tensorfx @tensor_fx

@MadCrash_X Burry trusted his research when almost everyone else doubted him. That’s what made the difference.

Michael Burry started betting against the U.S. housing market in 2005. By the time his position reached about $1.8 billion, many of his own investors wanted out. He had spent months reading mortgage filings and concluded that a huge number of subprime loans would eventually fail. So he started buying credit default swaps against mortgage bonds. Then the housing market kept going up. Burry had to keep paying premiums on the swaps while his investors watched a trade that appeared to be losing money. By the first nine months of 2006, one of Scion’s funds was down 17.36%. Investors started asking for their money back. The problem was that Burry did not think the thesis had changed. The mortgages underneath the bonds were getting worse. The market just had not repriced the risk yet. So he stayed in the trade. By then, his mortgage positions had reached about $1.8 billion notional across several Wall Street counterparties. For nearly two years, being early looked a lot like being wrong. Then 2007 arrived. Subprime mortgages began failing. Mortgage bonds started collapsing. And the same Wall Street firms that had sold Burry protection began trying to buy it back. Scion’s main funds returned more than 130% after fees in 2007. The trade made Burry famous. But the interesting part happened before anyone knew he was right. For almost two years, he had to keep paying for a position many of his own investors wanted him to abandon. Years later, Burry returned to UCLA, where he had studied economics, and delivered the 2012 Economics commencement address. The full video is available on YouTube.

@MadCrash_X The difference between failure and success was one launch.

In 2008, SpaceX had failed three launches in a row. Elon Musk had enough money left for one more. There was no comfortable backup plan. The first Falcon 1 launch failed. The second reached space but did not make orbit. The third failed too. By then, SpaceX was running out of money, and Musk later said the company effectively had one rocket left. Then came launch number four. On September 28, 2008, Falcon 1 finally reached orbit. Musk later said that if that launch had failed, SpaceX probably would not exist today. A few months later, NASA awarded SpaceX a major cargo contract. Looking back, the story feels inevitable. It wasn’t. At the time, the company had already failed three times, the money was almost gone, and one more failure could have ended everything. That is the part success stories usually remove. They show you the win. They rarely show you how close the whole thing came to disappearing before it happened. The fourth attempt only looks inevitable because it worked. Musk told the full story during a 2013 talk at the Montana Economic Development Summit. The full video is available on YouTube.

In 1985, Steve Jobs was fired from Apple. He was 30 years old. Ten years earlier, he had started the company in his parents’ garage. By the time he was pushed out, Apple had grown into a $2 billion company with more than 4,000 employees. Then the board sided against him. The company he had spent his entire adult life building was suddenly gone. Jobs later told Stanford graduates that he felt like a very public failure. For months, he did not know what to do next. Then something changed. He realized losing Apple had not changed one thing: he still loved the work. So he started again. Over the next five years, Jobs founded NeXT, helped build Pixar, and eventually returned to Apple after the company bought NeXT. Twenty years after being fired, Steve Jobs stood in front of Stanford graduates and said something remarkable: Getting fired from Apple had turned out to be one of the best things that ever happened to him. Not because failure was pleasant. It wasn’t. But losing the position also removed the weight of having to remain successful. He could become a beginner again. Steve Jobs lost the company that had defined him at 30. What came next helped shape the company he would eventually return to. The full 2005 Stanford commencement speech is still available to watch for free on YouTube.

tensorfx @tensor_fx

a week ago

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In 2000, the stock market briefly did something that looked mathematically impossible. A company called 3Com owned a huge stake in Palm. Then Palm’s stock exploded higher. At one point, the market value of 3Com’s Palm shares became greater than the entire market value of 3Com itself. Read that again. One part of the company was worth more than the whole company. In simple terms, the market was effectively valuing everything else inside 3Com at less than zero. Andrew Redleaf used this case in a Yale Financial Markets lecture to explain why market prices do not always line up perfectly with economic logic. The interesting part is not that markets are “stupid.” It is that prices are set by real buyers and sellers, and sometimes those prices can create strange contradictions. That is why price and value are not automatically the same thing. Sometimes the market corrects the mistake quickly. Sometimes the absurdity is visible before the correction arrives.

tensorfx @tensor_fx

a week ago

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A stock jumps 50% on its first day. Everyone calls the IPO a success. The company may have just left millions on the table. That is the strange logic of IPO underpricing. When a company goes public, investment banks often want strong demand from the start. So the shares may be priced low enough to attract buyers quickly. If the stock then jumps sharply on day one, it looks like a huge success. But there is another side. If investors were willing to pay much more, the company may have sold its shares too cheaply. Robert Shiller explains this in Yale’s Financial Markets course while discussing how IPOs can be underpriced to create demand and excitement. That creates a strange result: The bigger the first-day jump, the more successful the IPO can look. But it can also mean the company raised less money than it could have. Because sometimes a spectacular first day is also proof that the seller could have charged more.

tensorfx @tensor_fx

a week ago

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In 2008, while the financial system was breaking, Lawrence Summers walked into a Yale classroom and explained why panic can make a crisis worse. A financial crisis does not always begin because the economy suddenly becomes much weaker. Sometimes confidence breaks first. Banks become more cautious. Investors sell. Lenders pull back because they expect conditions to get worse. And those defensive decisions can make the situation worse for everyone. In a 2008 Yale lecture, former U.S. Treasury Secretary Lawrence Summers explained how financial systems can become trapped in this kind of feedback loop. Fear changes behavior. Behavior changes prices. And falling prices can create even more fear. That is what makes crises so dangerous. Because sometimes panic does not just react to the crisis. It helps make the crisis bigger.

tensorfx @tensor_fx

a week ago

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Owning 20 stocks does not automatically mean you are diversified. You can own a lot of companies and still be exposed to the same risk. Imagine you own 20 technology stocks. Different names. Different products. But if they all fall when the same thing happens: higher rates, weaker growth expectations, less risk appetite, your portfolio may be much less diversified than it looks. MIT professor Andrew Lo explains this in Finance Theory I through portfolio theory: what matters is not only how many assets you own, but how their returns move relative to each other. That is where correlation matters. If two assets usually move together, combining them may not reduce much risk. If they behave differently, one can help offset the other.

tensorfx @tensor_fx

a week ago

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A great company can still be a terrible investment. That sounds strange. If the business is growing, profitable, and dominant, why wouldn’t the stock be a good buy? Because price matters. A company can be excellent and still be overpriced. If investors already expect years of strong growth, most of the good news may already be built into the stock price. MIT professor Andrew Lo explains stock valuation in Finance Theory I: investors are not only asking whether a company is good, but what its future cash flows are worth today. That creates an important distinction: A great business and a great investment are not always the same thing. One describes the company. The other depends on the price you pay.

tensorfx @tensor_fx

a week ago

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In 2008, while markets were collapsing, David Swensen explained why buying after a big drop can still be too early. An asset falls 30%. It looks cheap. So you buy. Then it falls another 50%. That does not automatically mean the investment thesis was wrong. Sometimes the thesis can still be right even if the timing was wrong. In a 2008 Yale lecture, Swensen explained how difficult it is to invest during a crisis. Prices can keep falling long after something already looks attractive, and trying to jump in and out of markets every time conditions become frightening is extremely difficult. A falling price and a broken investment thesis are not always the same thing. If the business, cash flows, balance sheet or long-term assumptions changed, that matters. But if only the market price changed, the situation may be very different. This is where patience and risk management meet. You can eventually be right about value and still suffer badly if your position is too large or you cannot survive what happens before the market agrees with you.

tensorfx @tensor_fx

4 weeks ago

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Carl Icahn thought he was a genius on Wall Street. Then he got wiped out in one day. In the early 1960s, Icahn was borrowing heavily and making money fast. He said he was earning more in two weeks than his father made in two years. Then the 1962 market crash hit. He lost everything. Years later, speaking to a Yale class, Icahn said that experience taught him something simple: making money in a bull market does not automatically mean you are skilled. Sometimes leverage and a rising market can make you look smarter than you are. After the loss, he stopped relying on confidence alone and focused on learning one area deeply.

