The world’s greatest investors: Michael Burry

Michael Burry's ambitious bet against the American mortgage market earned him personal profits of $100m.


Michael Burry made $100m for himself betting against American mortgages
(Image credit: Credit: Everett Collection Inc / Alamy Stock Photo)

Michael Burry was born in 1971 in New York, and grew up in San Jose, California. He studied medicine at Vanderbilt University, but from 1996 onwards he became increasingly interested in the stockmarket, dispensing advice about various stocks on internet chat boards. Two years later, he quit medicine to retrain as a money manager. In 2000 he started a hedge fund called Scion Capital, which he ran until the summer of 2008. Since then he has managed his own money, and re-started Scion in 2013.

What is his strategy?

Initially, Burry focused on buying companies that he felt were extremely undervalued. In many cases these companies had fallen in price because investors had been scared off owning them for various reasons, such as ongoing legal problems. If Burry's analysis indicated that they were so dramatically undervalued that the price was likely to recover even in a worst-case scenario, he bought. After 2005 he began to focus much more on what a collapse of the American housing market would do to mortgage bonds.

Did it work?

Burry's decision to bet against the mortgage market prompted a lot of anger from investors, who felt that he was abandoning a profitable strategy. At one point, he had to stop them withdrawing money, which prompted several lawsuits. However, between November 2000 and June 2008, the fund returned 489%. Those investors who stuck with him made $700m in total, while Burry made personal profits of $100m.

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What were his biggest successes?

Burry's most famous trade was his decision to buy credit default swaps on subprime bonds, which paid out in the event that the bonds defaulted. Many of these bonds were given top ratings by the credit rating agencies, but were composed of poor quality loans that were secured against houses that later plunged in value. Burry closed his position in the spring of 2008, anticipating that the bailout of the banking sector and cuts to interest rates would cause some of these bonds to rally.

What lessons are there for investors?

Burry's early success shows the potential of deep value investing. However, his difficulties persuading investors to stick with his contrarian bet against subprime mortgages show how it can be extremely difficult for professional money managers to make these types of investments, even if they have previously had a very strong track record.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri