PODCAST: Hedge Fund Manager Michael Burry MD

Posted on February 22, 2023 by Dr. Marcinko

In The Subprime of His Life – My Story

By Dr. David Edward Marcinko MBA, CMP™

[Editor-in-Chief]

I am a long time fan of financial industry journalist Michael Lewis [Liars’ Poker, Moneyball and others] who just released a new book. The Big Short is a chronicle of four players in the subprime mortgage market who had the foresight [and testosterone] to short the diciest mortgage deals: Steve Eisner of FrontPoint, Greg Lippmann at Deutsche Bank, the three partners at Cornwall Capital, and most indelibly, Wall Street outsider Michael Burry MD of Scion Capital.

They all walked away from the disaster with pockets full of money and reputations as geniuses.

About Mike

Now, I do not know the first three folks, but I do know a little something about my colleague Michael Burry MD; he is indeed a very smart guy. Mike is a nice guy too, who also has a natural writing style that I envy [just request and read his quarterly reports for a stylized sample]. He gave me encouragement and insight early in my career transformation – from doctor to “other”.

And, he confirmed my disdain for the traditional financial services [retail sales] industry, Wall Street and their registered representatives and ‘training’ system, and sad broker-dealer ethos [suitability versus fiduciary accountability] despite being a hedge fund manager himself.

I mentioned him in my book: “Insurance and Risk Management Strategies” [For Physicians and their Advisors].

http://www.amazon.com/Insurance-Management-Strategies-Physicians-Advisors/dp/0763733423/ref=sr_1_2?ie=UTF8&s=books&qid=1269254153&sr=1-2

He ultimately helped me eschew financial services organizations, “certifications”, “designations” and ”colleges”, and their related SEO rules, SEC regulations and policy wonks; and above all to go with my gut … and go it alone!

And so, I rejected my certified financial planner [marketing] designation status as useless for me, and launched the www.CertifiedMedicalPlanner.org on-line educational program for physician focused financial advisors and management consultants interested in the healthcare space … who wish to be fiduciaries.

And I thank Mike for the collegial good will. By the way, Mike is not a CPA, nor does he posses an MBA or related advanced degree or designation. He is not a middle-man FA. He is a physician. Unlike far too many other industry “financial advisors” he is not a lemming.

IOW: We are not salesman. We are out-of-the-box thinkers, innovators and contrarians by nature. www.MedicalBusinessAdvisors.com

From a Book Review

According to book reviewer Michael Osinski, writing in the March 22-29 issue of Businessweek.com, Lewis is at his best working with characters and Burry is rendered most vividly.

“A loner from a young age, in part because he has a glass eye that made it difficult to look people in the face, Burry excelled at topics that required intense and isolated concentration. Originally, investing was just a hobby while he pursued a career in medicine. As a resident neurosurgeon at Stanford Hospital in the late 1990s, Burry often stayed up half the night typing his ideas onto a message board. Unbeknownst to him, professional money managers began to read and profit from his freely dispensed insight, and a hedge fund eventually offered him $1 million for a quarter of his investment firm, which consisted of a few thousand dollars from his parents and siblings. Another fund later sent him $10 million”.

“Burry’s obsession with finding undervalued companies eventually led him to realize that his own home in San Jose, Calif., was grossly overpriced, along with houses all over the country. He wrote to a friend: “A large portion of the current [housing] demand at current prices would disappear if only people became convinced that prices weren’t rising. The collateral damage is likely to be orders of magnitude worse than anyone now considers.” This was in 2003.

“Through exhaustive research, Burry understood that subprime mortgages would be the fuse and that the bonds based on these mortgages would start to blow up within as little as two years, when the original “teaser” rates expired. But Burry did something that separated him from all the other housing bears—he found an efficient way to short the market by persuading Goldman Sachs (GS) to sell him a CDS against subprime deals he saw as doomed. A unique feature of these swaps was that he did not have to own the asset to insure it, and over time, the trade in these contracts overwhelmed the actual market in the underlying bonds”.

