
How a Doctor beat Wall Street - jakarta
http://www.vanityfair.com/business/features/2010/04/wall-street-excerpt-201004?printable=true&currentPage=1
======
delackner
A lot of people are suggesting that it was immoral of Burry to profit from his
insight instead of warning people of the impending calamity, yet what message
speaks more forcefully? Saying you think the market is going to implode, vs.
paying millions of dollars to insure specifically against that happening?

No one would have listened to his warning, and indeed his investors didn't
like hearing it. Burry is not the bad guy in this epic catastrophe.

~~~
yummyfajitas
Instead of profiting off people suffering from bad investments in housing,
Burry should have stuck with his career in neurology and profited off people
suffering from brain cancer.

~~~
delackner
In the article he described in several ways how he had no real interest in
medicine, just drifting into it because it seemed easy to study, and was
physically repelled by the sight of people being operated on. This is not the
kind of person you want operating on you.

~~~
yummyfajitas
<http://en.wikipedia.org/wiki/Sarcasm>

------
patrickk
Another superb article from vanity fair. There was another one a week or so
ago about a former sniper in Afghanistan.

Reading this reminded me of when I read about Jeff Greene about a year ago -
another guy who made a mint from the housing/mortgage bubble collapse. See:
<http://www.forbes.com/forbes/2008/1006/266.html>

I love these types of stories - an 'outcast' who spots a trend and is either
ignored or heavily critised for their point of view, but ultimately proved
right and met with a deafening slience.

It echoes a now infamous incident that happened in Ireland in 2007, when we
were at the height of our own property boom. The then Prime Minister (or
Taoiseach) Bertie Ahern, said that "that he did not know how people who
engaged in moaning about the economy did not commit suicide".
<http://www.rte.ie/news/2007/0704/economy.html> Since then, Bertie has left
his office in controversial circumstances over alleged corruption, and those
who his remarks have been aimed at, such as courageous economists David
McWilliams and George Lee, are held up as visionaries who warned about the
dangers of excess when everyone else was gorging at the trough. As a result,
the Irish taxpayer is to become the single largest owner of real estate in the
WORLD, to the tune of €55bn ($75bn), because of the generous nature of the
Irish Government bailout of the greedy Irish banks. This is in a country of
just 4.5m people, which makes it all the more staggering. The Irish Government
has bet the future of our country on the recovery of the Irish real estate
market, and the youngest generation currently will end up paying for this
stupidity over the next 50 years.

p.s. For all those who reckon it's morally wrong to make a fortune from a
slump or crash, how is that different from making money in the good times?
People are always borrowing foolishly (when the banks allow them to) and get
into trouble even when the economy is doing ok. It's just these stories dont
receive a mention when the media, along with everyone else, gets caught up
reporting how fabulously brilliant we all are when times are good.

~~~
sireat
Not that Vanity Fair doesn't have high standards, but the author of the
article(actually a chapter of his new book) was Michael Lewis, who is quite a
good writer by himself. :)

------
zanek
I loved this article (i thought the personal bits were a good foundation to
the entire story). Thanks for sharing it.

------
flipbrad
what part did credit rating agencies like Moodys have to play in all this?
They seem to have escaped from quite a lot of scrutiny in all of this...

~~~
smokinn
It's pretty obvious the role they played. They're expected to be the arbiters
of what the risk is. They were setting the risk value for things they had no
clue about. It was simply incompetent negligence and no one should be trusting
them anymore.

~~~
jsm386
It's a lot worse than 'setting the risk value of things they had no clue
about.' It was, flat out, a conflict of interest:

 _The AAA ratings given by the agencies proved to be wildly inaccurate and
unreasonably high, according to the suit, which also said that the methods
used by the rating agencies to assess these packages of securities were
seriously flawed in conception and incompetently applied

The ratings agencies no longer played a passive role but would help the
arrangers structure their deals so that they could rate them as highly as
possible, according to the Calpers suit._

More @ [http://www.ritholtz.com/blog/2009/07/calpers-rating-
agencies...](http://www.ritholtz.com/blog/2009/07/calpers-rating-agencies-to-
blame-for-huge-losses/) (this is just but one example of Barry Ritholtz
extensive coverage of this issue. McGraw Hill dropped his book b/c of his
_payola_ (acurrate) line about S&P's efforts at this in particular.

