Who is Michael Burry? ‘The Big Short’ investor who predicted the 2008 crash
We all know Michael Burry is a big name in the investing and hedge fund space. His strategy to short the housing market was unusual, and most people at that time couldn’t even understand his strategy. But once he successfully made money by shorting the housing market, everybody started looking up to him. Whatever he does now is extensively tracked by everyone. They try to figure out his strategy and the end goal. But did Michael Burry always want to be an investor and manage a hedge fund? or did he want to do something else?
Doctor to Investor Journey
Most people who watched the movie have the wrong idea about Michael Burry being an honorary doctor. But the reality is that Michael Burry is a real doctor who was allowed to treat patients. Medicine and finance are completely different fields, and they both require different skill sets and knowledge bases. To become a doctor and have success in the finance field requires certain qualities and attributes. Burry had both of them.
Michael Burry Eye
The reason Burry had both of these attributes was because of his left fake eye. In his childhood, to save his life from cancer, doctors had to remove his left eye. And since childhood, he used to wear this fake eyeball. Because of this, in his childhood, he got bullied and ostracized by other kids from his school. Because of this, he made no friends and talked very little with other people.
Even though he liked basketball, which is a team sport, he chose swimming as his sport. As it needed no team. When he grew up, Burry faced issues talking to people in person. Everyone used to focus on his fake eye, which would make him and other people both uncomfortable. So, he spent most of his time alone. By his late 20s, he thought of himself as the sort of person who didn’t have friends. Burry himself says, “My nature is not to have friends, and I’m happy in my own head.”
Because of this, he had more trouble with small talk and faking interest in other people’s concerns and hobbies. You can see this in the movie when he interviews his assistant. Since childhood, he had spent most of his time alone. Because of that, he has developed a fantastic ability to focus and learn, with or without teachers.
Studying Medicine
That’s why Michael Burry could switch back and forth between English and economics. He studied and got himself admitted to the best medical school. He studied medicine because it wasn’t hard for him. For most people, getting into and studying medicine itself is hard, but Burry was kind of doing it for fun or a hobby.
Burry had no superficial liking for a subject. Either he liked a subject and was obsessed with it, or he was not at all interested in it; there was no middle ground.
All of his abilities developed because of his minimal human interaction, and the main reason for the minimum human interaction was his fake left eye. So overall, all of Michael Burry’s abilities or analytical superpowers developed because of his fake left eye.
Michael Burry Misdiagnosed as Bi-polar
Because of his immense focus, Burry was capable of doing a 14-hour shift in the hospital, and after that 14-hour shift, he used to work on other technical things he liked. Burry’s superfast thinking abilities made his superiors doubt him, and they even got him treated by the psychiatrist, who misdiagnosed him as bipolar.
Practicing Medicine
After his medicine degree, the idea of the actual practice of medicine and treating patients bored him. When he was a kid, his father used to show him the stock charts and told him that the stock market is like gambling and you can never trust the market. But he still had curiosity about the market and kept reading about the stock market. When he grew up, he understood that there was no logic in these charts, graphs, and stock tables.
He studied various investors, such as Benjamin Graham and Warren Buffett. He figured out that, to be a great investor, you can’t just copy other investors. Even though he admired Warren Buffett, he understood that he couldn’t be a carbon copy of him.
Burry Developed his own investing strategy and style
He knew that all these great investors had their own style, and he had to have the same. He knew investing was something you had to learn how to do on your own, in your own particular way.
So the approach he took was value investing. This approach required tirelessly searching for companies so unfashionable or misunderstood that investors could buy them at much lower prices. This value investing made Burry successful, and the movie also mentions that he always looks for value.
How Burry Started Scion Capital
In the late ninties, during the dot-com bubble, one day while working at the hospital during the break, he logged in to a website called techstock.com, and there he created a post or thread named “value investing.” At that time, this website was used by many real-life Silicon Valley investors as a discussion forum. Burry had already read everything he could about value investing, and by creating a post on techstock.com, he wanted to learn more about value investing from real-world investors.
Initially, people on the site didn’t take him seriously in the discussion. They thought Burry was a doctor, and his opinions were not useful. But because of his knowledge and understanding of the market, eventually Burry used to dominate the discussion among other professional investors on that website. After that, some of these professional investors used to take his advice, and they would make money with it. Once he figured out he had nothing more to learn from the crowd on techstock.com, he quit the site and made his own website where he posted his stock-market trades and his arguments for making those trades. He used to work 16-hour shifts at the hospital, after that between midnight and three in the morning he used to post his trades on his website.