“By June 2005, Goldman was writing Burry CDS contracts in $100 million lots, “insane” amounts, according to Burry. In November, Lippmann contacted Burry and tried to buy back billions of dollars of swaps that his bank had sold. Lippmann had noticed a growing wave of subprime defaults showing up in monthly remittance reports and wanted to protect Deutsche Bank from potentially massive losses. All it would take to cause major pain, Lippmann and his analysts deduced, was a halt in price appreciation for homes. An actual fall in prices would bring a catastrophe. By that time, Burry was sure he held winning tickets; he politely declined Lippmann’s offer”

And the rest, as they say, is history.

Link: http://www.businessweek.com/magazine/content/10_12/b4171094664065.htm

My Story … Being a Bit like Mike

I first contacted Mike, by phone and email, more than a decade ago. His hedge fund, Scion Capital, had no employees at the time and he outsourced most of the front and back office activities to concentrate on position selection and management. Early investors were relatives and a few physicians and professors from his medical residency days. Asset gathering was a slosh, indeed. And, in a phone conversation, I remember him confirming my impressions that doctors were not particularly astute investors. For him, they generally had sparse funds to invest as SEC “accredited investors” and were better suited for emerging tax advantaged mutual funds. ETFs were not significantly on the radar screen, back then, and index funds were considered unglamorous. No, his target hedge-fund audience was Silicon Valley.

And, much like his value-hero Warren Buffett [also a Ben Graham and David Dodd devotee], his start while from the doctor space, did not derive its success because of them.

Moreover, like me, he lionized the terms “value investing”, “margin of safety” and “intrinsic value”.

Co-incidentally, as a champion of the visually impaired, I was referred to him by author, attorney and blogger Jay Adkisson www.jayadkisson.com Jay is an avid private pilot having earned his private pilot’s license after losing an eye to cancer.

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Mike again re-entered my cognitive space while doing research for the first edition of our successful print book: “Financial Planning Handbook for Physicians and Advisors” and while searching for physicians who left medicine for alternate careers!

In fact, he wrote the chapter on hedge funds in our print journal and thru the third book edition before becoming too successful for such mundane stuff. We are now in our fourth edition, with a fifth in progress once the Obama administration stuff [healthcare and financial services industry “reform” and new tax laws] has been resolved

http://www.amazon.com/Financial-Planning-Handbook-Physicians-Advisors/dp/0763745790/ref=sr_1_1?ie=UTF8&s=books&qid=1269211056&sr=1-1

Assessment

News: Dr. Burry appeared on 60 Minutes Sunday March 14th, 2010. His activities with Scion Capital are portrayed in Michael Lewis’s newest book, The Big Short.  An excerpt is available in the April 2010 issue of Vanity Fair magazine, and at VanityFair.com 

Video of Dr. Burry: http://www.cbsnews.com/video/watch/?id=6298040n&tag=contentBody;housing

Video of Dr. Burry: http://www.cbsnews.com/video/watch/?id=6298038n&tag=contentBody;housing

PS: Michael Osinski retired from Wall Street and now runs Widow’s Hole Oyster Co. in Greenport, NY http://www.widowsholeoysters.com

And, our www.MedicalBusinessAdvisors.com related books can be reviewed here: http://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Dstripbooks&field-keywords=david+marcinko

Assessment

Visit Scion Capital LLC and tell us what you think http://www.scioncapital.com.

And to Mike himself, I say “Mazel Tov” and congratulations? I am sure you will be a good and faithful steward. The greatest legacy one can have is in how they treated the “little people.” You are a champ. Call me – let’s do lunch. And, I am still writing: www.BusinessofMedicalPractice.com for the conjoined space we both LOVE.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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32 Responses

  1. Campbell, on March 26, 2010 at 10:09 AM said:

    Super investor Michael Burry’s original partnership letters. Enjoy!

    http://www.scioncapital.com/index__letters.html

    If you haven’t gotten the chance to read Michael Lewis’s Vanity Fair article on Michael Burry and his visionary bet on the subprime mortgage collapse, do yourself a favor and click on the link below.

    http://colinjsmith.com/2010/03/15/michael-lewis-on-using-a-common-sense-approach-to-saving-and-investing-your-money/

    Not only is it a great read, but its a fantastic introduction to Dr. Mike, and his incredible story.

