đź’° The Riskiest Trade of All Time

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School of Hard Knocks
February 29, 2024

Welcome Back Hard Knocks community! đź’° 

Get ready for our next session here at the School of Hard Knocks, where we bring you the real-deal insights to help you level up in life, business, and beyond. This week's newsletter is a sure roll of the dice. 🎲 Learn how to truly defy the odds with what we have on deck..

Today’s Schedule

Lets Roll the Dice🔥

Hundred Million Dollar Betđź’°

As Bitcoin almost approaches and all-time high and the 2024 Presidential election in the horizon, the economy is going to be sporting some interesting behavior.

It’s times like this that eyes should be open to potentially make moves in the market and seize an opportunity or strategically hold off.

In the spirit of the recent economic activity, we want to look at someone that made one of the most historic financial moves in recent history and learn from how they were able to pull it off.

In 2008, Michael Burry, a hedge fund manager of Scion Capital, gained fame for predicting the housing market collapse and the subsequent financial crisis. He recognized that the housing market was unstable and bet against it by purchasing credit default swaps (CDS). He essentially bet that securities backed by a bundle of mortgages on houses would go under. The key indicators were that many of the mortgages were loaned out to people with bad credit, and that the people that loaned them out had severely overlooked the risk.

At the time, people thought Michael was crazy. To bet against the housing market?? No way. But in the end, when millions of Americans faced financial turmoil with the housing crash in 2008, the credit default swaps that Michael Burry purchased as a bet against the market had gone up significantly in value. He and Scion Capital had profited hundreds of millions of dollars.

So what can we learn from the man that pulled off one of the riskiest moves in recent financial history?

Do More Research Than You Think: Michael Burry relentlessly researched the housing market and identified flaws and risks that others overlooked. His thorough analysis allowed him to make informed investment decisions when others didn’t want to consider such possibilities. When faced with changing dynamics in the economy and you’re looking to make financial moves, make sure you do more research that the average joe.

Contrarian Thinking: Michael was willing to go against the conventional wisdom of the financial industry. While many believed the housing market was stable, he saw signs of an impending collapse and acted accordingly, even when it meant going against popular opinion. At the end of the day, it’s usually best to trust your gut instinct over outside opinion, especially if you have done more research (pro tip #1) than everyone else.

Become an Expert at Managing Risk: Michael’s strategy involved taking calculated risks. He understood the potential downsides of his investments but balanced them with the potential for significant returns. His use of financial derivatives like credit default swaps (CDS) helped to protect against potential losses. He also diversified. While Michael’s primary bet was against mortgage-backed securities, he also maintained a diversified portfolio. Diversification helped spread risk across different assets and sectors, reducing the impact of any single investment's failure on his overall portfolio.

Of course, before diving into any financial market, make sure you do your own research. You can find more information about Michael Burry and this trade in our book recommendation below, “The Big Short” by Michael Lewis.

Words of Wisdom

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“Success is walking from failure to failure with no loss of enthusiasm”

Winston Churchill

Free Game

We visited Florida this past January to shoot some new content for our channel and while we walking around downtown Miami we saw someone parking a Bentley. This man’s name was Kehinde Thomas. Kehinde shared his story about how he used to sleep in his car and had holes in his shoes but he never let that hold him back from where he wanted to go. After talking with Kehinde for a few minutes we knew that his story and lessons would touch anyone that heard it.

Lessons from our Interview with Kehinde Thomas:

  1. Work like it’s up to you and pray like it’s up to god

    If you want to succeed in anything, you need two things. Hard work and faith. If you don’t work hard to acquire new skills and actively work on accomplishing your goals, then nothing will ever happen. As well as you need faith that everything that you are doing and taking action on will actually pay off. Their will be moments along your journey where nothing is going your way. These are the moments where you need faith. Faith that everything will be okay and that it will all work out in the end.

    Hard work and faith go hand and hand because if you don’t work hard it’s hard to have the belief that it will all work out, and if you don’t have faith then when the going gets tough it’s hard to see the light at the end of the tunnel.

  2. Fall in love with people

    Be in the business of serving others. When you care about your product, your company and the customers you are serving - great things happen.

  3. Procrastination is the assassin of all destination

    Thomas emphasized that you are only young for so long so take advantage of your youth while you have it. The younger you are the more risks you are able to take and less responsibilities you have. This doesn’t mean as you grow older you can’t chase your dreams, it just means you have to be a bit more calculated on what you decide to do. Stop thinking about it. Create a plan, and take action. We believe in you.

From the Hard Knocks Library

Financial Rollercoaster: The Big Short

Get ready for an eye-opening journey through the financial crisis of 2008 with Michael Lewis's "The Big Short." This book takes you behind the scenes of Wall Street, introducing you to a cast of characters who saw the crash coming and decided to bet against the system. With its compelling narrative style, "The Big Short" reveals the greed, madness, and absurdity of modern finance. Whether you're a finance enthusiast or simply curious about what really happened, this book is a must-read.

www.amazon.com/dp/B07ZMKXMTG?linkCode=ssc&tag=onamzthschool-20&creativeASIN=B07ZMKXMTG&asc_item-id=amzn1.ideas.14WKVD378VT2S&ref_=aip_sf_list_spv_ofs_mixed_d_asin

In Case You Missed It

Today we just dropped a new YouTube video where we interviewed successful entrepreneurs all across Miami, Florida. We asked people about the most amount of money they have made in a year as well as asking for their career & life advice. We interviewed entrepreneurs in a variety of industries such as insurance, dentistry, entrepreneurship, beauty and technology. Be sure to check it out and subscribe to the YouTube if you haven’t already!🔥

Let Us Hear From You

Whether it's business tips, life advice, or inspirational stories please reply back with what you want to hear more of and we will be sure to include it in future newsletters.