Did you say Bill Ackman predicted the last recession?

Sort of. In the early 2000s, Ackman started investing in a company called MBIA. It was one of the titans of Wall Street: an unimpeachable firm with a top-notch credit rating. MBIA was in the insurance business: when banks wanted to buy bonds that were at risk of default, they’d go to MBIA, which would promise to cover the bonds in case they stopped paying out.

MBIA’s rubber stamp was worth its weight in gold: it could turn dodgy bonds into “safe” ones just like that. And the company claimed that it only insured bonds that looked risky – and that in reality, there was little chance of anything going catastrophically wrong…

But Bill wasn’t so sure. He started researching MBIA, reportedly reading a whopping 140,000 pages of information about the company. He found that it held just $1 in the bank for every $140 of debt it insured – meaning that a wave of defaults and payouts could destroy the company. If just 0.2% of its insured bonds required payments, MBIA would lose its top credit rating, putting its whole business in jeopardy. And according to Ackman, some of those bonds weren’t as watertight as they seemed.

So in 2002, Ackman bet on the company going bankrupt. And then he waged an awareness campaign, shouting the unseen risks at MBIA to the rooftops in an attempt to make sure it did go bankrupt. It wasn’t an easy battle: Ackman was mocked by his peers and even investigated by the authorities for manipulating stock prices (although nothing came of it).

After a six-year slog, however, he was proved right. When the financial crisis hit and MBIA’s dodgy loans started to default, the company’s stock price tanked and its AAA credit rating vanished. In 2007 shares were trading for $70 a share; come 2009, they were as low as $2.50. Ackman walked away with around $1.1 billion.

What can I learn from this? Going against the crowd can be scary – Ackman was like a modern-day Galileo with his MBIA bet. But when those bets pay off, they can pay off big. You've just got to be able to withstand the derision and self-doubt that invariably comes with being a contrarian.

“Investing is a business where you can look very silly for a meaningful period of time before you're proven right.”

- Bill Ackman

The best way to have that confidence is to do your research, Ackman says. All that reading he did for MBIA might sound OTT, but it was clearly the right move: by the end of it, Ackman was so confident that he understood MBIA better than other investors that he felt secure in ignoring the criticism coming his way. And while no one expects you to read thousands of pages of financial statements, even a few hours of research can empower you to spot the opportunities that others are missing.

That doesn’t always work out, mind you… it certainly didn’t for Bill.

The takeaway: If you do your research and aren't afraid to go against the crowd, you can win big.