    Campbell

    Liked by 1 person

  2. Kirk, on March 27, 2010 at 11:38 AM said:

    Hedge Funds for Financial Advisors?

    According to the trade magazines, there are plenty of investing options available to astute financial advisors [FAs]. And, the realm of alternative investments is large. It includes investment vehicles such as hedge funds, venture capital funds and private equity funds. They offer unique advantages, but they come with risk profiles different than those of mutual funds and exchange-traded funds.

    http://www.fa-mag.com/online-extras/5370-how-o-select-hedge-funds.html

    But, I bet the “professional” financial advisors will never select a hedge fund – or run one – like Dr. Michael Burry; MD. And, look what I found on the internet by Dr. Marcinko.

    http://www.searchmedica.com/resource.html?rurl=http%3A%2F%2Fwww.physicianspractice.com%2Findex%2Ffuseaction%2Farticles.details%2FarticleID%2F667%2Fpage%2F3.htm&q=marcinko&c=pm&ss=defLink&p=Convera&fr=true&ds=0&srid=2

    Keep up the investigative reporting; ME-P.

    Kirk

    Liked by 1 person

  3. Ann Miller RN, MHA, on April 11, 2010 at 9:21 PM said:

    More on Mike Burry MD versus Alan Greenspan PhD

    Alan Greenspan Defends Himself against Michael Burry and ‘the Very Small Group’ of People Who Saw the Housing Bubble Coming

    http://nymag.com/daily/intel/2010/04/michael_burry_vs_alan_greenspa.html

    http://www.wikio.co.uk/news/Michael+Burry

    http://healthcarefinancials.com/AprilJune2010.aspx

    Nice job Mike; glad you are one of “us”, and not one of “them”.

    Ann Miller; RN, MHA
    [Executive-Director]

    Liked by 1 person

  4. Andrew Pelt, on April 19, 2010 at 2:35 AM said:

    Thanks for this dynamite post.
    I look forward to more podcasts, too.
    Andrew Pelt
    http://www.wallstreetedition.com

    Liked by 1 person

  5. Brian J. Knabe MD, on May 2, 2010 at 8:14 AM said:

    This is an interesting post about a very successful and visionary investor

    Whenever there are bubbles in markets and dramatic changes as we have seen over the past few years, there is usually one or a handful of individuals who can be indentified later as having “seen it coming”. The challenge for the individual investor looking prospectively is to identify these individuals beforehand. Unfortunately, that task is not easy.

    Moreover, hedge funds are a very expensive and risky way for the individual investor to capture alpha, or return in excess of the compensation for the risk borne. Hedge funds typically charge a 2% fee, in addition to a charge of 20% of earnings. These fees and the internal trading costs of hedge funds pose a high hurdle for these managers to overcome, and history tells us that, on average, they are often unable to do so.

    2009 provides a great opportunity to examine how these managers fared in extreme market conditions. The year started with steep losses in global markets, followed by the steepest increase in stock prices since the Great Depression.

    For example, HedgeFund.net reports the HFN Emerging Markets Index had a return of 43.3%. Impressive indeed, but the iShares MSCI Emerging Markets Index (EEM) returned in excess of 60%! The HFN Finance Sector Index returned 11.3%, while the Financial Select Sector SPDR (XLF) had a return of 16%. The average India hedge fund returned 52.2% in 2009, while the iPath MSCI India Index ETN (INP) returned 90%! This pattern holds for the majority of hedge fund sectors.

    In my experience, many of the doctors and other investors who fail in their efforts do so because they try to identify the next visionary, or the next “sure thing”. They would be much better served by following an unglamorous, evidence-based investing approach which includes broad global diversification, disciplined rebalancing and keeping costs and taxes low.

    Brian J. Knabe, MD CFP CMP™

    Savant Capital Management, Inc®.

    190 Buckley Drive

    Rockford, IL 61107

    Tel 815-227-0300

    Fax 815-226-2195

    bknabe@savantcapital.com

    Liked by 1 person

  6. Dr. Marcinko, on May 31, 2010 at 11:51 PM said:

    Follow-up

    Dr. Michael Burry liquidated Scion Capital, LLC and is currently focusing on his private investments. He is not accepting outside investors. If you have an interest, Dr. Burry has made Scion Capital’s earliest investor reports available on its website.

    Mike is often been asked often whether he can recommend another money manager. Dr. Burry suggests accredited and qualified investors contact Bo Shan (bo.shan@gobicap.com), a former analyst at Scion Capital and an investor in Dr. Burry’s mold. Dr. Burry has no interest, financial or otherwise, in Bo’s firm. Dr. Burry is simply an investor in Bo’s fund and strongly believes in his abilities.

    Source: http://www.scioncapital.com/

    Liked by 1 person

  7. Jonathan S. Jaffe MD [REI Guy (@Apartments_R_US)], on January 3, 2012 at 8:04 PM said:

    Mike was not alone in seeing the bubble. Lot’s of us did, but certainly there was no efficient way for an ordinary equities investor focussed on fundamentals to play it back when it happened, and it certainly took longer to unfold than I think anyone, including Dr. Burry, envisioned. The novelty of Mike’s approach was the hand he had in creating the market he played, plus the ability to persevere the years it took to succeed.

    However, this is not the end of the opportunity created by the mortgage dislocation. Technical investors certainly made out well if they caught the downdrafts created in the wake of mortgage meltdown if they were short the stock or commodity markets in late 2008, or bet the bet the bounce off the bottom that followed in 2009, such as in the EEM (following the 60% loss one would have taken long the same index in 2008).

    What to do next? Recall the opportunity the RTC provided for the creation of generational wealth in the wake of the S&L crisis. Asset prices, aka markets, always overshoot to the high and low side. Cut out the REITs and focus on directly investing in distressed leveraged income property investing.

    Jonathan S. Jaffe, MD
    Entity Residential, LLC
    http://tinyurl.com/7t8gsxx
    1-908-450-9869

    Liked by 1 person

  8. Prof. Hope Rachel Hetico RN MHA CMP™, on January 4, 2012 at 12:30 AM said:

    Jonathan S. Jaffe, MD

    Thanks for your informed comments and insight. Please feel free to opine further or send in an original essay for the Medical Executive-Post. I suspect our readers will be interested in your experiences.

    Professor Hope Rachel Hetico RN MHA CMP™
    [Managing Editor]
    http://www.amazon.com/Financial-Planning-Handbook-Physicians-Advisors/dp/0763745790/ref=sr_1_1?ie=UTF8&s=books&qid=1275315635&sr=1-1

    Liked by 1 person

  9. Dr. David Edward Marcinko MBA CMP™, on January 4, 2012 at 3:54 AM said:

    More with Dr. Burry

    Watch this video of Michael Burry MD speaking April 5, 2011 on “Missteps to Mayhem: Inside the Doomsday Machine with the Outsider who Predicted and Profited from America’s Financial Armageddon,” as part of the 2010-2011 Chancellor’s Lecture Series at Vanderbilt University.

    Way top go – Mike.

    Dr. David Edward Marcinko MBA CMP™

    Liked by 1 person

  10. Chromey, on July 3, 2012 at 12:35 AM said:

    ME-P

    One word … unbelievable!

    Chromey

    Liked by 1 person

  11. Fletch, on March 30, 2015 at 1:43 PM said:

    The Death of the Hedge Fund?

    Given their poor performance and poor image, many hedge fund managers are backing away from using the term to describe themselves, reported the Wall Street Journal.

    Since 2007, the number of times hedge funds were mentioned in marriage announcements is down 20 percent, the publication said.

    So, what are some common replacements?

