Golden Eye

Golden Eye, the title of this blog has nothing to do with the famous James Bond movie with the same name. Though the movie is considered to be the first movie of Pierce Brosnan as 007, but apart from that there was nothing extraordinary about it. I guess, the eye of Sauron from the The Lord of the Rings (LOTR) is one of the most popular eye in the business, but was it golden? Who cares? The eye keeps on looking at the ring bearer all the time and nothing could hide from it. One of the most prominent things after the ring in LOTR, the eye of Sauron demonstrates the unfathomable power and unparallel force. Apparently there is one more eye, much more significant and grandiose, considering the events that took place in the recent times.

Dr. Michael Burry entered the medical school to become one of the best doctors and would like to dedicate his entire life serving the humanity. The more he tried to indulge himself in the field of medicine the more he gets attracted towards his passion for investing. They say if you need to excel in the world then you should look at it differently, you should be different from others, you should perceive and implement things which others are incapable of doing. In this story Michael is just what it is required to be excellent, he was different. Michael was diagnosed with one of the rare forms of childhood cancer and lost his left eye during the surgical procedure to remove the cancer. Now with one good eye and one glass eye he is seeing the world differently (figuratively speaking). This deformity has forced Michael to become introvert and socially isolated. He invested all his energy to this studies, got good grades and got admitted to UCLA for his undergraduate and then Vanderbilt University School of Medicine. Nothing beats Michael when it comes to performing tasks which requires extraordinary concentration.

Though Michael was pursuing his education in medicine but investing was his first love. Michael made a name for himself during the dot com bubble. When everyone was losing their money Michael was the one who is reaping the benefits. There was this unusual thing with Michael where he was always ahead of the rest of the investors in finding the patterns. Michael started the blog where he explained all his trades in details and slowly and gradually people follow him and made money based on his recommendations. He was working 16 hours shifts at the hospital and blogging in the wee hours. The investing community was bamboozled by seeing his dedication to the field of investing.

The response that came on his investing blog was overwhelming and make Michael believe in himself and his unmatched skills for value investing. Soon Michael recognized that medicine was not the field to pursue and he announced that he is leaving medicine to become a full time value investor. The news was not welcomed in his medical community, but Michael did not turn back on his decision. With 40K in savings plus some money given to him by his family members he officially launched his first venture – Scion Capital. Soon big investors started to pour their money in Scion Capital and were sanguine in its future. The investments started multiplying. Scion was up 55% in the first year and every year the account beat the market. By 2004, Michael was managing around 600 million and shunning away new investors. In 2005 Michael’s fund was gargantuan and rose by 242%. Now who would have imagined that someone like Michael who is socially misfit, communicates without maintaining an eye contact (coz of one bad eye), extremely private in nature is capable of producing such massive gains. Michael’s investment strategy was different from the conventional money manger’s strategy. One thing that Michael confessed was that if you need to become a better investor you need to read a lot. That is what Michael did. He used to sit all by himself in his Cupertino office in California and used to read the financial statements, M&A documents, court rulings and anything that is related to the company’s financial aspect.

In the year 2004, Michael Burry was one of the very few to figure out the decline in the housing loan standards. He was pretty sure that as the lending standards are deteriorating there soon will be a housing bubble and both the lenders and the borrowers will get devastated by its aftermaths. Burry started buying insurances for such companies which he thought will go south when the bubble burst. In other terms these insurances are incomprehensible to common people and in financial jargon called credit default swaps (CDS). Though Burry was fallible in his decision to purchase these CDS on the subprime-mortgage bonds but something inside him was pretty sure of its failure. In 2005, Burry bought $60 million of CDS from Deutsche Bank. To his surprise the bank never cared what bonds he picked up to bet against. In 2007, the housing market crashed and Burry’s was the last one smiling. His predictions turned out to be correct and he ended up making ton of money. Burry made $100 million for himself and around $725 million for his investors. The gross gain of his fund – Scion Capital is around 726 percent. Totally amazing stuff.



If we look around we see thousands of smart people, people who go on the podium and make lengthy speeches. Speeches which are not written by them (thanks to the teleprompter) and common people like us clap and listen to them with our jaws touching the floor. People who graduated from IVY schools, people who got PhDs, Masters and are Nobel laureates. People who invented recondite terms, such as Credit Default Swaps, Derivatives, Collateralized Debt Obligations and many more. These people are so smart that they get paid to generate a problem and they are again paid to resolve the problem. Yet these people are so smart and none of them were able to see what their smartness have brought upon all of us. In the end the only question we should all ask these smart guys is a big WHY? Why they were so smart and yet so stupid by not able to see what Dr. Michael Burry can? If Burry with one good eye and one glass eye, with no financial background can figure out this mess I am pretty sure the experts with both good eyes and who are financially qualified must be able to see and avert this crisis.

They say there were 10-12 people (at most) who were able to predict about the crash of the housing market. From the pool of millions of bright people only 10-12, amazing, isn’t it? Dr. Michael Burry were among those elite group of 10-12 people who saw the storm coming. I am not sure what would be Michael Burry’s career path if he was not having his glass eye. May be he was socially more active, maybe he will not have that power of extreme concentration, maybe he will interact with other investors and might get his thinking polluted. Who knows he will be among those who end up losing millions instead of making them. All in all I guess Michael’s golden eye has sure to play a part in all this and the fortune he made for himself and his investors (at least that’s what I think). Golden eye to see and perceive things differently. People who read Michael’s story will say that his story is his blessing in disguise or in my words Million$$ in disguise.