Michael Burry is a well-known investor who made a fortune by betting against the housing market in the lead-up to the 2008 financial crisis. He is known for his contrarian investing style and his willingness to go against the consensus view.
Let’s delve into some of the key investing rules and principles that define Michael Burry’s approach.
Invest with a margin of safety:
This means buying stocks that are trading below their intrinsic value. This gives you a buffer in case the stock price falls.
Be a contrarian investor:
Don’t follow the crowd. Instead, look for opportunities where the market is wrong.
Invest in what you know:
Don’t invest in things that you don’t understand.
Don’t expect to get rich quick. Investing is a long-term game.
In addition to these rules, Burry has also shared a number of other investing principles. These principles include
The market can stay irrational longer than you can stay solvent:
This means that the market can be wrong for a long time, and if you’re not careful, you can lose a lot of money if you’re not prepared for it.
The first sign of trouble is when the cheerleaders stop cheering:
This means that when everyone is getting excited about the market, it’s a good time to start getting worried.
When everyone thinks they’re a genius, it’s time to be really worried:
This means that when everyone is feeling confident about the market, it’s a good time to start questioning their own assumptions.
How to Use Michael Burry’s Investing Rules and Principles
Extensive Research and Independent Thinking:
One of the core principles of Burry’s investing strategy is thorough research. He believes in digging deep into a company’s fundamentals and thoroughly understanding the industry in which it operates. Burry’s approach involves identifying undervalued assets that the market has overlooked, often driven by his independent thinking and contrarian views.
Burry emphasizes the importance of taking a long-term view when it comes to investing. He believes in identifying investments with strong long-term potential, even if short-term market conditions are unfavorable. This approach allows him to withstand short-term volatility and focus on the underlying value of the investment.
Burry is known for his value investing approach, which involves identifying stocks that are trading at a significant discount to their intrinsic value. He looks for companies with solid fundamentals, low price-to-earnings ratios, and attractive growth prospects. By investing in undervalued assets, Burry aims to generate substantial returns over time as the market recognizes their true worth.
Margin of Safety:
Burry places a strong emphasis on the concept of a “margin of safety.” He seeks to invest in assets where the gap between the current market price and the intrinsic value is substantial. This approach helps protect against downside risks and provides a buffer in case of unexpected market fluctuations.
Burry is renowned for his contrarian views and willingness to go against the crowd. He believes that the market is not always efficient and can be driven by irrational behavior. By taking contrarian positions, he aims to identify investment opportunities that others may have overlooked or undervalued.
Effective risk management is a crucial aspect of Burry’s investing strategy. He believes in conducting a thorough analysis of potential risks before making any investment decisions. By carefully assessing risk factors, he aims to protect his capital and maximize potential returns.
Focus on Macro Trends:
Burry pays close attention to macroeconomic trends and their potential impact on the financial markets. He seeks to identify broader economic shifts that can create investment opportunities. This approach allows him to position his investments accordingly and take advantage of emerging trends.
Michael Burry’s investing rules and principles have proven to be successful throughout his career. By conducting extensive research, maintaining a long-term perspective, practicing value investing, seeking a margin of safety, embracing contrarian thinking, and employing effective risk management techniques, Burry has achieved remarkable investment success.