    Alternative asset manager, investment holding company and private partnership are a few terms you might hear instead.

    Fletch
    http://www.amazon.com/Comprehensive-Financial-Planning-Strategies-Advisors/dp/1482240289/ref=sr_1_1?ie=UTF8&qid=1418580820&sr=8-1&keywords=david+marcinko

    Liked by 1 person

  12. Dr. David E. Marcinko MBA, on August 28, 2019 at 10:30 PM said:

    UPDATE MID- 2019

    My colleague and “The Big Short’s” Michael Burry MD sees a bubble in passive investing.
    http://www.msn.com/en-us/money/mutualfunds/the-big-shorts-michael-burry-sees-a-bubble-in-passive-investing/ar-AAGsqdH?li=BBnb7Kz

    Your thoughts?

    Dr. David E. Marcinko MBA

    Liked by 1 person

  13. Dr. David E. Marcinko MBA, on April 7, 2020 at 12:17 PM said:

    Welcome Back, Mike:

    It has been more than a decade since I last spoke with him:
    https://www.msn.com/en-us/money/markets/michael-burry-of-the-big-short-slams-virus-lockdowns-in-tweetstorm/ar-BB12fxJu?li=BBnbfcL&ocid=SK2LDHP

    Dr. David E. Marcinko MBA

    Like

  16. JOE, on January 25, 2021 at 3:28 AM said:

    MIKE BURRY MD

    I’ve read a lot about this situation and Dr Burry. I thought the movie The Big Short did a good job of giving you some context around the situation at that time and helping you understand how they came to obtain some of the information used to execute these trades. However, it’s unfortunate that the little guy rarely has the resources, knowledge, or mental fortitude to pull off such a stunt.

    That is awesome that you guys are colleagues! That is a little fact that I was unaware of prior to reading through this. As the years have gone by, there are many ways to hedge risks and secret turns in the market outside of the conventional methods of buying equities and holding …!

    I’m sure as more astute advisors enter the market, this knowledge may become more mainstream.

    JOE

    Liked by 1 person

  17. Amy, on February 2, 2021 at 11:47 AM said:

    ‘Little” Guy
    Dr. Burry WAS the “little” guy.
    Amy

    Liked by 1 person

  19. Dr. David E. Marcinko MBA, on March 18, 2021 at 2:15 PM said:

    TWEETS MB

    I never tweeted with my friend and colleague; only spoke by phone – old school.

    https://www.msn.com/en-us/money/savingandinvesting/big-short-investor-michael-burry-says-he-ll-stop-tweeting-after-sec-regulators-paid-him-a-visit/ar-BB1eIhAd

    Dr. David E. Marcinko MBA

    Liked by 1 person

  21. Dr. David E. Marcinko MBA, on May 18, 2021 at 4:37 PM said:

    Mike Burry, MD

    My colleague is betting against TESLA?

    https://www.msn.com/en-us/money/savingandinvesting/michael-burry-top-investor-from-the-big-short-is-betting-against-tesla/ar-BB1gROF6?li=BBnb7Kz

    Dr. David E. Marcinko MBA

    Like

  24. Amos, on July 7, 2021 at 1:40 AM said:

    DR. BURRY,

    Michael Burry should have retired after ‘The Big Short’ and should stop tweeting alarming market-crash warnings, finance professor Aswath Damodaran says.

    https://www.msn.com/en-us/money/savingandinvesting/michael-burry-should-have-retired-after-the-big-short-and-should-stop-tweeting-alarming-market-crash-warnings-finance-professor-aswath-damodaran-says/ar-AALQn30

    Amos

    Liked by 1 person

  26. Dr. David E. Marcinko MBA, on October 13, 2021 at 7:45 PM said:

    Mike Burry MD on Taxing the RICH

    My colleague and friend is at it again:
    https://www.msn.com/en-us/money/markets/michael-burry-of-big-short-fame-posts-twitter-rant-over-taxing-the-rich/ar-AAPsyP6?li=BBnbfcL

    Dr. David E. Marcinko MBA

    Liked by 1 person

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