Is It Ever the Smart Thing To Do?
It's pretty clear that many of those investors caught by the crash of the credit bubble in 2008 were following the crowd. Collectively, watching each other, fiercely competing in the pursuit of increasingly unrealistic gains, they ignored the abundant danger signs in the economy. But what about the short sellers, those saw those danger signs and scored when the bubble burst? What made it possible for them to keep their eye on the economy and avoid following the crowd?
The Big Short, a book by Michael Lewis, offers profiles of those contrarian investors - many of whom ended up making hundreds of millions of dollars.
Some of them seemed to suffer from a mild neurological disorder that impaired their ability to read the emotional signals of others. That had led them to become somewhat reclusive, even anti-social, as they had learned to mistrust those with whom they had difficulty getting along. Instead, they trained themselves to rely on more objective information, such as charts, mathematical formulas, and the actual behavior of other traders, what they did, not what they said.
Another group of contrarian short sellers were motivated by strong anti-authoritarian feelings. They viewed successful, establishment figures with hostility. Disliking all authorities, they were eager to prove them wrong, and searched for ways to expose their weaknesses. They got pleasure out of their vulnerabilities.