Journey of Michael Burry - The Investor Who Predicted the Subprime Mortgage Crisis
Journey of Michael Burry
Michael James Burry, born on June 19, 1971, is an American
investor and hedge fund manager. He gained prominence for founding Scion
Capital, a hedge fund he operated from 2000 to 2008, after which he shuttered
it to concentrate on personal investments. As of April 2024, Michael Burry’s
net worth was estimated to be around $300 million. Burry's claim to fame lies
in his astute prediction of the subprime mortgage crisis, a significant
financial downturn that spanned from 2007 to 2010. He was among the earliest
investors to foresee the crisis and took actions to profit from it, earning him
recognition in the investment community.
Early Life and Education
Michael Burry was born and raised in San Jose, California,
with roots tracing back to Rusyn ancestry. At the tender age of two, he lost
his left eye due to retinoblastoma, a rare eye cancer, and has worn a
prosthetic eye ever since. Despite this early challenge, Burry attended Santa
Teresa High School as a teenager.
Academic Pursuits and Passion for Financial Investing
Burry's academic journey led him to study economics and
pre-med at the University of California, Los Angeles (UCLA). Subsequently, he
earned a medical degree (MD) from the Vanderbilt University School of Medicine.
However, Burry's career path took a turn when he started but did not complete
his residency in pathology at Stanford University Medical Center.
During his off-duty hours, particularly at night, Burry
delved into his hobby: financial investing. Despite not pursuing a medical
career actively, he has maintained his physician license with the Medical Board
of California, including fulfilling continuing education requirements.
Early Career and Investment Philosophy
Following his medical education, Michael Burry embarked on a
career in finance after gaining recognition for his success in value investing.
His investment style, rooted in the principles outlined in Benjamin Graham and
David Dodd's "Security Analysis," emphasized the concept of a margin
of safety. Burry's stock picking prowess attracted the attention of notable
companies like Vanguard and prominent investors such as Joel Greenblatt.
Founding Scion Capital
In November 2000, Burry took a significant leap by founding
his hedge fund, Scion Capital, funded by an inheritance and loans from his
family. Named after one of his favorite novels, "The Scions of
Shannara" by Terry Brooks, Scion Capital quickly became a beacon of
success in the investment world. Despite turbulent market conditions, Burry
consistently delivered exceptional returns for his investors, leveraging his
insights to capitalize on opportunities, including shorting overvalued tech stocks
during the internet bubble.
Focus on the Subprime Market
In 2005, Burry shifted his focus to the subprime mortgage
market, driven by his analysis of mortgage lending practices in the preceding
years. His meticulous research led him to predict the impending collapse of the
real estate bubble as early as 2007. Burry's conviction stemmed from his
understanding of the vulnerabilities within subprime mortgages, particularly
those with "teaser" rates, and the subsequent bonds tied to these mortgages.
To profit from this insight, he strategically shorted the market by persuading
investment firms to sell him credit default swaps against vulnerable subprime
deals. Burry's prescient analysis and bold actions in the face of skepticism
ultimately proved immensely profitable, further solidifying his reputation as a
contrarian investor with a keen eye for spotting market inefficiencies.
Navigating the Subprime Crisis
Despite facing skepticism and investor backlash during his
investments in credit default swaps, Michael Burry's analysis ultimately proved
correct, resulting in substantial profits for both himself and his remaining
investors. Scion Capital achieved remarkable returns of 489.34% between its
inception in November 2000 and June 2008, significantly outperforming the
S&P 500 benchmark during the same period.
Post-Crisis Reflections
In an op-ed for The New York Times in April 2010, Burry
criticized federal regulators for their failure to heed warnings about the
growing risk in the subprime markets. He argued that careful scrutiny of
financial markets in the years leading up to the crisis could have provided
ample evidence of impending trouble.
Reopening Scion Asset Management
In 2013, Burry reopened his hedge fund under the name Scion
Asset Management, focusing on investments in water, gold, and farmland. He
emphasized the significance of fresh, clean water, highlighting its political
and litigious nature. Glimpses into Scion's portfolio have revealed investments
in large-cap stocks like Alphabet Inc. and Facebook, as well as Burry's
concerns about a bubble in large US company stocks due to the popularity of
passive investing.
Michael Burry - Investor Who Predicted the Subprime Mortgage Crisis
Advocacy for Value Investing
Burry's observations extend beyond his investment
activities, as evidenced by his criticism of passive investing and advocacy for
smaller value-type securities. He has warned about the consequences of
overlooking these securities in favor of larger companies, emphasizing the need
for a balanced investment approach. Through both his investments and public
statements, Burry continues to shape discussions within the investment
community.
Shorting Tesla and ARKK ETF
Michael Burry made waves in the investment world with his short
positions on Tesla, initiated around early December 2020. Burry predicted
Tesla's stock would collapse similar to the housing bubble, expressing
confidence in his investment strategy. By May 2021, reports indicated he held
put options on over 800,000 shares of Tesla. However, in October 2021, after a
significant rise in Tesla's stock value, Burry revealed he was no longer
shorting it. Additionally, during the second quarter of 2021, he reportedly
held put options valued at almost $31 million on the ARKK ETF innovation index
managed by Ark Invest.
$1.6 Billion Bet on a US Stock Market Crash
In August 2023, Burry's hedge fund, Scion Asset Management,
made headlines for a massive bet on a US stock market crash. Securities filings
revealed that Burry held put options on both the S&P 500 and the Nasdaq-100
at the end of Q2 2023. While reports suggested these put options represented
93% of Scion's entire portfolio, it's important to note that this figure is
based on the maximum possible value of the options, not the actual purchase
amount. Scion's assets under management were reported at $237,971,170,
significantly lower than the $1.6 billion figure associated with the put
options. Despite the attention garnered by these bold moves, the outcomes
remain to be seen, reflecting Burry's penchant for high-risk, high-reward
investments.
Personal Life and Challenges
Beyond his remarkable investment career, Michael Burry leads
a private life as a husband and father residing in Saratoga, California. His
journey is not without personal challenges, as his son's diagnosis with
Asperger syndrome led Burry to reflect on his own traits and led him to believe
he also has the condition. Reflecting on his youth, Burry recalled the
challenge of maintaining eye contact and remarked humorously, "If I am
looking at you, that's the one time I know I won't be listening to you."
Interests and Hobbies
In addition to his professional pursuits, Burry has varied
interests that offer glimpses into his personality. A fan of heavy metal music,
he enjoys bands like Obituary, Lamb of God, Amon Amarth, Slipknot, King
Diamond, and Pantera. This passion for music likely provides a creative outlet
and balance amidst the demands of his career.
Social and Political Views
Burry's perspectives extend beyond the financial realm, as
he has expressed criticism of the lockdown measures implemented during the
COVID-19 pandemic in the United States. His outspoken stance on social and
political issues underscores his willingness to engage with broader societal
concerns, reflecting a multifaceted persona beyond his role as an investor.
Educational Impact
Burry's writings and
public statements have provided valuable insights into financial markets and
investing, contributing to financial education for individuals and
professionals alike. His willingness to share his thoughts and experiences has
helped democratize access to financial knowledge. Overall, Michael Burry's
legacy is characterized by his innovative investment strategies, his ability to
challenge conventional wisdom, and his contributions to financial education.
While his philanthropic activities may not be as publicly visible as his
investment successes, it's likely that he supports causes aligned with his
values and interests in a more private capacity.
