Investor Profile: Michael Burry

Michael Burry is a doctor turned investor who became famous for predicting (and profiting from) the 2008 financial crisis, a story recorded in the book and movie “The Big Short”. Burry also earned substantial profits on short-selling during the 2001 market crash.

Burry’s style revolves around identifying market bubbles and shorting the assets most likely to fall when the bubble bursts. In 2001 he was shorting major tech stocks, in 2008 he shorted the mortgage bond market.

Who Is Michael Burry?

When looking at Burry’s background, I was surprised to discover that finance is not his first trade. He started as a pathologist and studied investing as a hobby.

The more I learn about great investors, the more I see a pattern of a background in another field.

To this day, Burry holds an active physician’s license, meaning he stays up to date on medical progress, even if this is not of direct practical use in his investing career.

While working as a doctor, the quality of his stock picks on early Internet message boards caught the attention of large investment firms, including already famous investors such as Joel Greenblatt. This helped him launch his first hedge fund.

Burry became famous for shorting the housing bubble of 2008, but he actually made it big for the first time by shorting Internet stocks in 2001. He managed a return of 55% while the S&P500 was going down 11%. His returns in the two subsequent years were 26% and 29%.

On the personal side, Burry is married with children and is a fan of heavy metal music. Considering his own firm, Scion Asset Management, is named after a fantasy novel, I can guess he is also a fan of SF and fantasy.

Scion has a very limited client base – only four clients – and total assets under management of just under $238 million as of Q3 2023.

Michael Burry’s Investing Strategy

Burry describes his investing method as classic value investing, taking inspiration from Benjamin Graham, Warren Buffett’s mentor.

I would say that in practice he has his own style, focused on identifying and exploiting bubbles. Maybe this is because he achieved initial success during the dot-com bubble. Since then he has successfully bet on the collapse of the dot com bubble and on the end of the 2008 housing bubble. He is back on the hunt now (but more on that below).

Not all of his short positions work out. Notably, he gave up a short position on Tesla in 2021 after the company’s stock went up 100%.

Burry claims to have a focus on the margin of safety, but his short-centered strategy makes me think his definition of margin of safety differs significantly from Graham’s.

He seems to buy only companies that are somewhat undervalued or at the bottom of a cyclical downturn. That is similar to Graham, but I doubt that aggressive hedging and shorting would have matched the tastes of the grandfather of value investing. So like Buffett, Burry seems to have used Graham’s teaching as a base but adapted it into his own unique investing style.

Opinions on Current Markets

Michael Burry has accurately predicted two major market crashes and made a great deal of money in the process. He isn’t always right: Burry is sometimes criticized for having predicted “12 out of the last 3 recessions”.

One of Burry’s biggest misses came in 2023, when he predicted a serious recession and bear market, and took out $1.6 billion in put options against ETFs tracking the S&P 500 and the Nasdaq 100. Those positions could have produced massive gains in a market crash, but markets didn’t crash. The S&P 500 gained 24% and the Nasdaq 100 rose 54%. Burry was forced to unwind both positions at a loss, though holding options rather than outright short positions may have enabled him to cut his losses.

Burry has also apparently closed out a $47 million put option on the iShares Semiconductor ETF, presumably also at a loss.

Burry may still be right: a recession may be imminent. His losses on these positions underscore a fundamental reality of short positions, though: it’s not just a bet that the asset will fall, it’s a bet on when it will fall. Get the timing wrong and you can still lose.

Stock Picks

Burry’s portfolio is typically fairly concentrated, with fewer holdings than many major investors would have. As of Q3 2023 he was holding 11 stocks.

This is – for the most part – a conservative and rather defensive selection that reflects Burry’s economic expectations and his self-declared identity as a value investor. The exception, of course, is the $4.6 million bet on Alibaba, a company that most of us would not expect to see in a conservative value-oriented portfolio.

It’s interesting to note the divergence in size between the portfolio above and the put options that Burry recently unwound, which totaled nearly $2 billion and would necessarily have involved substantial leverage, as the positions greatly exceeded Scion’s total assets.

Burry’s style seems to focus on detecting and exploiting short opportunities, using options to reduce his risk, and keeping a relatively conservative core portfolio… with occasional exceptions.

Michael Burry is a difficult investor to emulate: large-scale shorting is not a strategy most investors would be well advised to adopt. He’s still worth following, thanks to his remarkable track record, brutal honesty, and complete freedom of speech. You may not always like what he has to say and you may not always agree, but it’s always worth considering.