Practical analysis for investment professionals
29 May 2018

Top 10 Steven Eisman Quotes from Hong Kong

Steven Eisman of The Big Short fame delivered an hour’s worth of pithy and insightful comments on the global financial crisis, the markets, and the finance industry at the 71st CFA Institute Annual Conference in Hong Kong.

I selected 10 quotes from the session that were particularly compelling and offer a taste of what he covered in his full presentation.

10. Cryptocurrencies

This was probably the least contrarian or controversial comment Eisman made. Though Eisman’s background as a banking analyst may color his judgment, cryptocurrency skeptics can be reassured that one of the few who called the real estate bubble has doubts about bitcoin and company as well.

9. Systemic Risk

Eisman may disappoint some with this anticlimactic answer. The media loves a crisis. After all, it is great for ratings. Investors, however, need analysts and strategists to tell it like it is.

8. Debt

Interest rates are indeed a good indicator of how nervous the market is about debt levels. The debt-to-GDP ratio, in particular, is among the most popular metrics used by economists and strategists to assess systemic risk. While there may be logic to that, Eisman clearly thinks the logic is faulty.

7. Real Estate Markets

The health of real estate markets supports Eisman’s belief that the next global financial crisis is not on the horizon.

6. Bullish Sectors

Eisman likes banking stocks. As banks increase leverage again, he anticipates a 75% increase to the sector’s ROE. No other sector in the S&P will come anywhere near that. He likes technology for its disruptive potential.

5. Reading Material

Eisman enjoyed telling an exhibition hall full of CIOs and portfolio managers that he has a collection of 8,000 comic books and reads them for inspiration. It sounded like a stretch and probably is. But he justified his habit as a way to follow “cultural” trends. No argument there. Who doesn’t want to be cultured?

4. Larry Kudlow

Clearly, Eisman was not, and still is not, a Kudlow fan.

3. Lehman Brothers

Eisman has a gift for explaining complex stories with just a few words, which is no fun when you’re the moderator struggling for a comeback. That said, it’s great for investors who simply want to understand what’s really going on. The fall of Lehman Brothers can be traced to many causes, but Eisman zoomed in on one important aspect.

2. Genius

This exemplifies Eisman’s “outsider” status. None of these “geniuses” would listen to him in the run-up to the largest financial crisis since the Great Depression.

1. Ethics

To me, this is a profound statement and helps explain why traditional approaches to ethics may not work the way they are intended when the next financial crisis hits.

The industry may want to rethink how it approaches ethics. With behavioral biases, for example, we don’t try to rid investors of them — which is probably impossible anyway, given how human brains are wired. Instead, we design mechanisms that nudge investors towards less damaging.

The question is: Will the next generation of investment professionals devise mechanisms to nudge practitioners towards aligning their own interests with those of investors?

This article originally appeared on the 71st CFA Institute Annual Conference blog. Experience the conference online through Conference Live. It’s an insider’s perspective with live broadcasts and recorded video archives of select sessions, exclusive speaker interviews, discussions of current topics, and updates on CFA Institute initiatives.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image courtesy of IMAGEIN

About the Author(s)
Larry Cao, CFA

Larry Cao, CFA, senior director of industry research, CFA Institute, conducts original research with a focus on the investment industry trends and investment expertise. His current research interests include multi-asset strategies and FinTech (including AI, big data, and blockchain). He has led the development of such popular publications as FinTech 2017: China, Asia and Beyond, FinTech 2018: The Asia Pacific Edition, and Multi-Asset Strategies: The Future of Investment Management and is a frequent speaker at industry conferences on these topics. During his time in Boston pursuing graduate studies at Harvard and as a visiting scholar at MIT, he also co-authored a research paper with Nobel laureate Franco Modigliani that was published in the Journal of Economic Literature by American Economic Association. Larry has more than 20 years of experience in the investment industry. Prior to joining CFA Institute, Larry worked at HSBC as senior manager for the Asia Pacific region. He started his career at the People’s Bank of China as a USD fixed-income portfolio manager. He also worked for US asset managers Munder Capital Management, managing US and international equity portfolios, and Morningstar/Ibbotson Associates, managing multi-asset investment programs for a global financial institution clientele. Larry has been interviewed by a wide range of business media, such as Bloomberg, CNN, the Financial Times, South China Morning Post and the Wall Street Journal.

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