Michael Burry
Encyclopedia
Michael Burry is founder of the Scion Capital LLC hedge fund
, which he ran from 2000 until 2008, when he closed the fund to focus on his own personal investments. Burry was one of the first investors in the world to recognize and invest in the impending subprime mortgage crisis
. Author Michael Lewis
profiled him in his 2010 book The Big Short: Inside the Doomsday Machine, and he was featured in Gregory Zuckerman's 2009 book The Greatest Trade Ever: How John Paulson Bet Against The Markets and Made $20 Billion. Kip Oberting, of KVO Capital Management, has described Burry as "a risk-avoider".
and did his residency in neurology at Stanford Hospital
. While off duty at night, he worked on his life-long hobby, which was an interest in financial investments. On one occasion, Burry had been working so hard, studying both for medical school and also his financial interests, 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 lead surgeon. He quit the medical profession in 2000 and started an investment company called Scion Capital, which would eventually make millions for investors initially by investing in undervalued stocks, and later betting heavily against subprime mortgages in advance of the 2008 financial crisis. Burry shut down the firm in 2008 due to personal and professional reasons, returning its capital to investors. As of 2010 he was managing his own investments, which included almond farms in California, "a fancy way to essentially invest long-term in water." Michael Lewis said, "they require a lot of water to grow and he’s got a very complicated argument about why these almond farms are a good idea, so I trust him."
Burry is married with children and lives in California. He has been diagnosed with Asperger syndrome
, as has his son.
neurology
resident to become a full-time investor and start his own hedge fund. He had already developed a reputation as an investor by demonstrating astounding success in "value investing
," which he wrote about on a message board beginning in 1996. He was so successful with his stock picks that he attracted the interest of such companies as Vanguard
, White Mountains Insurance Group
and such prominent investors as Joel Greenblatt
.
After shutting down his web site in November 2000, Burry started Scion Capital, funded by a small inheritance and loans from his family. The company was named after The Scions of Shannara
, a favorite childhood book. Burry quickly earned extraordinary profits for his investors. According to Lewis, "in his first full year, 2001, the S&P 500 fell 11.88 percent. Scion was up 55 percent. The next year, the S&P 500 fell again, by 22.1 percent, and yet Scion was up again: 16 percent. The next year, 2003, the stock market finally turned around and rose 28.69 percent, but Mike Burry beat it again—his investments rose by 50 percent. By the end of 2004, Mike Burry was managing $600 million and turning money away."
In 2005, he veered from value investing to focus on the subprime market
. Through his analysis of mortgage lending practices in 2003 and 2004, he correctly forecast a bubble
would collapse as early as 2007. Burry's research on the runaway values of residential real estate convinced him that subprime mortgages, especially those with "teaser" rates
, and the bonds based on these mortgages would begin losing value when the original rates reset, often in as little as two years after initiation. This conclusion led Burry to short the market by persuading Goldman Sachs
to sell him credit default swaps against subprime deals he saw as vulnerable. This analysis proved correct, and Burry profited accordingly. Ironically Burry's since said, "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".
Though he suffered an investor revolt before his predictions came true, he earned a personal profit of $100 million and a profit for his remaining investors of more than $700 million. Scion Capital ultimately recorded returns of 489.34 percent (net of fees and expenses) between its November 1, 2000 inception and June 2008. The S&P 500 returned just over two percent over the same period.
According to his website, he liquidated his credit default swap short positions by April 2008 and did not benefit from the taxpayer-funded bailouts of 2008
and 2009
. He subsequently liquidated his company to focus on his personal investment portfolio.
In a April 3, 2010, op-ed
for the New York Times, Burry argued that anyone who studied the financial markets carefully in 2003, 2004, and 2005 could have recognized the growing risk in the subprime markets. He faulted federal regulators for failing to listen to warnings from outside a closed circle of advisors.
Hedge fund
A hedge fund is a private pool of capital actively managed by an investment adviser. Hedge funds are only open for investment to a limited number of accredited or qualified investors who meet criteria set by regulators. These investors can be institutions, such as pension funds, university...
, which he ran from 2000 until 2008, when he closed the fund to focus on his own personal investments. Burry was one of the first investors in the world to recognize and invest in the impending subprime mortgage crisis
Subprime mortgage crisis
The U.S. subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages....
