Profiling "The Big Short's" Michael Burry

Tyler Durden's picture

"Bloomberg Risk Takers" profiles Michael Burry, the former hedge-fund manager who predicted the housing market’s plunge. He forecast that the bubble would burst as early as 2007, and he acted on his conviction by betting against subprime mortgages. The former head of Scion Capital LLC was profiled in Bloomberg columnist and bestselling author Michael Lewis' book "The Big Short"

Some of the key highlights for those strapped on time:

On his personality:

"My natural state is an outsider, and no matter what group I'm in or where I am, I've always felt like I'm outside the group and I've always been analyzing the group."

On his early days blogging about investing:

"I knew I was getting attention when I said something I think in late 1999. I said that Vanguard funds are the worst funds to invest in now. Those index products are going to do horribly over the next decade and I linked to the site and I got a cease and desist from Vanguard. So I realized, oh, people are reading this."

"I started getting paid a dollar a word to write, which was — I didn't have a lot of money, and I was actually in a lot of debt. So that was tremendous validation for what I was doing in that space."

On starting his hedge fund:

"I think it was at $45,000 is what I had and I said, this is the last little bit that I got – this is the nut of what I got from my dad and I don’t want to just pay down my medical school debt with it. "

On his investing style and dealing with investors:

"I think a lot of hedge funds get their trades from Wall Street and get their ideas from Wall Street. And, um —I just like to find my own ideas. I’m reading a lot; I read a lot of news. I’m addicted to it. I basically I follow my nose on news stories. And more often than not it’s a dead end, but sometimes it produces something of value."

"I had been to New York once before but not for business and I just didn’t know how to dress. I didn’t know anything about it."

"I didn’t offer transparency. I provided one quarterly report in a letter form and that was all you got. I basically demanded that if you’re going to invest in my fund, you need to accept my terms — the terms not being super high fees, but just, you know, I’m not going to cater to you."

"In 2003, something curious had happened. The interest-only mortgage was reintroduced. That spurred me to write a section in my letter called Basis for Concern."

"I tried to raise a fund, Milton’s Opus, to uh—Milton’s opus being Paradise Lost—to just do this because I wanted to do it in big size, but I couldn’t get it going. And um, the urgency came from my belief that I can’t be the only one thinking this. Somebody will see it and when they do, spreads will blow out wide. I want to get it on when it’s cheap."

"My positioning with my investors had always been from the beginning…I need three to five years. I saw the time clock. I knew when it was going to happen. We just needed to make it through to that period. And that was something that was a hard sell when it moved against us initially."

"Even when there was the investor rebellion and even when we had these difficulties in ’06, I was 100% confident when it was going to happen and I would tell people: just wait. We’re on the cusp, 2007, it will happen."

"Ironically, I'm in this book, 'The Big Short,' but I'm not a big short. I don't go out looking for good shorts. I'm spending my time looking for good longs. I shorted mortgages because I had to. Every bit of logic I had led me to this trade and I had to do it. And I had to pull back on equities, because I saw what was coming I thought would affect everything."

Jeff Madrick, journalist and author of "The Age of Greed"

"I think Michael Burry’s Asperger’s [Syndrome] on balance helped him. It made him a deeply effective, perspicacious researcher, like very few others."

"I think [Asperger's] had its downside. He didn’t know how to deal with investors. He didn’t really know how to deal with the traders on the other side of his trades. He had problems with that."

Kip Oberting, early investor in Michael Burry's fund:

"In [Michael Burry's] mind, he wasn’t a risk-taker. He was a risk-avoider. And he was paranoid about avoiding risk in his investments."

"A colleague of mine came in to my office one day and said, 'Kip, come and check out this Web site.' This guy who's a doctor is posting these investment ideas, and they're pretty interesting….It was unique because it was deeper than your typical web-posting-market-watch type of person. It was someone that clearly was writing very lucidly, writing very clearly."

"We at White Mountains invested $500,000 to purchase a share of his business, and we gave him $10 million dollars to invest."

On not meeting Michael Burry:

"I was scheduled to meet him once in, in person, and it fell through. And so all of our correspondence to date— you know, we invested a lot of money with him and so forth— was either through the phone or through email or just other writing that he did."

