Michael Burry is the subject of The Big Short, an award-winning book and film about his bet against the housing market as the 2008 financial crisis loomed. Today, Burry remains an active investor and continues to run his hedge fund, Scion Management. With talk of another major market crash, Burry has been in the news a lot lately – and he has thoughts to share with investors.
In this article, we’ll take a closer look at Michael Burry’s history and share 10 top pieces of Michael Burry investment advice every investor should know. Let’s dive in!
Michael Burry Investment History
Michael Burry started his career as a physician, not an investor. As a resident, however, Burry would leave the hospital and spend his nights researching investments. In 2000, he left the medical field altogether to start his own hedge fund, Scion Capital (renamed Scion Asset Management in 2013).
In his first few years as a fund manager, Burry produced extraordinary returns for his clients. Scion earned a 55% return in 2001 when the tech bubble burst, and continued to more than double the S&P 500 for each of the next two years.
From 2005 to 2007, Burry made a famous billion-dollar bet against the US housing market by purchasing credit default swaps. When the housing market collapsed, Scion Captial made more than $700 million. Burry’s bet was the subject of The Big Short by Michael Lewis and the award-winning movie that followed.
Since the 2008 crash, Burry has continued to manage a smaller, $100 million fund through Scion Asset Management.
Michael Burry Investment Advice
Michael Burry’s investment advice has always been sought-after because of his skill as a fund manager. It’s especially in demand now, when Burry and others are suggesting that we could be in the midst of another market bubble. So, let’s take a look at the top 10 pieces of investment advice from Michael Burry.
1. Do Your Homework
The first thing Burry tells investors is that the key to success in investing is to put in the work. “Analyze, think independently, be informed, find the data, and you’ll know a lot that no one else does,” he told followers in a recent tweet.
2. Look for Demand
Burry is a fundamental investor, and one of his favorite ways to find companies or markets worth investing in is to look for demand. “Everywhere and anywhere you see #shortages – things, people, places, experiences, and services – you know the price is just not high enough, yet,” Burry tweeted.
That’s been especially relevant in the aftermath of the COVID-19 pandemic, when there are shortages all across the US consumer economy. According to Burry’s thinking, these shortages are a sign that prices – and profits – have room to rise.
3. Think about the Long Term
While many famous investors encourage long-term thinking, Michael Burry takes this to an extreme. In 2020, he said that the COVID-19 pandemic was a “temporary problem” that wouldn’t affect the long-term value of the companies he invested in. If you have an investment timeframe of 10 years or longer, it’s worth thinking hard about which trends and events will really impact your investments and which are just temporary buying opportunities.
4. Be Confident in Your Investments
The most impressive thing about Michael Burry’s bet against the housing market isn’t that he was correct. Rather, it’s that he was able to hold his course for more than two years even as his investors began to revolt against him. “We had a giant bet for us,” Burry said about his short position, “and I was extremely confident in the outcome. I know for sure that some [investors] thought I lost my mind.”
Ultimately, of course, Burry’s confidence led to a $700 million payoff for those same investors who questioned why he was holding his position.
5. Dive into Financial Statements
Burry’s style of investment involves careful analysis of not just what a company’s potential is, but also of how it makes money. Burry told one investor who asked for advice that he “tear[s] through 10ks…to understand the subtle differences between companies.” He also recommends reading Financial Shenanigans: How to Detect Accounting Gimmicks and Fraud in Financial Reports by Howard Schilit to learn how to identify questionable accounting practices.
6. Don’t Get Drawn in by Hype
Burry has been one of the louder critics of the recent jump in meme stocks and cryptocurrencies. His firm, Scion Asset Management, has a large short position in Tesla and tweeted that hype about Bitcoin is “drawing in retail [traders] before the mother of all crashes.”
To Burry, this is the same kind of hype that led to the housing bubble in the mid-2000s. The result wasn’t good for everyday investors then, and he believes that the result won’t be good for those who invest in speculative stocks today.
7. Watch out for Borrowed Money
Along the same lines, Burry warns investors that they should be on the lookout for borrowed money. Borrowed money resulted in a bubble in the housing market, and Burry sees the same type of leverage-induced bubble forming in the cryptocurrency market. Without knowing how much debt is underlying Bitcoin and other digital currencies, says Burry, it’s simply not safe to put your money in these assets.
8. Look for Unpopular Companies
Another thing Burry tells investors is to focus on companies that are taking a beating from Wall Street. “I try to buy shares of unpopular companies when they look like road kill,” Burry says, “and sell them when they’ve been polished up a bit.”
If this advice sounds similar to something Warren Buffett might say, that’s because it is. Burry points to Benjamin Graham’s 1949 book The Intelligent Investor as his guiding star, and Buffett studied under Graham before starting out investing on his own.
9. Think Carefully about Your Portfolio
Burry also focuses on an element of investing that’s essential for fund managers, but often overlooked by individual investors: portfolio management. “Successful portfolio management transcends stock picking,” says Burry. It “requires the answer to several essential questions: What is the optimum number of stocks to hold?…Should one pay attention to diversification among industries and cyclicals vs. non-cyclicals?”
According to Burry, there’s no one right answer for how to manage a portfolio. But in order to succeed as an investor, this is something you’ll need to pay attention to.
10. Let Go of Your Ego
While Burry is known for his confidence in his investments even when they go against conventional wisdom, he also tells investors that it’s important to not get wrapped up in your ego. When he makes a mistake, he says, “I don’t let it kill my returns. I’m just not that stubborn.”
Ultimately, what matters in investing isn’t being right 100% of the time – it’s making money. And to do that, you have to be willing to admit your mistakes when they happen and move on.
Conclusion: Michael Burry Investment Advice
Michael Burry made a name for himself by beating the stock market as the tech bubble popped, and then bet against the housing market in the run-up to 2008. Today, Burry continues to sound the alarm about bubbles in the market while also providing advice for how fundamental investors can find value and build a long-term portfolio.