Like how did they make money by predicting it ? what was the strategy?
In: Economics
There are several ways people can profit from a market going down.
The first is to sell high and buy low. If I believe the market is about to tank, the prudent move for me would be to sell any assets in the market and hold liquid cash instead. Then, when the prices go down, I use that money to buy things at a lower price. If I sell 100 shares of a company that sells for $10/share, then buy 200 shares of that company with the same money when it drops to $5/share, I’ve doubled my stock in that company and when it rises again in the future, my assets have now increased by twice what they would have.
Similarly, without even selling stuff first, a crash can lead to desperation sales of assets like property, which can then be purchased for less than they’re worth. The 2008 crisis in particular involved a lot of home foreclosures and subsequently banks had a glut of houses to sell to try to recoup their losses. Someone who had a surplus of cash on hand could purchase these houses at a steep discount and then either resell them a few years later when the market rebounds, or rent them out for an ongoing source of income.
There’s also a market strategy known as “shorting”. Effectively, you borrow a stock, and then sell it at its current price. When it comes time to return the stock to the lender, you buy it back at the price it is at then. If the stock went down in value between those two points, you pocket the difference. Think about the first example, except instead of owning 100 shares, I borrow 100 shares and sell them for $10 each, then rebuy them for $5 each after the crash and return them to the lender.
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