Lessons from Steve Eisman

Steve Eisman, the investor famously portrayed in "The Big Short," is renowned for his prescient bet against the subprime mortgage market ahead of the 2008 financial crisis. His candid and often blunt commentary on the financial markets, regulation, and investment strategy has made him a respected, if sometimes controversial, voice in the world of finance.

On the 2008 Financial Crisis and its Aftermath

"It's not my fault that [the housing market] was a fraud. I just recognized it." [1] - Speaking at Boston College, Eisman defended his role in shorting the market, comparing it to an investor shorting Enron after discovering its corporate fraud.
"They mistook leverage for genius." [2] - A succinct and powerful explanation for the hubris that led to the 2008 financial crisis.
"You frickin' blew up Planet Earth. Shut up and move on." [3] - His characteristically blunt message to bankers complaining about post-crisis financial regulations.
"I wasn't worried that I'd be wrong—I was always worried that the government would bail the [biggest banks] out before I could make money." [1] - Highlighting the race against intervention that he and other short-sellers faced.
"In August of 2007, the financial crisis was baked... There was literally nothing anybody could have done to stop it at that point." [4] - Eisman's assessment of when the crisis became an inevitability.
"They had this burnout thesis, which I loved, which was that 'Yeah, the loans are getting bad pretty quickly, but those people will default very quickly, and the rest will be fine.' And my response to that, 'Well, yeah-yeah-yeah, it'll burn out. It'll burn out when everything goes to zero.'" [4] - Recounting the flawed logic of subprime lenders.
"The single greatest line I ever wrote as an analyst was after Lomas said they were hedged: 'The Lomas Financial Corporation is a perfectly hedged financial institution: it loses money in every conceivable interest rate environment.'" [3] - A celebrated example of his sharp and witty analysis.
"I thought that there would never again be an opportunity to be involved with an industry as socially destructive and morally bankrupt as the subprime mortgage industry. I was wrong. The for-profit education industry has proven equal to the task." [3] - Drawing parallels between the subprime mortgage crisis and the for-profit education sector.
"Financial innovation is an oxymoron. It's very rare that there is something that's actually financial innovation. It's a euphemism for hiding leverage." [3] - A skeptical take on the true nature of many new financial products.
"Here was a strange but true fact: The closer you were to the market, the harder it was to perceive its folly." [5] - An observation on the groupthink that can permeate Wall Street.

On Investing Philosophy and Strategy

"In bad times people focus on balance sheets and credit quality, and in good times, they focus on stories." [4][6] - A fundamental principle of his approach to market analysis.
"I just invest for the long term. So once I've decided to buy something I just take a full position. I find that legging into it just introduces so many variables that it just isn't worth agonizing over." [7] - His current approach to building positions, a shift from his more trading-oriented hedge fund days.
"I just like to hold stocks for a long time...The only reason why we would not be fully invested is because we think there's a recession coming and that I don't see." [8] - Emphasizing his long-term, fully-invested strategy in the absence of a clear recessionary threat.
"It's very dangerous to short a stock solely because you think it is expensive. That can be a death wish... If I short an expensive stock I do so because I think the fundamentals are going to deteriorate." [9] - A crucial lesson on the perils of valuation-based short selling.
"Relying solely on the fundamentals of individual companies to make investment decisions is no longer a viable investment philosophy." [6] - A surprising statement made when he closed his fund Emrys Partners, highlighting the growing influence of macro factors.
"If you're long only the best strategy is to be long-term buy and hold...it actually minimizes your risk." [9] - His conviction that for most, long-term investing reduces the potential for mistakes.
"Don't do something that goes against your own attributes because you're going to feel like you're banging your head against the wall all the time." [4] - Advising investors to align their strategy with their personality and what gives them energy.
"Genius is not always transferable." [10] - A warning that success in one domain does not guarantee success in another, citing the example of Zillow's move into house-flipping.
"I think the best thing to do is buy and hold for the long term... I would not have said this in 2007, but today I think differently. Facts change, I change." [9] - Demonstrating his ability to adapt his investment philosophy to changing market conditions.
"Investing is not a religion or a measure of how much pain you can take. No one needs to live with so much anxiety that they can't sleep." [9] - A practical approach to risk management and emotional well-being in investing.

