Michael Burry's Story: Founding Scion Capital
In 1996, Michael Burry was a medical intern on a cardiology rotation at Saint Thomas Hospital in Nashville, Tennessee. One night, he logged on to a hospital computer and went to a message board called techstocks.com. There he created a thread called “value investing.”
Burry was fascinated by the stock market, and he had been reading everything he could about it. He was convinced that the market was overvalued, and he was looking for ways to profit from it.
On August 26, 1998 Burry started running his own website valuestocks.net. On his blog, Burry posted his stock-market trades and his arguments for making the trades. He also wrote about his investment philosophy, which was based on the value investing principles of Benjamin Graham and Warren Buffett.
Supposedly for value investors, though Warren Buffett might not agree with this definition of value. Run by a 28-year-old neurology resident Dr. Michael Burry, Valuestocks.net showcases Burry’s own $50,000 portfolio, which includes some surprising choices including Pixar, the maker of Toy Story. Has good information on how to identify net-net stocks (trading for less than assets minus all conceivable liabilities). Accompanying all this are Burry’s incisive reports, as good as anything from Wall Street. One of the site’s best features is a list of essential finance texts, including thumbnail reviews and links to Amazon.com (Burry’s only source of revenue, since he doesn’t accept banner ads).
BEST: Original analysis, links to great finance sites, and a must-read book list for value investors.
WORST: Limited content is sometimes dated. – Forbes May 22, 2020
Burry’s blog quickly gained a following, and he soon became known as one of the most insightful and prescient investors on the Internet.
In 2000, he established his own hedge fund, Scion Capital.
The name Scion Capital was inspired by Terry Brooks’ novel “The Scions of Shannara”, one of Burry’s favorite books.
Burry initially funded Scion Capital with his own savings and contributions from his family (His mother contributed $20,000 and his three brothers $10,000 each). However, he soon attracted the attention of other investors, including Joel Greenblatt and Jack Byrne. Greenblatt was a value investing guru, and Byrne was a member of Warren Buffett’s inner circle.
Both Greenblatt and Byrne were impressed with Burry’s investment acumen, and they offered to invest in Scion Capital. Burry accepted their investments, and Scion Capital was officially launched.
In its early years, Scion Capital was a small hedge fund with just a few million dollars in assets. However, Burry’s investment performance was outstanding. He consistently generated returns that beat the market, and he quickly gained a reputation as a top-performing hedge fund manager.
In 2001, the S&P 500 index fell by 11.88%, but Michael Burry’s hedge fund, Scion Capital, gained 55%. The following year, the S&P 500 index fell again, by 22.1%, but Scion Capital still gained 16%. In 2003, the stock market finally turned around and rose by 28.69%, but Burry beat the market again, with returns of 50%. By the end of 2004, Michael Burry was managing $600 million in assets.
In 2005, Burry began to focus on the subprime mortgage market. He believed that the market was unsustainable, and he started shorting mortgage-backed securities.
“By mid-2005, I had so much confidence in my analysis that I staked my reputation on it. That is, I purchased credit default swaps — a type of insurance — on billions of dollars worth of both subprime mortgage-backed securities and the bonds of many of the financial companies that would be devastated when the real estate bubble burst.” -MICHAEL BURRY
When the housing market crashed in 2008, Burry’s bet against the subprime mortgage market paid off handsomely. Michael Burry made over $100 million for himself and $725 million for his investors.
From November 1, 2000 to 30 June, 2008 the Scion Capital had impressive net 489.34 % gain (the gross gain had been 726% )
The founding of Scion Capital is a remarkable story. It shows that it is possible to achieve great things, even if you are starting from scratch. Michael Burry had no formal training in finance, but he was able to build a successful hedge fund based on his intelligence, hard work, and investment skill.
Burry’s story is also an inspiration to all investors. It shows that it is possible to beat the market, even if you are not a professional investor. All you need is a deep understanding of investing principles and the courage to bet against the crowd.
EXCERPT APRIL 2010 ISSUE/ Betting on the Blind Side / BY MICHAEL LEWIS / https://www.vanityfair.com/news/2010/04/wall-street-excerpt-201004