. Author Michael Lewis
Michael Lewis (author)
Michael Lewis is an American non-fiction author and financial journalist. His bestselling books include The Big Short: Inside the Doomsday Machine, Liar's Poker, The New New Thing, Moneyball: The Art of Winning an Unfair Game, The Blind Side: Evolution of a Game, Panic and Home Game: An...
profiled him in his 2010 book The Big Short: Inside the Doomsday Machine, and he was featured in Gregory Zuckerman's 2009 book The Greatest Trade Ever: How John Paulson Bet Against The Markets and Made $20 Billion. Kip Oberting, of KVO Capital Management, has described Burry as "a risk-avoider".
Biography
Burry has described his "natural state" as an outsider who "just likes to find my own ideas", saying, "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.". Burry graduated from Vanderbilt University School of MedicineVanderbilt University School of Medicine
Vanderbilt University School of Medicine is a medical school located in Nashville, TN. Currently ranked 15th out of 126 accredited medical schools in the U.S News & World Report 2010 rankings, the school of medicine has a reputation as a center of research and high-quality clinical care. Vanderbilt...
and did his residency in neurology at Stanford Hospital
Stanford Hospital
Stanford Hospital and Clinics is known worldwide for advanced treatment of complex disorders in areas such as cardiovascular care, cancer treatment, neurosciences, surgery, and organ transplants. Consistently ranked among the nation's top hospitals, Stanford Hospital and Clinics is internationally...
. While off duty at night, he worked on his life-long hobby, which was an interest in financial investments. On one occasion, Burry had been working so hard, studying both for medical school and also his financial interests, 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 lead surgeon. He quit the medical profession in 2000 and started an investment company called Scion Capital, which would eventually make millions for investors initially by investing in undervalued stocks, and later betting heavily against subprime mortgages in advance of the 2008 financial crisis. Burry shut down the firm in 2008 due to personal and professional reasons, returning its capital to investors. As of 2010 he was managing his own investments, which included almond farms in California, "a fancy way to essentially invest long-term in water." Michael Lewis said, "they require a lot of water to grow and he’s got a very complicated argument about why these almond farms are a good idea, so I trust him."
Burry is married with children and lives in California. He has been diagnosed with Asperger syndrome
Asperger syndrome
Asperger's syndrome that is characterized by significant difficulties in social interaction, alongside restricted and repetitive patterns of behavior and interests. It differs from other autism spectrum disorders by its relative preservation of linguistic and cognitive development...
, as has his son.
Investment career
Burry left work as a Stanford HospitalStanford Hospital
Stanford Hospital and Clinics is known worldwide for advanced treatment of complex disorders in areas such as cardiovascular care, cancer treatment, neurosciences, surgery, and organ transplants. Consistently ranked among the nation's top hospitals, Stanford Hospital and Clinics is internationally...
neurology
Neurology
Neurology is a medical specialty dealing with disorders of the nervous system. Specifically, it deals with the diagnosis and treatment of all categories of disease involving the central, peripheral, and autonomic nervous systems, including their coverings, blood vessels, and all effector tissue,...
resident to become a full-time investor and start his own hedge fund. He had already developed a reputation as an investor by demonstrating astounding success in "value investing
Value investing
Value investing is an investment paradigm that derives from the ideas on investment and speculation that Ben Graham and David Dodd began teaching at Columbia Business School in 1928 and subsequently developed in their 1934 text Security Analysis...
," which he wrote about on a message board beginning in 1996. He was so successful with his stock picks that he attracted the interest of such companies as Vanguard
The Vanguard Group
The Vanguard Group is an American investment management company based in Malvern, Pennsylvania, that manages approximately $1.6 trillion in assets. It offers mutual funds and other financial products and services to individual and institutional investors in the United States and abroad. Founder...
, White Mountains Insurance Group
White Mountains Insurance Group
White Mountains Insurance Group is a holding company with business interests in property and casualty insurance, and reinsurance. The group owns the direct marketing insurer Esurance and a 75% stake in specialty insurance carrier OneBeacon. In 2008 White Mountains Insurance Group also acquired a...
and such prominent investors as Joel Greenblatt
Joel Greenblatt
Joel Greenblatt is a value investor, and adjunct professor at the Columbia University Graduate School of Business...