On the Current Market and Economy

"The financial system in the United States is probably healthier today than it's been in anyone's lifetime." [4] - A confident assessment of the post-crisis banking system.
"There isn't an 'aggressive rate cycle coming of cutting,' and that if the Fed cuts 'once or twice to tinker at the edges,' it wouldn't genuinely matter." [11] - His view that minor Federal Reserve rate adjustments are largely insignificant to the overall economy.
"This is not Moses coming down with the tablets." [12] - A colorful dismissal of the market's obsessive focus on every word from the Federal Reserve.
"The biggest story is still AI. There's no question that's what's driving the economy, that's what's driving stocks." [12] - Identifying artificial intelligence as the primary engine of the current market.
"The second great stock market story that Eisman sees is infrastructure. This is a combination of four major themes: outsourcing services, data centers, grid improvements, and green industries." [13] - Outlining his other major investment thesis.
"I happen to think the whole banking sector is uninvestable." [6] - Expressing his bearish view on banks due to pressures on margins and increased regulation.
"What value does cryptocurrency actually add? No one's been able to answer that question for me." [14] - His skeptical stance on the fundamental utility of cryptocurrencies.
"People always come up to me and ask what the next 'big short' will be. The truth is I simply do not have an answer, and do not want to have an answer, to this question." [3] - Pushing back against the constant search for the next major market collapse.
"I think we are in only the very, very early innings of the AI revolution. I'm quite convinced of that." [15] - Expressing his long-term bullishness on the transformative power of artificial intelligence.
"This is the first industrial policy in the U.S. we've seen in several decades... The money isn't spent yet—it's the government, it doesn't take a week." [2] - On the long-term investment opportunities created by government spending on infrastructure.

On Regulation and Wall Street Culture

"The banking industry should just shut up on this topic." [3] - His blunt response to bankers complaining about financial regulations.
"The regulators did a very very good job post Dodd-Frank... the leverage in the banks is cut by more than half." [5][14] - Praising the effectiveness of post-crisis financial reforms.
"Daniel Tarullo has more power of the U.S. banking system than anybody since Alexander Hamilton. That's not an exaggeration, by the way." [14] - Highlighting the immense influence of the former Federal Reserve governor in reshaping the banking sector.
"Not once in all these years have I come across a person inside a big Wall Street firm who was having a crisis of conscience." [16] - A damning indictment of the culture within major financial institutions.
"Any business where you can sell a product and make money without having to worry how the product performs is going to attract sleazy people." [5] - A critical observation on the misaligned incentives that can plague the financial industry.
"It's very hard to argue with someone who thinks he is God because he makes a lot of money." [3] - On the arrogance that can accompany financial success.
"I've always felt there was something wrong with Wells Fargo's culture, for a very, very long time." [3] - A long-held and ultimately vindicated view on the troubled bank.
"To say that past managements of Citigroup were poor would be a kindness." [3] - A scathing critique of the bank's historical leadership.
"The world needs more standardization, less innovation." [3] - A counterintuitive call for simplicity and transparency in financial products.
"I would like more [banks], I don't want to be Canada, where it's basically a cartel." [17] - Expressing his concern about the increasing concentration in the U.S. banking sector.

On Specific Companies and Individuals

"I don't see the value in Tesla." [3] - A straightforward and bearish take on the electric vehicle maker.
"Elon Musk is a very, very smart man, but there are a lot of smart people in this world, and you've got to execute. He's got execution problems." [14] - Acknowledging Musk's intelligence while pointing out his operational challenges.
"The one stock in my portfolio which I say hasn't worked yet but has the potential for a big home run is General Motors." [3] - An example of a contrarian long position he has held.
"You have to own the big, large-cap tech stocks." [18] - His conviction that major technology companies are essential holdings in the current environment.
"Alan Greenspan is the worst Chairman of the Fed in history." [3] - An unequivocal and critical assessment of the former Federal Reserve chairman's legacy.
"Deutsche Bank has a very simple problem. It doesn't make money." [3] - A succinct summary of the German banking giant's woes.
"I'm shorting two stocks in the U.K., but I've got a screen of about 50, and I might short all 50 if I think Jeremy Corbyn is going to be prime minister." [3] - A past example of how political views can inform his investment decisions.
"My wife doesn't think I'm too bright when I come home." [10] - A self-deprecating reminder that expertise in one area does not translate to all aspects of life.
"I'm not a gold guy. I tend not to pay too much attention to gold." [19] - His disinterest in the precious metal as an investment.
"The deficit is Wall Street's version of virtue signaling." [19] - A cynical take on the financial industry's public pronouncements about the national debt.

Learn more:

Lessons from Steve Eisman

On the 2008 Financial Crisis and its Aftermath

On Investing Philosophy and Strategy

On the Current Market and Economy

On Regulation and Wall Street Culture

On Specific Companies and Individuals

Written by Antoine Buteau

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