Can Small Investors Beat The Market? Lessons From Michael Burry

A friend recently wrote me the following question:

Have you read the book: The Big Short: Inside the Doomsday Machine” by Michael Lewis? He is of course the author of Liar’s Poker and The Blind Side: Evolution of a Game amongst others. At the end of the book a question framed in my mind that I haven’t answered yet (although I’m getting close) and I’d like to ask you. I’ll try to put it in a way that make some sense.

What is the best way for the small guy, the individual investor, to achieve great success versus the big Wall Street money machine?


Michael Burry beat the market

Based on the individual: Is it pure and consistent value investing?

Is it disciplined technical trading?

Is it a combination of the two above?

Is it like the small individual investors I read about in this book that bought some options on the right companies at the right time and in one trade, with a defined risk, became wealthy!

They were in fact value hunters and found the LEVERAGE and DEFINED RISK of options to be a powerful tool to help them overcome what is a pretty big barrier to success and that is: consistently grinding out profits again against the Wall Street money machine. This is especially prescient of course during times of heavy market stress.

What do our individual personalities prefer? In other words what is best for me and what is best for you?

My Reply: Michael Burry is in the book, The Big Short, mentioned by my friend. He was a self-taught investor who obviously is fiercely independent, and he will take an extremely contrary to conventional wisdom position. You can go to and search for other writings by him. Also, go here to see Michael Burry’s Lecture at Vanderbilt University:

Michael Burry, stand outside the system:

Burry is a great role model to emulate. He sits quietly and reads with a fresh perspective. However, none of us can be Michael Burry, we can only be the best we can be. If I told you what woman to marry, you would be insulted; investing is highly individual though certain basic principles can be followed: Know thyself, keep track of your thought process, write down your investments and thesis, reflect on what you do well and don’t do so well, know your edge and respect the other side of the trade.

We as individuals have huge advantages over Wall Street since there the goal is to generate transactions not necessarily make money from investments. Note the typical research effort in the video link below:

Wall Street Research:  A scene from Boiler Room: RECO!

Here is an article written 22 years ago about individual investors doing better than the market.

So, yes it is possible, but YOU have to be successful in YOUR own way not by Buffett’s way or my way, but by your method that suits you. Buying bargains isn’t the only way to invest, but it suits me. The goal of this blog is to help people educate themselves through case studies and readings to develop their own approach where they have the greatest edge.

Two books that tell the stories of independent investors who have had success are: The Warren Buffetts Next Door by Matthew Schifrin and Free Capital: How 12 private investors made millions in the stock market by Guy Thomas. I recommend the second book.

Guy Thomas calls these independent investors free capitalists. He writes that there is no single blueprint for success. Some investors day-trade, invest based on macro concerns, some have no high school education while others have PhDs. There are no absolute entry requirements and many paths to success, so people with a variety of backgrounds have a chance of finding a way which suits them.

There were some traits that many of the investors share:

  • A precocious interest in money-making is not essential, but a strong future time perspective may be.
  • Understanding how markets work is more important to an investor than understanding technology. These investors intimately knew the strengths and weaknesses of their approach. For example, a growth investor knows that if he pays too much for growth, then capital is at risk.
  • They enjoy the process not the proceeds.
  • They have a low appetite for leverage.
  • They are not team players; they work alone.
  • They are foxes, not hedgehogs. Foxes are eclectic, viewing the world through a variety of perspectives, with no allegiance to any single approach. This contrasts with professional fund managers, who often identify with a single investment strategy, which gives the business advantage of a succinct marketing message.
  • Most of the investors hold concentrated portfolios, sometime fewer than ten shares.
  • Mainly smaller companies are chosen because they are less well researched, yet easier to understand, the directors are more accessible to the private shareholder and more likely to have meaningful shareholdings themselves; they are more likely to become takeover targets, etc.
  • They take no advice on what shares to buy. They have a psychological predilection for self-reliance and figuring things out for themselves.
  • Most realize that investing is a craft not a science.
    The craft of investing is composed of heuristics: a toolkit of approximate, experience-based rules for making sense of the world.

Options or LEAPS can be an intelligent way to invest but with caveats. Go to a recent lecture here:

Regarding technical analysis, my question is what type of edge can I have if everyone sees the same chart that I do?  I do look at high volume
days after a long decline or rise since that could indicate that the marginal
investor has sold or bought, but I have no expertise in chart reading.

Let me know how your journey progresses.

Via CSInvesting