The stock market is full of dollars selling for much more than a dollar. A dollar that consistently sells at 1. These are not the investments your portfolio manager chooses for the Fund. A wildly fluctuating dollar selling for 40 or 50 or 60 cents will always remain more attractive — and far less risky. As for my loneliness at the lunch table, it has always been a maxim of mine that while capital raising may be a popularity contest, intelligent investment is quite the opposite. One must therefore take some pride in such a universal lack of appeal.
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Learn how your comment data is processed. Share on Tumblr Telegram. Like this: Like Loading For your size, you look good. The eye oozed and wept and required constant attention. Every year they begged him to pop his eye out of its socket—but when he complied, it became infected and disgusting and a cause of further ostracism. In his glass eye he found the explanation for other traits peculiar to himself.
His obsession with fairness, for example. He stopped watching basketball altogether; the injustice of it killed his interest in the sport. He tried hard at the less ball-centric positions in football, but his eye popped out if he hit someone too hard.
He preferred swimming, as it required virtually no social interaction. No teammates. No ambiguity. You just swam your time and you won or you lost. After a while even he ceased to find it surprising that he spent most of his time alone. In his Match. Obsessiveness—that was another trait he came to think of as peculiar to himself. His mind had no temperate zone: he was either possessed by a subject or not interested in it at all.
Even as a small child he had a fantastic ability to focus and learn, with or without teachers. When it synched with his interests, school came easy for him—so easy that, as an undergraduate at U. He attributed his unusual powers of concentration to his lack of interest in human interaction, and his lack of interest in human interaction.
This ability to work and to focus set him apart even from other medical students. In , as a resident in neurology at Stanford Hospital, he mentioned to his superiors that, between hour hospital shifts, he had stayed up two nights in a row taking apart and putting back together his personal computer in an attempt to make it run faster.
His superiors sent him to a psychiatrist, who diagnosed Mike Burry as bipolar. Or, rather, if you were depressed only while doing your rounds and pretending to be interested in practicing, as opposed to studying, medicine? The actual practice of medicine, on the other hand, either bored or disgusted him.
He was genuinely interested in computers, not for their own sake but for their service to a lifelong obsession: the inner workings of the stock market. Ever since grade school, when his father had shown him the stock tables at the back of the newspaper and told him that the stock market was a crooked place and never to be trusted, let alone invested in, the subject had fascinated him.
Even as a kid he had wanted to impose logic on this world of numbers. He began to read about the market as a hobby. Pretty quickly he saw that there was no logic at all in the charts and graphs and waves and the endless chatter of many self-advertised market pros. Then along came the dot-com bubble and suddenly the entire stock market made no sense at all. Burry did not think investing could be reduced to a formula or learned from any one role model.
The more he studied Buffett, the less he thought Buffett could be copied. Indeed, the lesson of Buffett was: To succeed in a spectacular fashion you had to be spectacularly unusual. I also immediately internalized the idea that no school could teach someone how to be a great investor.
So it must not be true. Investing was something you had to learn how to do on your own, in your own peculiar way. Burry had no real money to invest, but he nevertheless dragged his obsession along with him through high school, college, and medical school.
He had spent the previous four years working medical-student hours. Nevertheless, he had found time to make himself a financial expert of sorts. Like you probably do, I productively fill the gaps that most people leave as dead time. As you know there are some select people that just find a drive in certain activities that supersedes everything else. Late one night in November , while on a cardiology rotation at Saint Thomas Hospital, in Nashville, Tennessee, he logged on to a hospital computer and went to a message board called techstocks.
A site for the Silicon Valley investor, circa , was not a natural home for a sober-minded value investor. Still, many came, all with opinions. A few people grumbled about the very idea of a doctor having anything useful to say about investments, but over time he came to dominate the discussion.
