Michael Burry is an American investor and hedge fund manager with a net worth of $300 million. Burry made his name predicting the 2008 housing crash and made hundreds of millions of dollars for his investors. However, he had a very non-conventional wall street career and even got involved in the GameStop saga.
Michael Burry was born in San Jose California in the early 70s, he has Asperger’s syndrome and only one real eye. He lost the eye to cancer when he was only two years old. Burry went to college at UCLA, where he studied Economics and Pre-med. A little-known fact about him is that he is actually a medical doctor.
After graduating from UCLA, he went to medical school at Vanderbilt University where he earned an MD. He then went to Stanford for his residency in Neurology but never finished it because he was more interested in investing. So he left the residency program to start his own hedge fund.
Burry had already begun to make a name for himself in the amateur investing world while in medical school. In his free time he was actively discussing stocks on message boards such as the Silicon Investor.
Due to his investing acumen, he was able to attract the attention of Wall Street heavyweight Joel Greenblatt. He follows the principles of value investing and bases his strategies around Benjamin Graham and David Dodd.
He started his hedge fund Scion Capital in 2000. In the beginning the fund’s capital was sourced from family members. The fund quickly started making huge returns shorting the tech stocks during the dot-com bubble. Burry made insane returns as a brand new hedge fund manager. He consistently beat the S&P, making a net return of 6.6% in the first year and 45% in his second year.
After four years of solid returns, Michael Bury had built up a significant amount of hype surrounding his investing skills. His fund had grown to $600 million of assets under management and he was now turning new money away.
In 2005 Burry started paying attention to the residential real estate market. At the time real estate prices were reaching all-time highs, fueled by low interest rates and easy access to mortgage loans. The conventional wisdom at the time was that with real estate prices only seeming to go up, mortgage lending was a safe investment.
Michael Burry did some research and found that the institutional investors who bought the mortgage backed securities were severely underestimating the default risk of the subprime mortgages. As early as 2005 he predicted that once these teaser rates expire the MBS’s that held these mortgages would tank in value.
In 2006, Burry went to Goldman Sachs and other investment banks and asked them to sell him a large position of credit default swaps on residential mortgages. He bought the CDS’s in 2005 and lost 17% in the first year as the housing market continued to boom.
Burry had extremely high conviction on this trade and despite the initial losses, doubled down on his short position. Many of his investors were weary of the position and wanted to pull their money out of the fund after the recent poor performance. To prevent investor outflows Burry put his CDS position into a side pocket fund, separate from his main fund.
Existing investors in Scion were forced to enter into the CDS fund and their money was locked up until Burry decided to wind it down. Many investors were furious as their money was locked into a poorly performing fund that they hoped to exit. In 2007 the housing bubble finally burst and default rates especially on the risky adjustable rate mortgages skyrocketed. These defaults caused Burry’s CDS’s to skyrocket in value, profiting his fund to the tune of $725 million.
Despite the profits his investors were still upset about how he locked up their funds. After the financial crisis was over, most of Scion’s investors finally withdrew their money and Burry closed down the fund to focus on his own personal investment portfolio. In 2015 Michael Burry’s story was glorified in “The Big Short” with Christian Bale, Ryan Gosling and Brad Pitt.
Michael Bury has been active in the investing spotlight, having been a part of the GameStop short
squeeze. His new hedge fund Scion Asset Management has to disclose its positions each quarter in a 13F filing with the SEC. In the third quarter of 2020, Michael Burry’s 13F filing showed he held stocks like Google, Facebook and Goldman Sachs. However, it also included 2.75 million shares of GameStop worth $11.9 million at the time.
By the next quarter he had trimmed the GameStop position to just 1.7 million shares but due to the appreciation of the stock over the course of the quarter it was then worth $17 million. In his Q4 filings, he had sold his entire stake in GameStop.
GameStop investors who were involved in the short squeeze saw this with mixed reactions. Some say that the fact Michael Burry invested in the first place is proof that GameStop has the potential to make a turnaround. Others said that the fact that Burry sold before the short squeeze happened shows he thinks the company’s fair value is much lower than what the price is right now.
Burry is still making the headlines as he is predicting a huge market crash in the near future. He regularly tweets to warn others and later deletes them. The market is clearly overvalued right now but it will be interesting to see how his prediction plays out!
James Kelly is my name and penny stocks are my game! Former day trader turned long-term investor with a decade of experience in the market. Over the years, I’ve joined dozens of trading services and I aim to provide honest reviews to help traders make better decisions!