Michael Burry. I feel your pain.
Updated: Apr 21
In the movie 'The Big Short', genius hedge fund manager Michael Burry has worked out that the 2007 American property boom is, in fact, a bubble sitting on top of a house of cards and has invested most of Scion Capital's money in betting that the market will crash. But market bubbles are hard to time, and due to stupidity and investor greed, they can be inflated way past even extreme levels and for far longer than expected.
The movie revolves around Burry sticking to his convictions to the end. He loses clients and eventually his job and can be seen often with his head in his hands. Even his friends think he is an idiot and are busy making money from the rising market while Burry's bet goes south. It's a very lonely place, as I've found out over the last few years. Let me explain.
This isn't going to sound overly modest, but it's the facts. Before starting college in 1972, we all had to sit a bunch of IQ tests to decide what stream we'd be in for our first year at college. After the tests, the school rang my parents and called them in. My IQ was the highest that had ever been through that school. Well north of 150. They called my parents in to warn them that I might need special care. In other words, "He's probably going to be nutty". Life went on as normal, though. I didn't excel at school. I did just the minimum. I got into trouble like all the others, and I chased girls. The only weird thing was that I rocked. I still do. I love a rocking chair.
In 1997 while a Captain at Qantas, I got interested in the financial markets and signed up for a three-year Diploma In Financial Markets with the Securities Institute of Australia. They are the mob that licences everyone in the financial industry. In 2000 I finished the course and was Dux for Australia, beating all the participants that were working in the industry. I was marked down on one question in one paper on share options because my answer didn't agree with the standard markers answer. It was on the Black-Scholes model for option premium calculation. I applied for a remark on the basis that the answer I had given was better than theirs, and the chief examiner agreed. I won the NSW State Prize for that paper and state prizes for many of the other papers.
Since then, I have read hundreds of books and studied the industry as a hobby every day. I see a bubble in everything, shares, bonds and property. The 'everything bubble' has been blown by central banks lowering interest rates to historically low levels and printing so much money that the world is awash with it. All this easy money is looking for a place to make a return, and it's all being put into riskier and riskier assets to achieve it. As a result, valuations are now more extreme than at any time in the history of the financial markets. They are considerably more extreme than even the dotcom bubble in 2000. Most of this massive bubble has been funded by hundreds of trillions of dollars of debt issued at very low-interest rates. It used to be that returns were commensurate with risk, but they aren't anymore.
And now here comes inflation. Interest rates have to rise to stop it, but they can't because that will collapse the house of cards. Central banks have painted themselves into a corner.
Seeing all this way too early, I got out of property too early and bet against the market like Burry. But, knowing that you are right and watching the market go on to more and more extreme levels for far longer than ever before is a very lonely place. While all your clever friends are killing it, you look like an idiot, but you can't abandon your strategy because you know you are right. Meanwhile, financial advisers and real estate agents will always tell you that things are headed higher no matter what their actual view. So your friends quote these salesmen as if it's a fact. Patience is a virtue at a time like this, especially when people are laughing at you. My last girlfriend, who had seen the property market do nothing but rise in her 30 years involved with it, used to sneer at me as she got richer on paper and ask, "So where's this crash of yours?"
And yesterday, when my current girlfriend ended our relationship, as she summarised for the prosecution , she said, "Where's your rental property and income producing investments?"
I countered with, "You know I'm invested in the market going down, and when that happens, I'll make a lot of money. Be patient."
To that, she said," Where's your cash flow? (I lost my job due to covid) I don't believe you have any investments. I think you are just bludging off me (We shared all costs), and what do you know about the financial markets? Your brother said to me, 'He knows nothing. Ask him where his 65-foot yacht is."
You can always count on family, eh?
Anyway. So here I am in the lonely place. I don't want to go through that relationship bs again, so I'm moving to a place to live by myself until I can afford the 65 ft boat. I've explained my position for the last time, but no one will listen because they are all too clever.
And when the bubble does burst, I won't say 'I told you so' because no one will want to hear it. They'll be too busy licking their wounds and blaming someone else. So best I say it now. "I told you so."
And remember, It's never different this time. Bubbles always burst.
And as for Burry, he was right and made a shitload of money from the bet. He earned it.
Here's to you, Michael.