Mike Burry—as he always signed himself—sensed that other people on the thread were taking his advice and making money with it. Once he figured out he had nothing more to learn from the crowd on his thread, he quit it to create what later would be called a blog but at the time was just a weird form of communication. He was working hour shifts at the hospital, confining his blogging mainly to the hours between midnight and three in the morning. On his blog he posted his stock-market trades and his arguments for making the trades.
People found him. The guy was a medical intern. I only saw the nonmedical part of his day, and it was simply awesome. And people are following it in real time. All of a sudden he goes on this tear. Just random individuals. People were coming to his site from mutual funds like Fidelity and big Wall Street investment banks like Morgan Stanley. Burry suspected that serious investors might even be acting on his blog posts, but he had no clear idea who they might be.
By the time Burry moved to Stanford Hospital, in , to take up his residency in neurology, the work he had done between midnight and three in the morning had made him a minor but meaningful hub in the land of value investing. By this time the craze for Internet stocks was completely out of control and had infected the Stanford University medical community. The deeper he got into his medical career, the more Burry felt constrained by his problems with other people in the flesh.
More dead people, more dead parts. I thought, I want something more cerebral. His father had died after another misdiagnosis: a doctor had failed to spot the cancer on an X-ray, and the family had received a small settlement. The father disapproved of the stock market, but the payout from his death funded his son into it.
With that, Dr. Michael Burry opened Scion Capital. He created a grandiose memo to lure people not related to him by blood. As he scrambled to find office space, buy furniture, and open a brokerage account, he received a pair of surprising phone calls. Gotham was founded by a value-investment guru named Joel Greenblatt. On his way to his meeting with Greenblatt, Burry was racked with the anxiety that always plagued him before face-to-face encounters with people.
He took some comfort in the fact that the Gotham people seemed to have read so much of what he had written. Even in high school it was like that—even with teachers. In this case he was at a serious disadvantage, as he had no clue how big-time money managers dressed. He had one blue sports coat, for funerals.
In writing, he presented himself formally, even a bit stuffily, but he dressed for the beach. He arrived at the big New York money-management firm as formally attired as he had ever been in his entire life to find its partners in T-shirts and sweatpants.
For a million dollars. Somehow Burry had it in his mind that one day he wanted to be worth a million dollars, after tax. And they gave it to him! Shortly after that odd encounter, he had a call from the insurance holding company White Mountain. It turned out that White Mountain, too, had been watching Michael Burry closely. In Dr. And people who are with me generally figure that out. Buffett had had trouble with people, too, in his youth. Mike Burry came of age in a different money culture.
The Internet had displaced Dale Carnegie. He could explain himself online and wait for investors to find him. He could write up his elaborate thoughts and wait for people to read them and wire him their money to handle. This method of attracting funds suited Mike Burry.
More to the point, it worked. Right from the start, Scion Capital was madly, almost comically successful. Scion was up 55 percent. The next year, , the stock market finally turned around and rose Scion Capital charged investors only its actual expenses—which typically ran well below 1 percent of the assets.
It was unheard of. By the middle of , over a period in which the broad stock-market index had fallen by 6. He used no leverage and avoided shorting stocks. He was doing nothing more promising than buying common stocks and nothing more complicated than sitting in a room reading financial statements. He went looking for court rulings, deal completions, and government regulatory changes—anything that might change the value of a company.
Michael Burry started digging; by the time he was done, he knew more about the Avanti Corporation than any man on earth. He was able to see that even if the executives went to jail as five of them did and the fines were paid as they were , Avanti would be worth a lot more than the market then assumed.
His job was to disagree loudly with popular sentiment. If you gave Scion your money to invest, you were stuck for at least a year. Investing well was all about being paid the right price for risk. He investigated the stocks of homebuilders and then the stocks of companies that insured home mortgages, like PMI. To one of his friends—a big-time East Coast professional investor—he wrote in May that the real-estate bubble was being driven ever higher by the irrational behavior of mortgage lenders who were extending easy credit.
