In a recent video for valueconferences.com, Zeke Ashton, Managing Partner at Centaur Capital Partners, talks about Michael Burry, one of the most important influences on his investing life. Ashton interviews are rare enough, so his views on the financial world certainly warrant examination.
Ashton highlights one of the best pieces of advice he had ever been given on investing. Early on in his career in a conversation with former hedge fund manager Michael Burry, Ashton says he was told to "find ideas that work best in your hands." The fund manager goes on to explain the differences between himself and Burry.
Burry is what Ashton describes as a "home-run investor." He's able to pick ideas and investment theses that he thinks will be borne out by the market, and then he bets big on them. This style of investment is exemplified by the trade that Burry is most well known for. He was one of the few investors who correctly predicted the collapse of the sub prime mortgage market in 2008.
That is not, however, his only claim to fame. In the wake of his big sub prime bet, and this is what makes him stands out from others on the same side of the trade, Burry left the world of hedge fund management. Most of those who succeeded in predicting the 2008 crash used their subsequent fame to secure huge investments in their funds, names like John Paulson and Kyle Bass come to mind.
Burry, who trained as a doctor before engaging himself fully in the financial world, grew his fund with successful investments between 2000 and 2005, when he decided to set the weight of his more than $500 million fund against the sub-prime mortgage market.
Ashton says that the real difference between himself and Burry is that he wouldn't bet a huge amount behind a single thesis. He prefers to diversify. Burry himself has become much more accepting of diversification in recent years, he puts the general size of a good portfolio now at around 15 stocks, when once he would have maxed out at around 5 stocks.
Giving credence to the power of luck Ashton reveals "I have in my career a couple of times seen an idea that I felt almost absolutely certain was going to work out, and I've been tempted to put a large percentage of the portfolio in it,...what I've discovered is that most of the time my high confidence was misplaced."
Ashton's point is, more than anything else, there is not strategy that fits every single investor. In order to discover what kind of investments you like and what asset classes you understand and can trade successfully, you need to get into the market and see for yourself. Burry found himself open to huge plays on a single thesis.
Ashton is more conservative but they are both great investors. Burry worked his way into the hedge fund world by posting his stock picks on a message board, anybody can get there with a little talent, some luck, and great deal of hard work.