tensorfx @tensor_fx

4 weeks ago

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Stephen Schwarzman built Blackstone into one of the biggest investment firms in the world. But one of his most useful lessons is much simpler than finding the perfect deal. It is about avoiding the wrong ones. In a 2008 Yale lecture, Schwarzman explained that investors should think hard about what can go wrong before committing money. The upside is easy to imagine. The downside is what can destroy you. A deal that could make 30% may sound attractive. But not if one bad assumption can wipe out most of your capital.

tensorfx @tensor_fx

4 weeks ago

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A company can increase earnings per share without selling a single extra product. How? By reducing the number of shares. Imagine a company earns $100 million and has 100 million shares. That is: $1 of earnings per share. Now imagine profits stay exactly the same, but the company buys back 20 million shares. There are now only 80 million shares. Same $100 million profit. But earnings per share becomes: $1.25. Nothing changed in the total profit. What changed was how many pieces that profit was divided into. Robert Shiller explains stock repurchases and how companies return money to shareholders in Yale’s Financial Markets course. Sometimes growth comes from the business. Sometimes it comes from the denominator.

tensorfx @tensor_fx

4 weeks ago

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The more confident you are that you can beat the market, the more careful you should probably be. Most investors do not think of themselves as average. They think they can spot the better stock. Time the better entry. Avoid the obvious mistake. That confidence feels useful. But it can also make you trade more, take bigger risks and ignore evidence that goes against you. Robert Shiller discusses this in Yale’s Financial Markets course while talking about professional money managers and psychological biases in investing. The dangerous part is not confidence itself. It is confidence without enough evidence.

tensorfx @tensor_fx

4 weeks ago

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The Space Shuttle Challenger exploded in 1986. The stock market started pointing at the responsible company before the official investigation did. Several major contractors were involved in the shuttle program. After the disaster, investors sold shares of all of them. But one company, Morton Thiokol, was hit much harder. Later, the investigation focused on the solid rocket booster O-rings made by Morton Thiokol. MIT professor Andrew Lo uses this case in Finance Theory I to explain efficient markets and price discovery. The interesting part is this: No single investor needed to know the full story. Thousands of people were reacting to different pieces of information. And all of those decisions were being compressed into one number: the price. Markets can be wrong. But sometimes prices start reflecting information before the full explanation becomes obvious. A price is not just a number. Sometimes it is a crowd trying to solve a puzzle.

tensorfx @tensor_fx

4 weeks ago

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Most investors spend too much time trying to pick the perfect stock. David Swensen thought the bigger decision was somewhere else. When Swensen took over Yale’s endowment, he helped move it away from a traditional portfolio and toward a much more diversified mix of assets. In a Yale lecture, he explained that investors really have three main tools: asset allocation, market timing, and security selection. His argument was that for a stable, diversified portfolio, asset allocation becomes the dominant driver of results. More soon — @tensor_fx

tensorfx @tensor_fx

4 weeks ago

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Sometimes protecting people from risk makes them take more of it. That sounds backwards. But it happens. Imagine your car is fully insured. You may become a little less careful because you know someone else will absorb part of the cost if something goes wrong. Economists call this moral hazard. Robert Shiller explains this idea in Yale’s Financial Markets course while discussing insurance and risk. The problem is simple: Protection changes incentives. When people do not bear the full cost of a bad outcome, they may take risks they would otherwise avoid. That is why insurers use things like deductibles, limits and exclusions. They are not only pricing risk. More soon — @tensor_fx

tensorfx @tensor_fx

4 weeks ago

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Airlines sometimes sell more tickets than there are seats on the plane. On purpose. It sounds like a mistake. It isn’t. Airlines know that on many flights, some passengers will not show up, cancel, or change their plans. So instead of risking empty seats, they may sell more tickets than the plane actually has seats. The goal is simple: fill more seats and waste less capacity. Most of the time, the prediction works and nobody notices. But if more passengers show up than expected, the airline suddenly has a problem: too many people, not enough seats. That is why airlines may offer money, vouchers, or another flight to passengers willing to give up their seat. The business logic is simple. An empty seat on a departing flight can never be sold again. Once the plane leaves, that inventory is gone. So airlines are constantly balancing two risks: selling too few seats or selling too many. That is why overbooking exists. More soon — @tensor_fx

tensorfx @tensor_fx

4 weeks ago

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