wasn't just beginners who fell for it. Even the most brilliant investors walked right into it. No — that was exactly why.
I predicted the subprime mortgage crisis back in the day and made a killing, you know~.
"That hipster urge to make a different choice from everyone else is what ends up tripping you up."
"Like you, Senior?"
"You forget the basic fact that an investor is supposed to believe in the long-term upward trend of the market."
"You're not listening."
Jesse Livermore and other historically famous short sellers rarely met good ends. Steve Eisman getting liquidated was practically the gentle version.
Maintaining rational thought is one of the virtues an investor has to have.
That was why you didn't casually short just because you expected a decline — not until your values as an investor were fully formed.
"But still."
"But still?"
"Michael Burry is still famous now."
"That Michael airhead."
"Huh?"
Only people whose values were already set should do it. For Sora, who had barely grown her back legs, it was a distant prospect.
Even he was driven to the brink of a mental breakdown before he barely pulled it off.
Sold the car, sold the house, sold everything he could. After two years of diamond hands, the big short finally paid off by miracle. Movies were movies. In real life, even Michael Burry never made money easily.
Gulp.
She was only now grasping how serious it was. The cute delusion of a first-time Big Short viewer.
"W-well... it could still go down, right?"
"Then go ahead and short."
"The Korea-US interest rate inversion is causing chaos right now! At this rate, the dollar could shoot through the roof like during the IMF crisis, couldn't it?"
A phase every investor went through at least once. Like puberty.
About time her horizons broadened.
You needed global thinking. You also needed to understand that the world never turned as simply as it seemed.
Thwack!
Since the occasion called for it, I gave a lecture. Every eye in the stock club locked onto the whiteboard.
"The news is making a huge fuss right now, right? That Korea and the US have inverted their base rates."
"Yes!"
"Isn't that a big deal?"
"Why do you think it's a big deal?"
"From a foreigner's perspective, there's no reason left to put money into Korea..."
My authority was back. I had won my showdown with Rachel, clear and decisive. Time to teach.
Exchange rates didn't move as easily as a virgin's fantasies.
In theory, it looks like they should fall forever.
They pay you more. And it's safer, too. The United States was the most trusted country on Earth. Its central bank was guaranteeing high interest. Pulling money out of Korea and parking it in the US seemed like the obvious move.
"Right now, the US CPI is 2.4% and the base rate is 1.75%. Korea's CPI is 1.3% and the base rate is 1.5%. So if you calculate the real interest rate, Korea's is actually higher than the US."
"What's a real interest rate?"
"Base rate minus CPI."
Exchange rates were the most conservative asset in the world. They didn't shake their hips that easily.
Korea is also a current account surplus country.
Dollars kept flowing in. With that much money, defending the exchange rate was more than doable when needed. Smoothing operations. If you attacked carelessly, government intervention in the FX market could leave you holding the bag.
"Ohsung Electronics might be falling, but the company still makes solid money, right? In an economy this stable, capital flight doesn't happen easily."
"Then why is it over 1,100 won right now?"
"The exchange rate was spiking."
"Because the interest rate forecasts changed."
Of course, that was the macro view. In the short term, speculative moves still happened.
Korea's next-month CPI forecast is 1.6%.
The real rate gap had narrowed. Emerging markets' external soundness was also getting shakier by the day. The Tequila Effect. Just as Mexico's 1994 financial crisis spread across Latin America, if Asia had a problem, it could spill into Korea.
"The IMF crisis was triggered by Thailand's crisis, too. Even if it doesn't actually play out that way, the anxiety still takes root."
"Ooooh..."
"Senior, you can talk just like Rachel unnie."
"Obviously."
You had to weigh all of this. Even on the surface, it was three or four factors — and the hidden ones were far more numerous.
What I told Rachel.
This was the advanced course. I already knew it all, so I skipped ahead. But the kids in the stock club were still hatchlings. This wasn't something you touched casually without knowing the basics.
"Until you can calculate how much of this basic stuff is already pre-reflected in the market, and how much is still hidden — you don't casually predict exchange rates. That's what I'm saying."
"So can we short or not?"
"There's a short fever here too?"
"We watched The Big Short!"
"Hilarious as hell."
"Haa..."
The basics of being an investor. Shorting was something you did only when you knew all of them and still couldn't stop your hands from itching.
If you walk into a casino, you try blackjack, baccarat, roulette, the big wheel, sic bo, Caribbean stud poker, casino war, Texas Hold'em — then you talk about the next step.
A greenhorn who'd barely spun a slot machine had no business putting their wrists on the line.
"I'm already making money on inverse."
"I'm on double inverse!"
"I want to bet on Korea going under, hah hah."
Predicting a market decline and actually shorting were completely different concepts. They didn't know that.
Trying it when you've got nothing to lose probably isn't the worst idea.
Better than some girl who hit twenty-three without any experience at all. Maybe shorting once would do them good.
"You guys ever heard this? Longs are calculation. Day trading is psychology."
"Ah!"
"I think I get it."
"Value investing needs analysis, so..."
"Right. You think you get it? Then what is shorting?"
"?!"
In the movie, Michael Burry's house was going under, his car was going under, investors were demanding refunds, and even his own staff were telling him he was wrong. How did he hold onto his conviction?
An unbreakable heart.
Shorting was belief.