How Did Michael Burry Make His Money?

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Michael Burry is a name that everyone has heard, especially well-known American investors, hedge fund managers, and physicians. Michael Burry's advice recurs often and his secrets help traders to analyze and adjust stock market strategies to earn handsome returns and avoid getting crushed by the volatile upheavals of the stock market. If you have been following Michael Burry, you know that most of his predictions have been correct about the stock market’s boom and bust cycles, but the funny thing is that no one was listening to him.

Market wizards made fun of him despite his attempts to warn investors about the 2008 meltdown. Early in 2021, he warned about the inflation problem, but no one heeded him. He previously warned about the 100% legitimate false bear market rally. He also tweeted that the stock markets would likely experience another 50% decline soon.

What if his visions turn out to be accurate once again? Michael Burry is serious about his forecasts and has sold everything. Experts at the Traders Union prepared the following analysis of Michael Burry's trading strategies, secrets of his attitude toward money, and tips for beginners.

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Who is Michael Burry?

Michael Burry is an American born on June 19, 1971, in San Jose, California. He is an American investor, hedge fund manager, and physician. He studied economics and pre-medicine at UCLA and earned his medical degree at Vanderbilt University School of Medicine in Tennessee.

Burry had Asperger's syndrome, and as a result, he was generally awkward and antisocial. He had few acquaintances and was not well known in the financial community when he started his career, even though he was brilliant at dividing the market.

Burry is renowned for being among the first investors to foresee and make money from the US subprime mortgage crisis, which took place between 2008 and 2010. He is also the investor who bet against Elon Musk's and Cathie Wood's Ark Innovation fund last year. Instead, Michael Burry invested in a meme stock known as GameStop.

The Big Short, based on his best-selling book of the same name, was released in 2015. It covers the tale of the growing issues in the US mortgage and housing markets that led up to the Great Recession and a few financial experts who not only forecasted it but also turned that bet into huge profits.

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How did Michael Burry make his money?

Burry developed a passion for stock trading while pursuing his medical degree. He studied economics and spent his free time looking into value investment techniques. By the year 2000, Burry had changed his mind and decided that a career in finance was more appealing than one in medicine.

As a result, he left Stanford before completing his residency. Instead, he created Scion Capital, where his investments were profitable. By 2004, Scion had attracted $600 million in AUM after earning a 55% return in its first year. Burry invited his investors to join him in 2005 on a significant wager against the housing market. Unfortunately, Michael's prophecies didn't come true for several years.

At Scion Capital, Michael Burry oversees a hedge fund. When he learned that the mortgages supporting the US housing market were precarious in 2005, he decided to place a wager against it.

According to his forecast, default rates would increase to 8% in 2007, and most borrowers may then be unable to make their mortgage payments. So, he approached large banks to arrange Credit Default Swaps on mortgages that will pay him if the underlying bond fails.

These CDSs are essentially monthly premium-paying insurance contracts. His overall short position was at 1.3 billion. The swaps increased in market value when the market conditions deteriorated. Additionally, the premiums paid for the short positions were very high.

However, the banks resisted making the payments because they wanted to dump their CDOs. Subprime mortgages on ignorant clients would not be discounted until they were erased off the books. His hedge fund's worth increased by over 48% when the housing market crashed.

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Michael Burry's net worth

Mr. Burry’s estimated net worth is over $300 Million, according to numerous sources. A look at Burry's hedge fund, Scion Capital, promises to be informative. Michael founded the fund after graduating from Stanford. He had already established himself as an investor by demonstrating value investing success, which he detailed on the Silicon Investor message boards in 1996.

A $1 billion bet he made against the subprime mortgage industry before the 2008 Great Recession made him famous. Between 2007 and 2010, he was among the first investors to predict and profit from the subprime mortgage crisis. While Michael's predictions took years to come true, he was able to profit personally by $100 million and his investors by $700 million.

Burry's stock suggestions were so successful that companies like Vanguard and White Mountains Insurance Group, as well as renowned investors like Jowl Greenblatt, took notice. Burry is a traditionalist when it comes to valuing assets. He has repeatedly said that "all my stock selection is 100 percent premised on the idea of a margin of safety," alluding to Benjamin Graham and David Dodd's 1934 book on security analysis.

Michael Burry's trading strategy

Burry seeks to isolate his investments from the market's mood as a conservative by placing little to no conditions on them. It doesn't matter if he invests in small-caps, mid-caps, tech stocks, or non-tech stocks. He looks for value in all of them. The best investments, he claims, are made in undervalued sectors of the economy.

He believes that he will be proven correct by stating that there was a great deal of ambiguity regarding the market's direction at the time. However, he still believes that the cautious approach is not the market view. He would prefer to continue to be comfortable with the knowledge that widely held prophecies are less likely to materialize than it is assumed because occasionally crazy individual stock values will occur regardless of what the market does.

Since his favorite rate changes by industry and the company's place in the economic cycle, he employs the ratio of enterprise value to EBITDA (earnings before interest, taxes, depreciation, and loss) to select investment prospects. However, he stays clear of price-to-earnings ratios to avoid being misled by a company's stated metrics. Instead, he carefully accounts for off-balance sheet variables and natural, free cash flow.

Burry separates himself from investors who focus on value by looking for additional chances as soon as they present themselves. He will, for instance, invest in asset plays, arbitrage opportunities, and businesses offered for less than two-thirds of their actual value. He makes investments in businesses with a long-term competitive edge, much like Warren Buffet, assuming they are reasonably priced and if Burry can comprehend its business. This may include IT firms. He views them as long-term investments because they are typically difficult to find.

