Michael Burry is an American doctor, investor, and hedge fund manager. He is the founder and president of Scion Asset Management.
Burry caught the public's attention for being the Doctor who correctly predicted the subprime mortgage crisis and the subsequent global economic recession.
He made this prediction by observing that many mortgages were being granted to borrowers who could not afford them, because lenders were relying on the price of housing to rise to make money from the loan, even if the debtor could not pay it.
Michal Burry has been diagnosed with a type of Autism Spectrum Disorder called Asperger's syndrome. He discovered it himself by reeading a book on the subject. People with this condition struggle with social interaction and display obsessive behaviors, among other symptoms. One of his children also has this syndrome.
Burry has considered that this inclination towards obsessions, which is characteristic of Asperger's, has been an advantage in his role as an investor. This is because he consistently immerses himself in certain topics.
- Name: Michael Burry.
- Birth: June 19, 1971.
- Popular for: Predicting the subprime mortgage crisis. He is the founder and manager of Scion Asset Management.
- Profession: Doctor and investor.
- Movies inspired by his life: “The Big Short” (2015).
- Curiosities: He is passionate about music and plays the drums in his spare time. He is also a fan of strategic board games.
Biography of Michael Burry
Michael Burry was born in San Jose, California, on June 19, 1971. When he was two years old, he lost one of his eyes due to cancer (retinoblastoma). Since then, he has used a prosthesis.
Burry studied economics and pre-medicine (pre-med in English) at the University of California, Los Angeles (UCLA). Later, he obtained his medical degree from Vanderbilt University School of Medicine and did his residency at Stanford.
It was during this period that he began to devote his free time when he was not on call to finance. But what started as a hobby later ceased to be. Burry started managing his own fund, a hedge fund that achieved very good results, and about which he made publications from 1996 on the Silicon Investor website. This caught the attention of companies and investors like Joel Greenblatt.
Scion and the relationship with Joel Greenblatt
In the year 2000, Gotham Capital (Joel Greenblatt's management company) helped Michael Burry create the Scion Capital fund with 1 million dollars. Over time, they entrusted him with the management of about 100 million dollars.
Scion Capital made a large profit and in 2011, it grew 55%, while the S&P 500 (benchmark index of the American market), fell 11.88%.
This was due to short selling in overvalued tech companies in the context of the dot-com crisis. In 2002, the S&P 500 dropped 22.15%, but Scion rose 165%. In 2003, the hedge fund grew 50%, although the S&P, this time, also showed an increase of 28.69%. By 2004, Burry was already managing about 600 million dollars, so he no longer even accepted the entry of new capital to manage.
But not everything was rosy, at least in the relationship with the investors in his fund. In 2005, Scion Capital achieved an annualized return of 238%, generating significant capital gains for its investors. Burry began to focus on the subprime mortgage market in 2005, projecting that a bubble would burst in two years. Burry was not wrong as Scion dropped 18% in 2006.
This made investors (like Joel Greenblatt and his partner John Petry) very nervous, and most of them — although they were perfectly satisfied with their extraordinary returns in previous years — pressured him a lot to abandon the strategy. The relationship of Gotham Capital with Michael Burry went through a bad time. When the differences in his bet against the mortgage market were unsustainable, Greenblatt tried to withdraw his capital. However, Burry prevented this from happening for another year.
This would allow him to maintain his bet and make a lot of money. And he would finally end up liquidating the funds in 2008 and returning the money to the shareholders.
Burry made personal profits of 100 million dollars with Scion, and for the rest of the investors, the profits were more than 700 million dollars.
The return of Scion
In 2013, Burry reopened his hedge fund, this time under the name of Scion Asset Management. The fund manages capital of 46.54 million dollars (portfolio updated as of December 2022). The main investment of Scion Asset Management (25%) is in Geo Group Inc, a company that mainly invests in prisons and mental health centers.
What made Burry a successful investor?
What made Burry a successful investor is his ability to spot trends that others have overlooked and his contrarian investment style. He was one of the few investors who shorted the housing market in 2006, and his bets against the market paid off handsomely when the crisis hit two years later.
👉 Find out about other important figures in the investment world.
After amassing a fortune by betting against mortgage-backed securities before the recession, Burry shifted his focus to investing in start-up medical companies. Since then, he has gained prominence in the world of investments.
His experiences during the mortgage crisis are chronicled in the book “The Big Short” by Michael Lewis and were subsequently adapted into the film “The Big Short,” in which his character is portrayed by Christian Bale.