On Michael Burry's relationships with investors:

"In 2006, the equity markets were up five or ten percent and Michael was down 20%. The loss was attributable to this derivative position shorting the housing market….So he did start to feel some pressure from investors. And as the year progressed, I think he got a bleeding ulcer. I think it was a very difficult time for him and his firm, too. Some of his large investors confronted him and said they're going to take their money out. "

"[Michael Burry's] bet against the subprime mortgages, that made him his fortune, they regarded as mission creep. He was supposed to be a value investor in the stock market and there was a lot of suspicion."

"And so this was on the eve of what was going to be [Michael Burry's] marquee moment… the winds had blown against him so much so that it started to get taken out of his control. And so what he did, which was a controversial move, was he locked in certain investors. That move drew the ire of some of his larger investors."

"[Michael Burry] basically turned $750 million dollars into more than a billion and a half dollars. And at the end of the year, because of his relationships with some of his investors, he had to give 750 million dollars of that back to people."

"[Michael Burry] would put out these letters to his investors that were very prescient and very thoughtful. And the letter for 2007 was kind of a recap. It was about the people who doubted him along the way, and he also included in this letter, which was very unlike him, pictures of himself with like swans around him. I think they were like black swans. It was kind of Michael’s little way of saying, See, I was right, and this was his little touchdown dance."

Michel Del Buono, former analyst for Michael Burry's hedge fund Scion Capital:

On Michael Burry's early days juggling medical school and investing:

"[Michael Burry] told me that he had been working so hard both studying for medical school and studying on these financial things that during a complicated surgery he fell asleep standing up, and crashed into the oxygen tent that had been built around the patient and was then thrown out of the operating room by the surgeon, you know, very angrily. So that tells you how hard he was burning the candle at both ends. "

"Michael tends to be very, very intense and focused when he does things, definitely more than the average person. Definitely more than most investors I had ever met. It was really driven by, I think, a passion to learn and to really understand the underlying mechanisms of what’s going on."

On choosing to bet against subprime mortgages:

"So we are seeing all these things happen how do we take advantage of this and it's not easy. The obvious one would be to short these mortgage-backed security, these pools of mortgages, and that is why we went with this derivative thing which was the credit default swap."

"Some of the investors came out to meet with Michael and said that they were very upset by this. We said we had always been upfront about it. It was in our documents. It’s not an unusual clause in people's documents to have the ability to side-pocket. And after they had met with Michael Burry, Michael Burry came out and told us that we probably needed to go look for other jobs just in case."

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YesWeKahn's picture

He made billions on that short, what about now?

kridkrid's picture

He's buying up farmland, from what I hear.

Pladizow's picture

Other then CRESY, anybody know any practical ways to play farmland?

YesWeKahn's picture

Smart move. I'm buying some land too.

Idiocracy's picture

and gold.  Lots of. He's on the record as a long.

It's beautiful that his career success boils down to the fact that he's honest.  Intellectually honest.  Could not have happened to a more wrthy guy.  Fuck the Wall Street sycophants who praise naked emperors for money.

The Shootist's picture

That and I believe gold -would love to hear his thoughts on the current market.

Spitzer's picture

Yeah and thats a dumb idea.

Farm land is the "anything but gold" crowds wet dream. You know...Warren Buffet

JuicedGamma's picture

He liquidated Scion because he got sick of dealing with investors who didn't understand why he would turn an equity fund into a housing bear bet (plus he wouldn't let them withdraw their funds).

The investors made many multiples of their investment and didn't even have the courtesy to say thanks. Understandably, investing your own money is much more fun -- you don't have to answer to your prospectus.

jiggerjuice's picture

Scion Capital is closed. You will be forwarded to Bo Shan's GobiCap Value Fund. A proper value investing fund in the Momo Age.

spekulatn's picture

The first. All others piggybacked his trade.

Zero Govt's picture

Yep, not only the first but practically invented the Sub-Prime short all by himself (which everyone else piggybacked) ...and in hindsight probably should've kept all his investors in the dark which would have stopped piggybacker Paulson et al

Brilliant, insightful, balls and ahead of the curve... my Hero :)

spekulatn's picture

Very much agree Zero Govt.



