By Rob Miller | Portfolio Manager at NAOS Asset Management
The historic gyrations in equity markets due to COVID-19 have seen many comparisons drawn back to the GFC. With the recent volatility there have been a few very big winners, most notably the polarising Bill Ackman of the US hedge fund Pershing Square Capital Management, who executed a ‘once in a lifetime’ trade. Pershing Square made a profit to the tune of US$2.6bn in 1 month by shorting leveraged insurance policies.
Under the Mark Twain mantra of history not repeating but often rhyming, trades similar to Pershing Squares have occurred before, for example, the George Soros ‘Bank of England trade’ in 1992. The common theme is that they are high risk though can be very high return. The international bestselling book The Big Short by Michael Lewis explores the stories of a select few individuals who made these trades during the GFC. It’s the book that came before the critically acclaimed movie. Michael Lewis, a renowned author behind many financial true stories provides an in-depth look at the thinking and stories of investors including Michael Burry and Mark Baum. These are the investors who did not believe the US real estate market was being accurately priced for risk due to the leverage in the financial system at the time.
Whilst the likelihood of anyone having a 'once in a lifetime trade' is very low, for me the key learning from this book to apply to current and future situations is a reinforcement that independent thinking can be a great mindset for investing at all points of the market cycle.