How did Michael Burry have interest in the stock market?
Michael Burry became interested in the stock market after reading the classic investment book by Graham and Dodd, Security Analysis.
After studying the book and implementing some of its strategies, he noticed that he could beat the market by buying stocks that were selling for less than their intrinsic value. Burry began trading stocks and was able to achieve impressive returns on his personal investments when the dot-com bubble burst.
This led him to believe that the stock market offered a significant opportunity for investors who were willing to do the necessary homework to understand it.
What was the real estate market like when Burry began investing?
In 2005, the real estate market was booming. Housing prices were increasing at an unprecedented rate and people were buying and selling houses like never before.
Many speculated that the business would continue to rise and were eager to participate in that sector. Mortgages were packaged and sold among professional investors through so-called CDO (collateralized debt obligations), a type of financial asset that consists of a portfolio of debts, such as mortgages, which are divided into different tranches (layers) with different levels of risk and return.
CDOs were designed in such a way that investors could not see the underlying risk, and many of them were composed of high-risk mortgages. Burry was able to identify this risk and bet against the CDOs before the market collapsed in 2007-2008.
At that time, Burry began to buy credit default swaps (CDS or insurance against default), which is a type of insurance in which the buyer pays a premium to secure their investment in case a debt issuer (like a mortgage) defaults.
It is worth clarifying that Burry bet against certain high-risk mortgage bonds (against some CDOs), not the entire sector, buying CDS in large quantities, which meant that if house prices fell and debt issuers defaulted, he would make money.
During this time, CDS were not traded on the market, so he had to convince entities like Goldman Sachs or Deutsche Bank to issue them for his purchase. The market collapsed in 2007-2008 and housing prices began to plummet. People who had bought houses at inflated prices found themselves with properties that were worth much less than what they had paid for them.
Burry did not predict the collapse of the real estate market itself. Rather, he predicted that the market was unsustainable and would end up collapsing by studying high-risk mortgages and looking for discrepancies in the system. Thus, he took short positions betting on the fall of the mortgage market and after the subprime mortgage crisis exploded, he made huge profits.
What is Michael Burry currently investing in?
Michael Burry has made a career investing in distressed assets. These are securities that are undervalued or that do not meet their contractual obligations.
So essentially, Burry buys securities and other investments when they are down and plummeting, and then sells them when they have regained their value. This type of investment can be very risky, but it can also be extremely profitable if done correctly. Michael Burry's investment strategy varies depending on the specific market conditions and the opportunities he sees.
However, some of the things he usually invests in are stocks, bonds, real estate, commodities, and currencies. He has made some very successful investments in water rights, farmland, and other commodities.
Burry considers water a particularly strategic good. And that's why he invests in agricultural land. The idea would be to grow food on these properties and then transport it to areas where the liquid element is lacking.
What can investors learn from Burry's experience?
There are some key lessons that investors can learn from Burry's experience:
- It is important to have a clear investment thesis and stick to it.
- Do your own research. Burry was a self-taught investor who read medical journals and closely followed the companies he invested in. He knew the companies inside and out, which gave him an edge when making investment decisions.
- Diversify your portfolio. Don't put all your eggs in the same basket; spread the risk among several different investments. This will help you protect yourself from significant losses if one of your investments goes bust.
- Be patient. Burry did not become a successful investor overnight; it took him years of work and dedication to achieve his success.
👉 Other stories that might inspire you:
FAQs about Michael Burry
What are Scion Management and Scion Asset Management?
Scion Capital is a hedge fund management company founded by Michael Burry in 200. He later shut the company in 2008 to focus on personal investment.
Further in 2013., he founded the Scion Asset Management, a private investment firm that he manages till today. The company boast of it over $201 million assets according to the SEC filings.
What is the Subprime Mortgage crisis?
The subprime mortgage crisis is a sudden increase in high-risk mortgages after the collapse of the U.S. housing market. During the booming stage in the early to mid-2000, lenders offer home loans to individuals with poor credit combined with low interest rates at that time. When the housing bubble burst, many borrowers were unable to pay back their loans and the event lead several financial institutions to collapse.
What role did Michael Burry play in the Subprime crisis?
Michael Burry played a significant role in predicting the subprime mortgage crisis by recognizing the unsustainable nature of the housing market and the risks associated with high-risk mortgages. He took short positions against certain mortgage bonds and purchased credit default swaps as insurance.