TruthInSunshine's picture
by kridkrid
on Wed, 07/20/2011 - 14:03
#1474469 - Here is a lecture of his at Vandy

Thank you for linking that +1000.

Everyone here should watch at least from minute 23 onward - it's epic, amazing and a keeper (about QE, Bernanke's REASON for meddling, public unions, debt and the gravity of our situation).

scratch_and_sniff's picture

I tried to listen to it, but that guys voice was drilling into my skull, i cant handle it.

francis_sawyer's picture

How could he have possibly made any money?

'Subprime is contained'!

Dr. Richard Head's picture

Contained is a matter of the transitory nature of tradional money.

francis_sawyer's picture

Peas are 'contained' in pods & then cans (until someone goes & tells you you have to eat them)...

TruthInSunshine's picture

Fukushima and Chernobyl are both equally contained.

GiantWang's picture

What I want to know is how, with only $45k in capital, was he able to trade derivatives like CDS? It seems that small time, individual investors don't even have access to the types of securities that are the actual drop in the water . . . but, rather, are left to trade in unpredictable ripple effect markets.

Bolweevil's picture

the 45k was his start in equities (quit med residency), which in turn attracted 100M from NYC playas...

GeneMarchbanks's picture

Think independently indeed. Is there any other kind?


Great Video. I'm just like him except for the investment savvy part. Also I wonder if he owns physical silver???

rosiescenario's picture

Not to be critical, but even I had a bunch of WAMU leap puts....wasn't it pretty obvious to anyone that the housing with cash-out-refi's was going to be a train wreck? If it was obvious to me, it must have been so to several hundred thousand others.


Realtors were busing people from the SF Bay Area out to Chowchilla, CA to buy "cheap" homes. And buy they did with no thought to the simple fact that folks out there do not earn enough to pay the mortgages on the homes being driven up by this outside buying.All one needed to do was use some horse sense.....nothing very complicated here, folks.


To me it is like buying silver mining stocks today....all the actual producers are going to be reporting massive earnings. Just read a report from one re-opening a mine in Texas that had a pay back of 1.9 years.....based on $15/oz silver.....bought some more of that one. Pretty obvious stuff...right in front of us.


But the 'professional' money managers were rather buy Lulu betting on a bigger fool to come along...

Syrin's picture

In retrospect it seems like it should have been obvious, but it clearly wasn't obvious to the majority back then.   Hell he created the credit default swap as that vehicle didn't exist until he started asking about it.

TruthInSunshine's picture

Sort of exactly how not a single major media outlet or 'investment' channel of information (major, conventional, "accepted") is NOT speaking of how any debt crisis resolution is possible without a considerable chunk of the existing debt being wiped away - period. end of story. finito.

The U.S. and developed nations of the world (and many would argue China, as well, among the big emerging ones), are currently unfixable given the commentary and statements made by legislators and media pundits.

All of this should seriously beg the question, for even the least 'conspiratorial' of the non-sheeple (who don't think about these things anyways), "why?"

StychoKiller's picture

Denile is long, deep and wide, friend.  :>D

Arius's picture

the trick i suppose is which silver mining stock to buy???

Bear's picture

At the time 86% of people in Orange County (CA) couldn't afford a mortgage on the home they lived in if they had to purchase it. Everyone felt rich ... so much so that they went out and bought every thing in sight

Syrin's picture

I saw an interview of him about 8 months ago.   His advice then was to buy gold and farmland

slaughterer's picture

And open a bank account in Canada.

Turd Ferguson's picture

If you haven't taken the time to read this book you are doing yourself a tremendous disservice. Absolutely essential reading.

Blano's picture

Not only essential reading, but fun reading too.

I bought the book to take on vacation 3 days before I left.  Had it read before I took off, and read it twice more that following week.

I am a Man I am Forty's picture

Alan Greenspan is a giant fucking idiot

kridkrid's picture

It's likely far worse than that.  He's more likely a psychopath than an idiot.

Bolweevil's picture

Alan Greenspan, fun at a party. Head of the Fed? Not so much.

kridkrid's picture

It's all a matter of perspective, no?  For Joe Six Pack (I include myself) he was horrible... for the continuation of the Ponzi scheme, he did what needed to be done.  Credit was beginning to wobble, the fed lit a fire under housing, can kicked with interest.  The end is near.