------
owinebarger
One of the best parts of this story is how crude a model can be and yet yield
tremendous value. A dozen metrics on the underlying loans of the security and
"most ARMs reset in two years" giving 3 years as the window for the market to
fully recognize how bad the loans were.

~~~
philk
The complicated part is all the crude models that don't do much at all that
you have to trudge through to get the few worthwhile models.

------
jderick
It is too bad that there isn't a place in the medical field for people like
this. I think medicine is suffering from a lack of analytical minds.

------
bpick
The article was good, but the personal life stuff was a waste of time.

The message is clear - don't be afraid to see what others are blind to.

~~~
jakarta
I don't know if I quite agree with that.

If you look at a lot of value investors / contrarians, you will see that a
good number of them were exposed early on to the kinds of irrational thinking
that can occur with crowds. I think these experiences make it much easier to
take the approach where you go buy something that everyone else hates.

Buffett grew up when the Great Depression was still fresh in people's minds.
Carl Icahn experienced prejudice for being jewish. George Soros had to hide
from Nazis as a child.

~~~
sbaqai
Sorry for the offtopic, but jakarta, would you mind if I ask for your email? I
had a few questions regarding analyst work. (My contact is in my profile). I'd
appreciate your feedback if you have some time.

~~~
jakarta
postalservice@gmail.com

------
nsoonhui
Survivor bias: If I let hell loose on enough monkeys to bet on financial
market before the bubble bursted, some of them would eventually "beat the wall
street" and "forsee the burst" and earned themselves interviews, book deals
and recognition.

The monkeys could have a chance to talked about their models then.

~~~
rjprins
Did you even read the article?

~~~
nsoonhui
I did; what's the problem with my comment?

Just to add: lots of people also bet against bubbles at any point of time of
the bubble. But they were forced out of business before the bubbles could even
burst( "Market can remain irrational longer than you can remain solvent").
Only a handful survived and we thought that they have special skills or magic
formula.

You underestimate the element of luck in the world of investment.

~~~
jim-greer
Timing is everything, but Burry was careful to find a long-term bet with
limited downside. He wasn't shorting stocks - he was buying credit-default
swaps which are essentially insurance policies.

"For instance, you might pay $200,000 a year to buy a 10-year credit-default
swap on $100 million in General Electric bonds. The most you could lose was $2
million: $200,000 a year for 10 years. The most you could make was $100
million, if General Electric defaulted on its debt anytime in the next 10
years"

~~~
nsoonhui
He was successful because the bubbles burst before he went burst.

You'll never know when the bubbles will burst.

------
sireat
I reread the article, it is that good. However, one moment does seem extremely
unusual.

How does one go from being active on investment forums to securing a few
million from very experienced investors.

It is one of those one in billion occurences. I am sure Mike Burry would have
done alright even without it, but still there must be more to the story.

Hopefully, full book goes into more detail.

~~~
jakarta
Maybe I can help fill the gap a bit.

There is an online forum for value investors called value investors club.

In order to become a member, you have to submit an investment idea which is
then evaluated. If it is good enough, you get in and become a member.

The forum was started by Joel Greenblatt, of Gotham Partners. What Greenblatt
does is monitor the users on the site and gauge their abilities based on
ideas... if their ideas are good enough he usually contacts them to make a
seed investment so that they can start a hedge fund.

Pretty much any fund connected to Gotham gets the attention of other investors
and it is usually pretty easy for them to scale up afterwards. e.g.: going
from 0M --> 200M in just a few years. Its sort of akin to how companies funded
by YC can sometimes have it easier when attracting VC funding.

------
jderick
What is he doing now? I hope he is still investing.

~~~
jakarta
From what I have heard, he is in the middle of a lawsuit right now with some
of his investors.

------
known
<http://www.worldtopinvestor.com/pub/index>

------
albertcardona
A very compelling read.

~~~
scotty79
I second that. It was as if I read smoothly written SF novel (by Henry
Kuttner). And yet it was about real people and events.

------
greenlblue
It's great that this guy has a gift but let's call what he does for what it
is: exploitation. Countless pension funds and state budgets are in shambles
because of people like him.

~~~
philk
Wrong. He was simply betting that subprime loans were a huge risk that was
going to go bust. If you need to blame someone, go for the people who made
these loans in the first place, or the ratings companies for failing to spot
the disaster.

~~~
asmithmd1
He did more than just place a bet. He carefully read the prospectus of the
individual bonds he was shorting. He looked into the underlying loans that the
bond was based on. He saw: no income verification, no down payments, and
inflated home prices. This is something the people buying the bonds could have
and should have done themselves.

