Like how did they make money by predicting it ? what was the strategy?
In: Economics
A few people made a lot of money by shorting companies who owned a lot of mortgage backed securities. Essentially they paid for the opportunity to borrow a stock for a while. They could sell it a soon as they borrowed it, and if the stock fell in price during the borrowing period, they could buy it at the now lower price and give it back to the entity they borrowed from. They don’t actually have to sell and rebuy, as what they paid money for was the option to do so. They lost money for a few years as those stocks did well and they paid for the option but didn’t exercise it, but once people started defaulting on their mortgages, those mortgage backed securities became worthless and the stock price or companies holding them crashed. The investors then exercised their options and made a ton of money. The book “The Big Short” and the related movie detail this.
I made out pretty well by ensuring I wasn’t holding stocks in banks or real estate companies through funds I was invested in, moving from equities to bonds when the market started to collapse, going back into equities when the market started to recover, and finally buying a home when the market was at the bottom and rates were low. So now I own a home with a monthly payment lower than rent on a 2 bedroom apartment in my market with a very well funded retirement account despite working in a relatively low paying field.
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