“The high value of an asset is not enough, the best hedge is to buy an appropriate, safe and cheap stock.”

Michael Burry

 

The good doctor

Born on June 19, 1971, in San Jose, California, victim of a cancer that caused him to lose an eye at the age of two, Michael Burry spent his childhood as a withdrawn child without many social skills.

Unlike other famous investor profiles, for Burry, finance was a hobby. In fact, he studied medicine at the University of Los Angeles, later earned his doctorate at Vanderbilt Medical School and completed his residency as a neurologist at Stanford.

A decisive step

By the mid-1990s, Burry had already made a name for himself as a fund manager by participating in investment forums and publishing his opinions and predictions on his own website.

In 2000, he left medicine for good and made the leap from being an amateur investor to creating his own investment fund, Scion Capital. Burry’s good eye was reflected almost immediately: in 2001, while the S&P 500 was falling 11.8%, Scion Capital was returning returns to its investors of 55%.

This story was repeated the following year, while the S&P 500 was again down 22%, still suffering the ravages of the “.com crisis”, Burry’s fund grew 16%.

“The big short”

Burry’s almost obsessive behavior, due to his self-diagnosed Asperger’s syndrome, meant that in 2004 he was already managing $600 million dollars, which is why, despite the fact that many investors sought him out to manage their capital, Burry rejected this money.

This same obsessive behavior, focused on finding the best opportunities, led Burry to study hundreds of proposals on mortgage-backed securities, and he realized that the real estate market was providing too many high-risk loans.

In the reports he read, he saw that the real estate sector was granting risky loans to people who would not be able to pay off the debt in the medium term. Even in those same reports, it was already recorded that many people were beginning to have problems paying their mortgages.

Burry realized that this was a bubble and predicted that it would burst in 2007. Looking for a way to profit from this situation, he was able to convince two large banks to issue CDIs and sell them to him.

Thanks to this audacious move, Michael Burry established himself as a financial visionary, achieving worldwide fame and a profit of close to one billion dollars for him and his investors, when the great subprime credit crisis of 2008-2009 broke out.

His investment style: Margin of safety

On more than one occasion, Michael Burry has openly stated that he defines himself as a value investor, and that he bases his investment choices one hundred percent on the “margin of safety” concept of Benjamin Graham and David L. Dodd.

The margin of safety is the difference between the price of an asset and its intrinsic value. The objective of this margin is to find assets whose intrinsic value is greater than their price, with the expectation that over the long term the asset will reach or even exceed the price that reflects that intrinsic value.

Michael Burry today

After retiring in 2008, Burry devoted himself to managing only his own capital, however, in 2013 he opened a new investment fund, Scion Management in which he makes heavy bets towards gold, small technologies and agricultural land.

This selection of assets is not random, since 2010 he has predicted that water is actually the most valuable asset and that it will gradually become scarce, therefore, he keeps these investments focused on his own prediction and hoping to have privileged access to water while maintaining reserve assets, gold, and assets with a margin of safety, small technologies.