Steve Eisman’s Wisdom via LST
Question: Is there any wisdom you can impart to average investors?
Do your own homework. I can’t overstate the importance of this. When things start to go bad, speaking to the management of the company may be the worst thing you can do. You can walk away thinking things are okay when in fact they’re not, because seeing outside your own paradigm is sometimes the hardest thing to do. In the big-bank industry from 1995 up until the crisis, every year was basically a good year. Every year, people got paid more, and every year the leverage got bigger. What happened is that the people who ran these firms mistook leverage for genius. If you had gone to one of the senior people in one of these firms in 2006 or 2007 or 2008 and said, “Dude, the entire assumptions by which you have governed your career are wrong,” they would have said, “Are you crazy? I made $50-million last year. How could I be wrong?”
Even after reading the above, I probably will at times not do my own homework, trust management, and/or lend too much credence to someone due to their recent financial gains…but I am posting this here so I can read this before banging my head against the wall (the next time I err…and there will be a next time).