Eventually, people found his website, and they were impressed by his trades. They used to wonder, being from the medicine field, how he could make such accurate trades.
This continued during the dot-com bubble as well. During the dot-com bubble, everyone was losing money, but Burry’s trades were 50% higher than everyone else’s. Mike Burry couldn’t see exactly who was following his website, but he could tell which domains they came from. In the beginning, his readers came from random websites. They were just random people. But pretty soon, people were coming to his site from mutual funds like Fidelity and big Wall Street investment banks like Morgan Stanley.
One day, he criticized Vanguard’s index funds, and soon after, he got a legal letter from Vanguard’s lawyers telling him to stop. Burry then found out that serious investors were also watching his trades on his website. In short, Burry was recognizing patterns no one else on Wall Street was able to see.
When his father died, he inherited some money. He closed his website, took a little more money from his family and friends, and started his own fund, Scion Capital. When he was looking for an office space for his new fund, he received a surprising phone call. The call was from a big investment fund, Gotham Capital, in New York City. A value-investment guru named Joel Greenblatt founded Gotham. In the movie, he appears as Lawrence Field.
First investor of Scion Capital
He told Burry that his firm was making money off his trade ideas from his website, and they wanted Burry to continue to do so. So Gotham Capital wanted to invest in the Scion Capital fund. They invested $1 million for 25% ownership of his fund. That’s why, in the movie, you see Lawerence asking for his money back as a partner in the firm.
Warren Buffet Making Money from Burry’s trades
After that, he got another call from a firm named White Mountain. A person very close to Warren Buffet ran this firm. He told Burry that they were also watching his trades and were making money from his strategies. So basically, Warren Buffet was also watching Burry to make a profit. White Mountain invested $600,000 for some percentage of Scion Capital, and they also gave $10 million for his fund.
Scion Capital’s initial profits
Right from the start, Scion Capital was very successful. In its first year in 2001, the S&P 500 fell 12 percent, but Scion was up 55 percent. The next year, the S&P 500 fell again, by 22 percent, and yet Scion was up again by 16 percent. The next year, in 2003, the stock market finally turned around and rose 29 percent, but Scion Capital beat it again, and it was up by 50 percent. By the end of 2004, Burry was managing $600 million in the fund.
Michael Burry was different hedge fund manager
Michael Burry ran the fund differently; he didn’t take the typical hedge-fund manager’s fee of 2%. Which was just a fee to collect a huge amount of money from investors. Scion Capital charged investors only on its actual expenses, and Burry charged fees only when he was capable of growing investors’ money. This unusual approach to hedge funds was unheard of on Wall Street, so Burry had many investors lined up to invest in his fund, but he rejected most of them.
It didn’t matter whether the stock market went up or down; Michael Burry found stocks that were profitable. He used no leverage and avoided shorting stocks. This is ironic because the man known for making the biggest short on Wall Street initially avoided shorting stocks.
Michael Burry used to sit in his office alone and read the financial statements of the companies. He went looking for publicly available information, court rulings, deal completions, and government regulatory changes—anything that might change the value of a company. After he found the value in a company, he used to buy the stocks of that company.
How Burry chose stocks
His aim was to focus on stocks, which everyone would think of as bad investments and would right away say no to. One such example was a company called Avanti Corporation. The authorities accused this company of stealing from its competitor, and the company’s executives served jail time. Still, the company was making $100 million per year.
Michael Burry started studying this company, and by the time he finished, he knew more about the Avanti Corporation than anyone else. He saw that even if the executives went to jail and paid the fines, Avanti would be worth much more than the market then assumed. So to make money from Avanti’s stock, he had to face short-term losses as everyone was selling because of bad publicity of that company. But eventually Avanti’s stock rose and he made millions for his investors.
His investors knew that this was a classic Michael Burry trade style where the stock first goes down by 50% and then goes up by 10 times. To avoid short-term panics in the market, it was Michael Burry’s policy that if you gave Scion your money to invest, you were not able to take it out for at least a year.
After this, Burry focused on the housing market. The 2008 financial crash was the result of the ignorance and greed of the government and big banks. The government did not keep an eye on the bad loans given by the banks, and they didn’t do anything until the last moment. The people were unaware of what exactly was going on. But some people were aware of what was going on, and they made huge profits by shorting the housing market. To know how these people figured out potential crash, you should watch these videos on our YouTube channel.
