In this series, we suggest worthwhile reading material on a variety of topics, not all of which are directly related to investing. Why Mohnish Pabrai Likes GM, Fiat, and Southwest Air – Barron’s, December 9, 2016. Mohnish Pabrai’s Pabrai Funds
If you are already cynical about the motives and practices of professional investors in the major Wall Street banks, chances are that you are not even half as cynical as Michael Lewis. In The Big Short, Mr. Lewis spins a tale that places very unlikely characters at the center of the subprime bubble. All of the individuals were either completely unknown or relatively small players, but they shared in common an insight into the bubble that resulted in spectacular profits. This book reads almost like a novel, at least for those who have a basic understanding of credit default swaps, collateralized debt obligations, and related terminology and concepts. Read this book review for more details.
Perhaps no other government policymaker has suffered as much reputational damage due to the housing collapse as former Federal Reserve Chairman Alan Greenspan. Mr. Greenspan has defended his record in recent months and recently published a paper outlining his views regarding the housing bubble and subsequent crash. In Mr. Greenspan’s view, Fed policy actions had little to do with the crash. Read this article for more details and a link to Michael Burry’s recent New York Times op-ed article.
In the world of purely efficient markets, economic actors behave in their own rational self interest by dispassionately weighing the evidence and making optimal decisions on investment matters. In the real world, emotions are often an investor’s worst enemy and typically lead to decisions that are suboptimal at best. One of the benefits of developing the “latticework of mental models” advocated by Charlie Munger and others is that we can begin to build defenses against human tendencies that lead to poor results. Read this article for more details.