by Girl Banker®
Listen to the iTunes podcast instead.
I hadn't heard of Michael Burry until very recently but I am already in awe of him, not least because he is only 12 years older than I am.
Michael Burry is profiled in The Big Short by Michael Lewis. Lewis’s description of Michael Burry’s character clearly alluded to some form of autism and I just found out that he has Asperger’s syndrome.
So what is so special about this Michael Burry guy? Basically, he’s a star stock picker. He trained as a neurologist but had always had an innate interest in value investing (stock picking). In 1996, he started a blog describing the stocks he was investing in and why (all done after gruelling shifts at the hospital). In no time at all he had a dedicated following that included amateurs and professional investors alike.
In late 2000, he quit medicine to start his own fund, Scion Capital. My only wish is that he had left his blog up for posterity even if he was no longer able to update it.
He had very little money to start with but, "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." (Michael Lewis)
Many of his first investors were people that had fallen in love with Burry’s investing style via his blog. Apparently, they wouldn’t have fallen in love with him if he’d set up investor meetings as the first form of contact because he’s socially awkward, a natural result of Asperger’s.
Burry was one of the more astute investors that bet against subprime mortgages making himself and his investors millions in the process. I am personally anti speculation for the sake of just gambling, however, if you have a strong view, have done rigorous analysis and no one else agrees with you, the only way to show them how much smarter than them you are is to do the opposite of what they’re doing. In Burry’s case, that was shorting (betting against) subprime mortgage products using CDS (credit default swaps). In fact, when he started buying credit default swaps (CDS) against subprime, no one else was doing it, he had a first-mover advantage and collated a cool yard (that's a billion) in notional for a song.
When he told them of the ‘pending’ crisis, nobody wanted to believe Burry not even some of his own investors. Some probably laughed at his ‘crazy’ ideas behind his back. But from Nov-2000 to Jun-2008 Scion made a return of 489% after fees and expenses. And indeed he who laughs last laughs loudest and Burry is laughing all the way to the bank.
For personal reasons, Burry decided to wind up his fund in early 2008 (before Lehman’s crash in September 2008).
You’re probably thinking, "some guys have all the luck," right? Well trust me, you probably wouldn’t swap your life for Burry’s: he was struck with cancer at a very young age and as though that wasn’t enough he lost the vision in one eye completely during a surgical procedure.
Why did Burry wind up Scion?
At first, I thought it was because he'd amassed enough personal wealth to invest without the hassle of outside investors, however, by the time I finished reading the book it became clear that he started losing interest in finance, it was no longer worth the stress and he felt his health and well-being were at risk.
Although his old blogs are no longer available. You can get some insight via scioncapital.com and I also found this random blog ran by a fan.
If you want to learn more about how CDS works, there is a great explanation in To Become an Investment Banker.
I created my investment banking blog in 2012 as soon as I resigned from i-banking & published my book, To Become An Investment Banker.
Initially published at girlbanker.com, all posts were later subsumed into my personal website under katsonga.com/GirlBanker.
With 7 years of front office i-banking experience from Goldman Sachs and HSBC, in both classic IBD (corporate finance) and Derivatives (DCM / FICC), the aim of GirlBanker.com was to make it as straight-forward as possible to get into a top tier investment bank.
I'm also a CFA survivor having passed all three levels on the first attempt within 18 months - the shortest time possible.