Michael Burry in “The Big Short”

Michael Burry was the prime focus as a character in Michael Lewis' novel "The Big Short," which was subsequently adapted into a Hollywood blockbuster, starring Christian Bale as Burry. The Big Short, a biographical comedy-drama film directed by Adam McKay, was released in 2015.

During the 2008 housing bubble and following the global financial crisis, stock markets worldwide lost more than 50% of their value. But Michael Burry, through the guise of Scion Capital, foresaw it coming for years and was able to make over $100 million from the occurrence.

It is based on Michael Lewis' 2010 book The Big Short: Inside the Doomsday Machine, which describes how the US housing bubble sparked the financial crisis of 2007-2008. Mckay and Charles Randolph co-wrote the book. Along with Christian Bale, Steve Carell, Ryan Gosling, and Brad Pitt, the movie also features Margot Robbie, the late Anthony Bourdain, Salena Gomez, and economist Richard Thaler.

He started reading and evaluating the portfolios of questionable subprime mortgages that Wall Street was buying and bundling into obscenely profitable mortgage-backed securities that they then resold to investors in 2003. Nobody else in America was doing this at the time.

Michael Burry observed in 2005 that the Wall Street bond market had gone insane at that point. Basically, it bought risky loans made to illegitimate buyers who, in the words of Michael Lewis, were "one broken refrigerator away from default." Burry arrived at the prediction that the subprime market would crash in 2007.

It took two years for Burry to get his act together, but few realized what was going on. In 2007, the subprime mortgage market finally collapsed after two years of drama.

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Michael Burry's advice for novices

Michael Burry never gives interviews and we've never seen him do a podcast or Q&A. People, especially those who are just starting, are keen to learn about Michael Burry and follow him. They also want to know what he thinks about trading and the stock market.

Throughout 2020 and 2021, many traders could still sneakily keep up with his thoughts and opinions on the stock market through his Twitter profile. Burry keeps tweeting through his Twitter account and gives market predictions and thoughts. His opinions and analysis might come in handy if you are new to the stock market and do not know anything about it.

Michael Byrru’s twitter

Michael Byrru’s twitter

Burry believes that the US stock market is scorching right now. However, he sees big over-evaluation and isn't afraid to call it out. Value investing, which is covered in length in the 1934 book Security Analysis by Benjamin Graham and David Dodd, served as the foundation for Burry's trading method.

He prioritizes agricultural property near water that is not heavily constrained by political or physical constraints. At the end of The Big Short, he says he isn't investing anymore and will only invest in water, which later proved false when he reopened Scion Assets Management.

Burry is investing in a nut that consumes five liters of water per seed and is becoming more and more well-liked. They require 10% of the available agricultural water in California, where 80% of the world's almonds are cultivated. Therefore, it is rational and practical to grow almonds outside of drought-affected areas and send them home.

Burry's weapon while picking a stock is research. Reading over Burry's earlier blog entries makes it clear how much time he spent investigating potential investments. Burry always conducted in-depth investment analyses, searching everywhere for value.

He preferred to employ technical considerations to schedule his buys and included a stop-loss, in contrast to other renowned value investors who focused primarily on the fundamentals with little concern for technical analysis or chart movements.

Finally, Burry preferred to manage a portfolio with less than 20 holdings that were reasonably focused. This kind of concentration is inappropriate for most investors, but Burry's thorough study ensured he was knowledgeable about his holdings and confident in his decision to be so focused. He also had a relatively high turnover rate.

FAQ

How did Michael Burry start investing?

He started the hedge fund Scion Capital and ran it until 2008 when he decided to close it so he could focus on his interests. His most remarkable claim to fame is that, between 2007 and 2010, he was one of the first investors to foresee the subprime mortgage crisis and profit from it.

Is Michael Burry's eye made of glass?

Yes, Burry does have a glass eye. It is caused by a rare form of malignancy that caused him to have his left eye amputated before age two.

How much money did Michael Burry make at Gamestop?

According to InsiderScore.com, Burry disclosed a $6.8 million stake in Gamestop at the end of 2018.

What assets did Michael Burry purchase?

The top equities in Burry's Scion portfolio were Apple, Alphabet, Bristol-Myers Squibb, and Meta Platforms. He liquidated twelve positions and bought just one, GEO Group.

Team that worked on the article

Oleg Tkachenko
Author and expert at Traders Union

Oleg Tkachenko is an economist-analyst and a risk manager with a practical experience of working in financial institutions for over seven years. Oleg specializes in the analysis of commodities, Forex, stock markets and non-standard investment markets (cryptocurrency, hypes, peer-to-peer lending). He holds a Master’s Degree from the Ukrainian Academy of Banking of the National Bank of Ukraine, Kharkiv Banking Institute. Oleg became an author for Traders Union in 2018; in 2020 he joined the TU’s team of financial experts.

At Traders Union, Oleg is involved in expanded reviews of brokerage companies, and in monitoring the relevancy of the information provided in them. He analyzes trading strategies and indicators, and prepares educational articles on the topic of finance. In addition, Oleg carries out expert research in the Forex and stock markets, and also binary options and cryptocurrency markets. In particular, he checks brokerage companies, studies their performance and growth, tests new services offered by brokers, software and the level of customer support.

Oleg’s motto: Information is a force that opens boundless opportunities, but requires relevancy!

Dr. BJ Johnson
Dr. BJ Johnson
Developmental English Editor

Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.

The topics he covers include trading signals, cryptocurrencies, Forex brokers, stock brokers, expert advisors, binary options. He has also worked on the ratings of brokers and many other materials.

Dr. BJ Johnson’s motto: It always seems impossible until it’s done. You can do it.