Avoiding Investment Pitfalls: What “The Big Short” Movie Teaches Us

Published On 07 August, 2023 . By Dhiren Vaghadiya

Top 12 Investment Tips From the 'Big Short Movie'

In the realm of the financial market, any disruption, no matter how small, echoes the concept of "The butterfly effect". The smallest incident in any corner of the world affects the stock market somewhere. The movie "The Big Short" lends support to this theory.

The movie showcases how 3 distinct events within a few years led to the 2007 housing market crash and the global financial crisis in 2008. "The Big Short" movie vividly portrays the widespread impact of the crisis on countless lives and the global economy.

However, as an investor, it is essential to know the impact of a crisis and how to protect ourselves from it. In movies, there are certain characters who have seen this market crash as an opportunity and gained maximum benefit from it. They predicted the housing market would crash and by taking advantage of that event and betting against it, make a lot of money.

"The Big Short" is primarily a movie about the 2008 financial crisis. Yet, it also offers priceless investment insights that prove particularly beneficial for investors. So, let's discover some investment tips that this movie demands to explain to us in an entertaining way.

Top 12 Investment Tips From the “Big Short Movie”

1. The Role of Critical Thinking and Research

The movie underscores the significance of critical thinking and conducting comprehensive research while investing. So before making any investment, you must understand the financial products you're investing in and the underlying factors that could influence their performance.

2. Avoiding Blindly Following the Crowd

"The Big Short" movie showcases the widespread failure of both the general public and experts to anticipate the looming financial crisis. It serves as a strong reminder to think independently and not just follow the herd mentality when making investment decisions.

3. Understanding Your Investment Journey

The movie illustrates that even the most accomplished investors encounter risks and uncertainties. So prior to any investment, it is crucial to evaluate your risk tolerance and acknowledge that all investments involve some level of risk.

4. Embracing Financial Market Complexity

Financial markets can be complex and interconnected. While you needn't be an expert in every aspect, try to grasp the fundamental workings of various investment instruments and the potential risks they carry.

5. Question the Status Quo

The characters in the movie challenged the prevailing beliefs and questioned the stability of the housing market. So as an investor, never accept conventional wisdom blindly; instead, remain open to questioning and exploring alternative viewpoints.

6. Diversification and Risk Management

As an investor, maintaining a diversified portfolio is crucial to mitigate risks. So avoid putting all your eggs in one basket. Diversify your investment portfolio across different assets and industries. This can help protect your investments if one sector faces difficulties.

7. Recognize Market Bubbles

"The Big Short" highlights the dangers of market bubbles, where asset prices become overinflated and detached from their fundamental value. So be cautious during periods of excessive speculation and euphoria, as bubbles can eventually burst.

8. Stay Informed and Adaptive

As an investor, staying informed about the evolving economic landscape and keeping track of the latest news about your preferred companies is paramount. So it’s crucial to stay up-to-date with market trends, financial indicators, and geopolitical events to adapt your investment strategy accordingly.

9. Develop Marathon Mindset

Investing should not be treated as a get-rich-quick scheme. The movie emphasizes the significance of adopting a long-term perspective and avoiding the influence of short-term market fluctuations. Stay focused on your long-term financial goals.

10. Learning From the Past

The 2008 financial crisis stood as a momentous event, stemming from diverse factors. By studying past financial crises and learning from history, you can equip yourself to face future economic challenges more effectively. Knowledge of past events provides valuable insights and enables you to make informed decisions.

11. Be Mindful of Leverage

The movie addresses the use of leverage, which entails borrowing money to invest. While leverage can amplify gains, it also increases the risk of losses. Exercise caution and be mindful of the leverage you use in your investments. If you are uncertain about your investment, it is advisable to refrain from using leverage.

12. Emotional Discipline

Investing can evoke strong emotions, especially during turbulent times. Avoid becoming overly attached to your investments, as this emotional attachment can lead to sustained losses and prevent you from selling when necessary.

Likewise, during a stock market crash, refrain from panicking and hastily selling your stocks without understanding the underlying reasons behind the downturn. Stay informed and make rational decisions to safeguard your investments effectively. Avoiding impulsive decisions based on fear or greed.


As we see in this blog, "The Big Short" serves as more than just a gripping cinematic experience; it's a powerful reminder of the importance of foresight, critical thinking, and questioning the status quo in the world of finance. The movie also encourages us to be informed, adaptable, and emotionally disciplined investors, steering clear of blind herd mentality and short-term gains.

As we navigate the complexities of financial markets, we have to learn from history, embrace diversification, and approach our financial goals with a long-term perspective. By doing so, we can stand strong against the tides of uncertainty, making informed decisions that have the potential to shape a prosperous and resilient future.

Dhiren Vaghadiya

About author

Dhiren Vaghadiya

Hello! I'm Dhiren, an avid investor who continuously find valuable stocks to invest in. I enjoy delving into stock finances and conducting fundamental research. I'm a self-learner, primarily using YouTube and Google to learn new things. Additionally, I love music, movies, dogs and nature's serenity. Blogging, SEO, investing and spirituality are my favorite subjects.