The collateral damage is likely to be orders of magnitude worse than anyone now considers. On May 19, , Mike Burry did his first subprime-mortgage deals. He likely became the only investor to do the sort of old-fashioned bank credit analysis on the home loans that should have been done before they were made. He was the opposite of an old-fashioned banker, however.
He was looking not for the best loans to make but the worst loans—so that he could bet against them. He analyzed the relative importance of the loan-to-value ratios of the home loans, of second liens on the homes, of the location of the homes, of the absence of loan documentation and proof of income of the borrower, and a dozen or so other factors to determine the likelihood that a home loan made in America circa would go bad. Then he went looking for the bonds backed by the worst of the loans.
From their point of view, so far as he could tell, all subprime-mortgage bonds were the same. If he wanted to buy insurance on the supposedly riskless triple-A-rated tranche, he might pay 20 basis points 0. A basis point is one-hundredth of one percentage point. The triple-B-rated tranches—the ones that would be worth zero if the underlying mortgage pool experienced a loss of just 7 percent—were what he was after.
He felt this to be a very conservative bet, which he was able, through analysis, to turn into even more of a sure thing. Anyone who even glanced at the prospectuses could see that there were many critical differences between one triple-B bond and the next—the percentage of interest-only loans contained in their underlying pool of mortgages, for example. He set out to cherry-pick the absolute worst ones and was a bit worried that the investment banks would catch on to just how much he knew about specific mortgage bonds, and adjust their prices.
Once again they shocked and delighted him: Goldman Sachs e-mailed him a great long list of crappy mortgage bonds to choose from. It was as if you could buy flood insurance on the house in the valley for the same price as flood insurance on the house on the mountaintop. None of the sellers appeared to care very much which bonds they were insuring.
He found one mortgage pool that was percent floating-rate negative-amortizing mortgages—where the borrowers could choose the option of not paying any interest at all and simply accumulate a bigger and bigger debt until, presumably, they defaulted on it. Goldman Sachs not only sold him insurance on the pool but sent him a little note congratulating him on being the first person, on Wall Street or off, ever to buy insurance on that particular item.
He was worried that others would catch on and the opportunity would vanish. The more Wall Street firms jumped into the new business, the easier it became for him to place his bets. The credit-default swap was a zero-sum game. Goldman Sachs was simply standing between insurance buyer and insurance seller and taking a cut.
The willingness of whoever this person was to sell him such vast amounts of cheap insurance gave Mike Burry another idea: to start a fund that did nothing but buy insurance on subprime-mortgage bonds. Most of them still had no idea that their champion stock picker had become so diverted by these esoteric insurance contracts called credit-default swaps.
Many wanted nothing to do with it; a few wondered if this meant that he was already doing this sort of thing with their money. Instead of raising more money to buy credit-default swaps on subprime-mortgage bonds, he wound up making it more difficult to keep the ones he already owned.
His investors were happy to let him pick stocks on their behalf, but they almost universally doubted his ability to foresee big macro-economic trends. In October , in his letter to investors, Burry finally came completely clean and let them know that they owned at least a billion dollars in credit-default swaps on subprime-mortgage bonds.
They erred when they bet against George Soros and for the British pound. And they are erring right now by continuing to float along as if the most significant credit bubble history has ever seen does not exist. Opportunities are rare, and large opportunities on which one can put nearly unlimited capital to work at tremendous potential returns are even more rare.
Selectively shorting the most problematic mortgage-backed securities in history today amounts to just such an opportunity. In the second quarter of , credit-card delinquencies hit an all-time high—even though house prices had boomed. That is, even with this asset to borrow against, Americans were struggling more than ever to meet their obligations.
The Federal Reserve had raised interest rates, but mortgage rates were still effectively falling—because Wall Street was finding ever more clever ways to enable people to borrow money. So he just laid it out for his investors: the U.
Michael Burry's 4 must read investment books. By the end of decade, he would be the instigator of billions of dollars of bets against the US housing market. One of the excerpts including the 4 books he recommends to all those new to investing is below:. Re: books. Another book you might want to consider is Value Investing made easy by Janet Lowe — a quick read.