.
After shutting down his web site in November 2000, Burry started Scion Capital, funded by a small inheritance and loans from his family. The company was named after The Scions of Shannara
The Scions of Shannara
The Scions of Shannara is a fantasy novel by Terry Brooks. It is the first book in the Heritage of Shannara series, which takes place three hundred years after the end of the previous Shannara trilogy. The first version was published in 1990...
, a favorite childhood book. Burry quickly earned extraordinary profits for his investors. According to Lewis, "in his first full year, 2001, the S&P 500 fell 11.88 percent. Scion was up 55 percent. The next year, the S&P 500 fell again, by 22.1 percent, and yet Scion was up again: 16 percent. The next year, 2003, the stock market finally turned around and rose 28.69 percent, but Mike Burry beat it again—his investments rose by 50 percent. By the end of 2004, Mike Burry was managing $600 million and turning money away."
In 2005, he veered from value investing to focus on the subprime market
Subprime lending
In finance, subprime lending means making loans to people who may have difficulty maintaining the repayment schedule...
. Through his analysis of mortgage lending practices in 2003 and 2004, he correctly forecast a bubble
Real estate bubble
A real estate bubble or property bubble is a type of economic bubble that occurs periodically in local or global real estate markets...
would collapse as early as 2007. Burry's research on the runaway values of residential real estate convinced him that subprime mortgages, especially those with "teaser" rates
Teaser rate
A teaser rate is a low, adjustable introductory interest rate advertised for a loan, credit card, or deposit account in order to attract potential customers to obtain the service. The teaser rates are normally too good to be true for the long term, and are far below the common realistic rate for...
, and the bonds based on these mortgages would begin losing value when the original rates reset, often in as little as two years after initiation. This conclusion led Burry to short the market by persuading Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
to sell him credit default swaps against subprime deals he saw as vulnerable. This analysis proved correct, and Burry profited accordingly. Ironically Burry's since said, "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".
Though he suffered an investor revolt before his predictions came true, he earned a personal profit of $100 million and a profit for his remaining investors of more than $700 million. Scion Capital ultimately recorded returns of 489.34 percent (net of fees and expenses) between its November 1, 2000 inception and June 2008. The S&P 500 returned just over two percent over the same period.
According to his website, he liquidated his credit default swap short positions by April 2008 and did not benefit from the taxpayer-funded bailouts of 2008
Economic Stimulus Act of 2008
The Economic Stimulus Act of 2008 was an Act of Congress providing for several kinds of economic stimuli intended to boost the United States economy in 2008 and to avert a recession, or ameliorate economic conditions. The stimulus package was passed by the U.S. House of Representatives on January...
and 2009
American Recovery and Reinvestment Act of 2009
The American Recovery and Reinvestment Act of 2009, abbreviated ARRA and commonly referred to as the Stimulus or The Recovery Act, is an economic stimulus package enacted by the 111th United States Congress in February 2009 and signed into law on February 17, 2009, by President Barack Obama.To...
. He subsequently liquidated his company to focus on his personal investment portfolio.
In a April 3, 2010, op-ed
Op-ed
An op-ed, abbreviated from opposite the editorial page , is a newspaper article that expresses the opinions of a named writer who is usually unaffiliated with the newspaper's editorial board...
for the New York Times, Burry argued that anyone who studied the financial markets carefully in 2003, 2004, and 2005 could have recognized the growing risk in the subprime markets. He faulted federal regulators for failing to listen to warnings from outside a closed circle of advisors.
External links
- "Michael Burry: Subprime Short-Seller No. 1," , The New York Times, March 1, 2010
- "Betting on the Blind Side" Excerpt from "The Big Short"
- "A Primer on Scion Capital’s Subprime Mortgage Short", Dr. Michael Burry, November 7, 2006
- "Michael Burry’s FCIC Testimony – Audio", FCIC Staff Audiotape of Interview with Michael Burry
- "Michael Burry's 4 Must Read Investing Books", Summary of Michael Burry's blog posts on Silicon Investor.