What's up guys and welcome to wall street millennial on this channel, we cover all things: stocks and investing, and today we're going to take a look back at the incredible career of michael bury michael berry made his name predicting the 2008 housing crash, where he made hundreds Of millions of dollars for his investors, however, he had a very non-conventional wall street career and even recently got involved in the gamestop saga. The topic of today's video was determined by our channel members who get early access to our non-time sensitive videos and get to vote on the topics of those videos. Michael burry was born in san jose california, in the early 70s. He has asperger's syndrome and only one real eye.

He lost the other eye to cancer when he was only two years old. He went to college at the university of california, at los angeles, where he studied economics and pre-med. A little-known fact about him is that he is actually a medical doctor after graduating from ucla. He went to medical school at vanderbilt university where he earned an md.

He then went to stanford for his residency in neurology, but never finished it. He didn't finish his residency because, despite being in the privileged position of having a promising medical career ahead of him, he was more interested in his hobby of investing. So he left the residency program at stanford to start his own hedge fund. Berry had already begun to make a name for himself in the amateur investing world while in medical school in his free time, he was active on message boards discussing stocks such as the site, silicon investor.

Due to his investing acumen, he was able to attract the attention of wall street heavyweights, including the value investor hedge fund manager, joel greenblatt. His stock pick subscribed to the principles of value investing, and he has said that he bases his strategies around benjamin, graham and david dodd. He started his hedge fund called scion capital in the year 2000.. In the beginning, his fund's capital was sourced from his own family members.

However, it immediately started making huge returns by shorting the market, especially tech stocks. This was right around the time of the tech bubble and tech stocks were about to suffer their infamous sell-off. This allowed bury to make insane returns for a brand new hedge fund manager. He consistently beat the s p in the first year by making a net return of 6.6 and in the second year at the height of the tech sell-off by making 45 for investors.

He continued bucking the trend downward of the broader market making 13 in 2002 and when the market finally rebounded, he beat the market again. Making 41 in 2003.. By this point, michael bury had built up a significant amount of hype surrounding his investing skills. His fund had grown to 600 million dollars of assets under management, and he was now turning new money away for fear of no longer being able to maintain his returns in 2005 bury started paying attention to the residential real estate market.

At the time, real estate prices were reaching all-time highs, fueled by low interest rates and easy access to mortgage loans. The conventional wisdom at the time was that, with real estate prices, only seeming to go up. Mortgage lending was a safe investment in an effort to get high returns. Mortgage originators started originating more and more subprime loans.

Subprime mortgages are given to homeowners with poor credit and typically are low income. These mortgages have higher interest rates and therefore were very attractive to institutional investors, who want to yield of particular interest to bury or adjustable rate mortgages, which often incorporated so-called teaser rates. A teaser rate is a low interest rate charge for the first two years of a loan. A loan officer would entice a prospective homeowner to take out a mortgage by showing how low the payments will be in the first two years.

A subprime borrower would have enough income to make the mortgage payments for the first two years under the teaser rate. However, after the two years have passed, the teaser rate expires and the borrower is now on the hook for the full interest payment. When this happens, the monthly mortgage payments would rise dramatically. In some cases, more than doubling many subprime borrowers were barely scraping by under the teaser rate, so when the mortgage payments doubled their chances of defaulting on the mortgage shot through the roof, the loan officers who were approving these loans, knew of the risk, but the incentive Structure encouraged them to make these subprime loans anyway, when a mortgage originator makes a loan, they would typically package it into a mortgage-backed security or mbs, which would then be sold to institutional investors by the time the teaser rate expires.

The mortgage will already have been sold. So the originator doesn't hold that risk. Michael bury did some research and found that the institutional investors who bought the nbs's were severely underestimating the default risk of the subprime mortgages as early as 2005, he predicted that once these teaser rates expire, the mbss that held these mortgages would tank in value. In 2006.

Berry went to goldman sachs and other investment banks and asked them to sell him. A large position of credit default swaps on residential mortgages, credit default swaps or cds's are basically insurance contracts that protect against default risk. If a mortgage ends up defaulting, the seller of the cds has to pay the buyer. The value of the outstanding principal cdss are usually bought by owners of the mbs's to hedge their risk, but they can also be purchased by speculators such as michael bury, who think that the value of the mbs's will go down.

Michael bury bought the cds's in 2005 and in the first year, actually lost 17 on the position as the housing market continued to boom berry had extremely high conviction on this trade and, despite the initial losses, doubled down on his short position. However, many of his investors were weary of the position and wanted to pull their money out of the fund after the recent poor performance to prevent investor outflows bury put his cds position into a side pocket fund separate from his main fund. Existing investors in scion were forced to enter into the cds fund and their money was locked up until bree decided to wind it down. Many investors were furious, as their money was locked into a poorly performing fund that they hoped to exit in 2007, the housing bubble.

Finally, burst and default rates, especially on the risky adjustable rate mortgages skyrocketed. These defaults caused buried cds to skyrocket in value profiting his fund to the tune of 725 million dollars. So how much of these things did you buy? I mean you got out of everything else and bought credit default swaps, betting against the the housing market. Right right, we bought basically short 8.4 billion of credit default swaps, um related to mortgages or financial companies.

You must have been pretty confident that this thing was going to blow up. We had a giant bet for us and - and i was extremely confident in the outcome - were your investors as confident uh? I think a few investors were some of them thought you were crazy. Some thought you probably thought you'd lost your mind. I think i think i know for sure that some of them thought i lost my mind.

So you made a ton of money made a ton of money much more than i ever imagined you know. I'd ever have were your clients, grateful. I think, a lot of clients were just glad to be done with it. At the end, you know we, we doubled their money.

Well, we we made 725 million, i think, on the funds in 2007 and in the first six months of 2008, there was about 730 million in withdrawals. Perhaps i had made the trade too big for the fund and my my confidence in the trade had uh ticked off some people, even though you made them rich. Even it's remarkable they're. There are investors who made tens of millions off this and uh we're still pretty upset.

Despite the profits, his investors were still upset about how he locked up their funds after the financial crisis was over, most of scion's investors finally withdrew their money and bari closed down. The fund to focus on his personal investment portfolio instead in 2015, michael brewery's story, was memorialized in the big short starring christian vail, ryan, gosling and brad pitt michael bury, has been active in the investing spotlight recently having been a part of the gamestop short squeeze. His new hedge fund called scion asset management, just like all other hedge funds, with more than 100 million dollars of assets under management has to disclose its positions each quarter in a 13f filing with the sec. In the third quarter of last year, michael brewery submitted his 13f, which showed that he held stocks like google, facebook and goldman sachs.

However, it also included 2.75 million shares of gamestop worth 11.9 million dollars at the time by the next quarter. He had trimmed the game. Stop position to just 1.7 million shares, but due to the appreciation of the stock over the course of the quarter, it was then worth 17 million dollars. In the most recent quarter ending december 31 2020.

He had sold his entire stake in gamestop gamestop investors who were involved in the short squeeze saw this with mixed reactions. Some saying that the fact that michael bray was invested in gamestop in the first place is proof that gamestop has the potential to make a turnaround. Others said that the fact that berry sold before the short squeeze happened shows that he thinks the company's fair value is much lower than what the price is right. Now, however, we won't know anything further about his thoughts on gamestop since the short squeeze, because unless he re-entered the stock, he likely does not have a position in it at this time that wraps it up for this video.

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