Steve Eisman is one of the few money managers who predicted the U.S. subprime blow-up—and had the nerve to make gargantuan bets against it. His hedge fund was up more than 70% in 2008. Eisman is a key character in Michael Lewis's The Big Short and is played by Steve Carell in the movie.
What's it like being portrayed by a Hollywood star?
I think it's a very good movie. And as far as his portrayal of me, it's not 100%. What I would say is: Eliminate my sense of humour and make me angry all the time, and that's the portrayal. It's accurate enough, but it's not really me.
We're calling you an "investing legend." What makes you a legend?
I'm flattered anybody would call me a legend. In some ways, my "fame" is an accident, due to the fact that my area of expertise became ground zero. I did the homework on my own sector, and it turned out that was the most important homework you could have done.
Post-crisis, is the financial system safer than before? Are the systemic risks gone?
If you read the newspapers, sometimes it feels like it could happen again, and from where I sit, that's just not true. The regulators learned the hard way they were wrong, and they've done a lot to correct a lot of the problems. In 2001, Citigroup was levered 22 to 1. In mid-2007, it was levered 33 to 1. Today, it's levered 10 to 1. The banking system probably hasn't been this safe in my lifetime.
Is it hard to have a second act when you go through a once-in-a-lifetime event?
It's not hard to have a second act. It's just that the second act's not going to be as exciting. Thank God—I don't think I could take it again. Running my fund in 2008 felt a little like being Noah. Noah builds his ark and he puts his family on the ark and off they go. So he and his family are safe, and everybody else is dying.
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?"
Are there people in your life whom you look up to?
That would be my mother and father, with whom I work today [at Eisman Group, now part of Neuberger Berman]. My mother started the business in the early '60s. Then my father decided he didn't want to be a lawyer any more and joined my mom. The most important lesson I learned from them is that investing other people's money is a holy trust. This is money they are counting on for retirement. Treat their money like it's your own.
What do you do at the firm now?
We create broadly diversified portfolios for people—long only.
What are your views on Canada, in light of this long real estate bull run?
Canada has ridden the commodity supercycle probably better than anyone else, and the only thing I'm convinced about Canada right now is that credit losses are going to go up. And not just in terms of housing—universally. The only question, and it's way too early to know, is how high?