the big short inside the doomsday machinethe big short inside the doomsday machineI have received an advanced partial transcript of the story of Michael Burry, which will be appearing on Bloomberg TV at 9PM EST tomorrow night (7/19/11). Burry returned 427% in his bets against the subprime market, as detailed in Michael Lewis’s thriller-The Big Short: Inside the Doomsday Machine

Tomorrow night at 9 PM/ET and PT, Bloomberg Television’s “Risk Takers” explores the extraordinary story behind Michael Burry, who successfully predicted the U.S. real estate crash and generated nearly a billion dollars in profit.

Warren Buffett had the following to say about Burry-“Who’s going to listen to John Paulson in 2005, 2006 or to Mike Burry?  It didn’t mean anything. Look at me, I was wrong on it too.”

Below is a special, advanced transcript, which I believe has only been posted on Value Walk (courtesy of Bloomberg TV).

 

Quotes from Michael Burry

Michael Burry on his personality:

“My natural state is an outsider, and no matter what group I’m in or where I am, I’ve always felt like I’m outside the group and I’ve always been analyzing the group.”

On his early days blogging about investing:

“I knew I was getting attention when I said something, I think in late 1999.  I said that Vanguard Funds are the worst funds to invest in now.  Those index products are going to do horribly over the next decade and I linked to the site and I got a cease and desist from Vanguard. So I realized, oh, people are reading this.”

“I started getting paid a dollar a word to write, which was — I didn’t have a lot of money, and I was actually in a lot of debt.  So that was tremendous validation for what I was doing in that space.”

On starting his hedge fund:

“I think it was at $45,000 is what I had and I said, this is the last little bit that I got – this is the nut of what I got from my dad and I don’t want to just pay down my medical school debt with it. ”

On his investing style and dealing with investors:

“I think a lot of hedge funds get their trades from Wall Street and get their ideas from Wall Street.  And I just like to find my own ideas. I’m reading a lot; I read a lot of news.  I’m addicted to it. I basically I follow my nose on news stories. And more often than not it’s a dead end, but sometimes it produces something of value.”

On dealing with investors:

“I had been to New York once before but not for business and I just didn’t know how to dress. I didn’t know anything about it.”

“I didn’t offer transparency. I provided one quarterly report in a letter form and that was all you got. I basically demanded that if you’re going to invest in my fund, you need to accept my terms — the terms not being super high fees, but just, you know, I’m not going to cater to you.”

Michael Burry on his market predictions:

“In 2003, something curious had happened.  The interest-only mortgage was reintroduced. That spurred me to write a section in my letter called Basis for Concern.”

“I tried to raise a fund, Milton’s Opus, to uh—Milton’s opus being Paradise Lost—to just do this because I wanted to do it in big size, but I couldn’t get it going. And the urgency came from my belief that I can’t be the only one thinking this. Somebody will see it and when they do, spreads will blow out wide. I want to get it on when it’s cheap.”

“My positioning with my investors had always been from the beginning…I need three to five years. I saw the time clock.  I knew when it was going to happen.  We just needed to make it through to that period. And that was something that was a hard sell when it moved against us initially.”

“Even when there was the investor rebellion and even when we had these difficulties in ’06, I was 100% confident when it was going to happen and I would tell people: just wait. We’re on the cusp, 2007, it will happen.”

“Ironically, I’m in this book, ‘The Big Short,’ but I’m not a big short.  I don’t go out looking for good shorts.  I’m spending my time looking for good longs. I shorted mortgages because I had to.  Every bit of logic I had led me to this trade and I had to do it.  And I had to pull back on equities, because I saw what was coming I thought would affect everything.”

Quotes from Jeff Madrick, journalist and author of “The Age of Greed”:

“I think Michael Burry’s Asperger’s [Syndrome] on balance helped him.  It made him a deeply effective, perspicacious researcher, like very few others.”

“I think [Asperger’s] had its downside. He didn’t know how to deal with investors.  He didn’t really know how to deal with the traders on the other side of his trades.  He had problems with that.”

Quotes from Kip Oberting, early investor in Michael Burry’s fund:

“In [Michael Burry’s] mind, he wasn’t a risk-taker. He was a risk-avoider. And he was paranoid about avoiding risk in his investments.”

Kip Oberting on learning about Michael Burry:

“A colleague of mine came in to my office one day and said, ‘Kip, come and check out this Web site.’ This guy who’s a doctor is posting these investment ideas, and they’re pretty interesting…It was unique because it was deeper than your typical web-posting-market-watch type of person. It was someone that clearly was writing very lucidly, writing very clearly.”

“We at White Mountains invested $500,000 to purchase a share of his business, and we gave him $10 million dollars to invest.”

Kip on not meeting Michael Burry:

“I was scheduled to meet him once in, in person, and it fell through.  And so all of our correspondence to date— you know, we invested a lot of money with him and so forth— was either through the phone or through email or just other writing that he did.”

Kip on Michael Burry’s relationships with investors:

“In 2006, the equity markets were up five or ten percent and Michael was down 20%. The loss was attributable to this derivative position shorting the housing market….So he did start to feel some pressure from investors. And as the year progressed, I think he got a bleeding ulcer. I think it was a very difficult time for him and his firm, too.  Some of his large investors confronted him and said they’re going to take their money out. ”

“[Michael Burry’s] bet against the subprime mortgages, that made him his fortune, they regarded as mission creep. He was supposed to be a value investor in the stock market and there was a lot of suspicion.”

“And so this was on the eve of what was going to be [Michael Burry’s] marquee moment…the winds had blown against him so much so that it started to get taken out of his control. And so what he did, which was a controversial move, was he locked in certain investors. That move drew the ire of some of his larger

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