I have a fairly extensive listing of books on my site, with my reviews of them, and links to purchase them at amazon [Michael Burry's site no longer live]. Yes there are differences, and the current version has a lot of non-Graham like stuff in it.
Good Investing,Mike. There was no insider trading. But simply analyzing statements set him apart. No one else was bothering to do the hard, tedious work of actually studying up on the companies they were investing in. Michael Burry access to all the corporate financial statements he could ever need.
He was finding information in places no one else was bothering to look. Michael Burry saw a rare opportunity in the subprime housing bond market, once again where no one else was looking. But this was a twist on his usual approach. Instead of looking for assets that were undervalued , he was going to target the subprime market because of his conviction that it was extraordinarily overvalued.
He was going to short the housing market—a big short. Michael Burry had, with characteristic fastidiousness, studied the underlying loans which made up the pool of mortgages being stuffed into the bonds. He saw that borrowers with no income and no documentation were taking up a larger and larger share of the mortgages. But how would Dr. Michael Burry short these types of bonds?
Their structure made them impossible to borrow, as the tranches were too small to individually identify. But Burry knew a workaround to this problem. He was about to dive into the world of credit default swaps. Burry saw that now was the time to act. Once the teaser rates on the subprime loans went away and borrowers started getting hit with higher interest rates in roughly two years , there would be a wave of defaults that would bring the mortgage bond market to its knees.
Michael Burry would own. But there was a hitch in his plan: there were no credit default swaps for subprime mortgage bonds. The banks would have to create them. Furthermore, most of the big firms that would be willing to create them might run into solvency issues and be unable to actually pay Burry the returns on his swaps if his catastrophic predictions were accurate. They were too exposed to subprime.
He ruled out Bear Stearns and Lehman Brothers as potential credit default swap sellers for his big short, reasoning that they were too deep in the subprime game to be able to pay him when the bonds failed. In , only Deutsche Bank and Goldman Sachs expressed any interest. Michael Burry hammered out a deal with them to establish a pay-as-you-go contract, ensuring payment as individual bonds failed.
Burry hand-picked these bonds after having read the prospectuses, seeing that they were composed of the dodgiest, most questionable subprime loans. Eventually, Dr. Some investors were outraged that Burry had tied up their money in what seemed to them such a risky bet. The U. The way the swaps were structured, he would make a fortune if even a fraction of the mortgage pools went belly-up.
The banks barely seemed to understand what they had sold him. But within months, the market was starting to see the wisdom of Dr. Michael Burry was confident that his bet against the housing market would be vindicated. For the first time, Burry was underperforming the market.
Burry was baffled by how the market was behaving. The data from the mortgage servicers kept getting worse and worse as turned to and the teaser rates expired. The loans were faltering at higher and higher rates, yet the price of insuring the bonds composed of these loans kept falling. It was as if a fire insurance policy on a house had become cheaper after the house was on fire. Logic, for once, had failed Dr.
Michael Burry. And he was facing an investor revolt, as his clients began to clamor for their money back out of his fund, thinking that he was either a criminal, a madman, or an idiot. This was a major problem for Dr. It was imperative to him and to his investors, though few were convinced that there not be a mass withdrawal of funds from Scion.
They would lose everything, right when they were on the cusp of winning everything. So what did Burry do? Michael Burry had told investors they would. In the first quarter of , Scion was back up by 18 percent. The loans were going bad and borrowers were getting slammed with higher interest payments. The bill was finally coming due for Wall Street.
Dr. Michael Burry is the founder of Scion Capital. Burry's approach indicates that value investing can work for technology and other. Michael Burry built an incredible track record by picking stocks and not focusing on general stock market valuations. Michael Lewis talks about Michael Burry's value investing style on an interview to BBC, check it at urken.xyz Michael Burry.