6 ms·

How a Doctor beat Wall Street

142 points by jakarta 17y ago

bpick 17y ago
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 17y ago
  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 17y ago
    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 17y ago
      postalservice@gmail.com
  - miked 17y ago
    George Soros had to hide from Nazis as a child. I hardly blame him for having to hide, but did he have to go out and help confiscate the property of his fellow jews? Couldn't he have stayed home? Not to mention that he's been convicted of insider trading. http://www.google.com/search?client=safari&rls=en&q=george+soros+nazi+collaborator&ie=UTF-8&oe=UTF-8 http://www.google.com/search?client=safari&rls=en&q=... KROFT: (Voiceover) You're a Hungarian Jew... Mr. SOROS: (Voiceover) Mm-hmm. KROFT: (Voiceover) ...who escaped the Holocaust... (Vintage footage of women walking by train) Mr. SOROS: (Voiceover) Mm-hmm. (Vintage footage of people getting on train) KROFT: (Voiceover) ... by -- by posing as a Christian. Mr. SOROS: (Voiceover) Right. (Vintage footage of women helping each other get on train; train door closing with people in boxcar) KROFT: (Voiceover) And you watched lots of people get shipped off to the death camps. Mr. SOROS: Right. I was 14 years old. And I would say that that's when my character was made. KROFT: In what way? Mr. SOROS: That one should think ahead. One should understand and -- and anticipate events and when -- when one is threatened. It was a tremendous threat of evil. I mean, it was a -- a very personal experience of evil. KROFT: My understanding is that you went out with this protector of yours who swore that you were his adopted godson. Mr. SOROS: Yes. Yes. KROFT: Went out, in fact, and helped in the confiscation of property from the Jews. Mr. SOROS: Yes. That's right. Yes. KROFT: I mean, that's -- that sounds like an experience that would send lots of people to the psychiatric couch for many, many years. Was it difficult? Mr. SOROS: Not -- not at all. Not at all. Maybe as a child you don't -- you don't see the connection. But it was -- it created no -- no problem at all. KROFT: No feeling of guilt? Mr. SOROS: No. KROFT: For example that, 'I'm Jewish and here I am, watching these people go. I could just as easily be there. I should be there.' None of that? Mr. SOROS: Well, of course I c -- I could be on the other side or I could be the one from whom the thing is being taken away. But there was no sense that I shouldn't be there, because that was -- well, actually, in a funny way, it's just like in markets -- that if I weren't there -- of course, I wasn't doing it, but somebody else would -- would -- would be taking it away anyhow. And it was the -- whether I was there or not, I was only a spectator, the property was being taken away. So the -- I had no role in taking away that property. So I had no sense of guilt.
    - nazgulnarsil 17y ago
      hey judging people who went through horrific experiences looks like fun! can I play?
      - anamax 17y ago
        > hey judging people who went through horrific experiences looks like fun! can I play? Those horrific experiences weren't accidents. They happened because enough folks said "it's okay for me to do {bad thing} because {excuse}". Also, imagine the response if it came out that a Pope or a Republican had done something similar.
        nazgulnarsil 17y ago
        I have never bought the grassroots explanation of history, on the good or bad side. bad people bend good people and good systems to their purposes because they can. I'm wary about assigning excess blame to people responding to the incentives placed in front of them, even under ideal conditions. there are good reasons why intent plays such a large role in our conception of justice.
        anamax 17y ago
        > there are good reasons why intent plays such a large role in our conception of justice. Actually, the reason that we consider intent is that we think that intent has some bearing on outcome. The argument is "but for {unexpected}, the outcome would have been good". However, if {unexpected} is not actually unexpected, that argument does not apply. > I'm wary about assigning excess blame to people responding to the incentives placed in front of them, even under ideal conditions. In what universe is it "excess" to blame someone for the expected outcome of their actions? They got some benefit for cooperating with evil - why is it wrong to blame them for that?
- clistctrl 17y ago
  I agreed with you at first, but as the article progressed I think the personal life was an extremely important aspect for connecting with him. Personally I really enjoyed it.
- defen 17y ago
  I agree. I had trouble identifying with the guy so I ended up skipping the personal life stuff. The part about the market and his hedge fund was fascinating though.
- GFischer 17y ago
  I actually liked the personal life stuff a lot - I can describe myself as someone "happy in my own head" and with few friends too (but with far less money :P ). I find it fascinating that he married twice, too. Maybe I should move to the US :) . Of course the personal stuff has been novelized and simplified a bit, but that's to be expected :)
greenlblue 17y ago
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.
- tlack 17y ago
  Those pension funds and states should not have invested in dangerous securities. Let's face it: the money seemed easy and these guys took very dangerous investments, with money that was not safe to play with.
  - greenlblue 17y ago
    That doesn't justify what he did. The right thing to do would have been to let people know of what was happening. Just because the financial system rewards greed/selfishness does not mean people shouldn't act ethically when the consequences of their actions could mean the loss of hard earned money by honest hard working people with families, medical expenses, college loans, etc. Then again the guy has Asperger's syndrome so most of the ethics and empathy is probably lost on him.
    - dwwoelfel 17y ago
      The politicians were warned over and over again. They denied that any problem even existed. Here's what Barney Frank had to say: For example, during a hearing on September 10, 2003, before the House Committee on Financial Services considering a Bush administration proposal to further regulate Fannie and Freddie, Rep. Frank stated: "I want to begin by saying that I am glad to consider the legislation, but I do not think we are facing any kind of a crisis. That is, in my view, the two Government Sponsored Enterprises we are talking about here, Fannie Mae and Freddie Mac, are not in a crisis. We have recently had an accounting problem with Freddie Mac that has led to people being dismissed, as appears to be appropriate. I do not think at this point there is a problem with a threat to the Treasury." (http://www.judicialwatch.org/news/2009/dec/judicial-watch-announces-list-washington-s-ten-most-wanted-corrupt-politicians-2009 http://www.judicialwatch.org/news/2009/dec/judicial-watch-an...)
zanek 17y ago
I loved this article (i thought the personal bits were a good foundation to the entire story). Thanks for sharing it.
owinebarger 17y ago
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 17y ago
  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.
nsoonhui 17y ago
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 17y ago
  Did you even read the article?
  - nsoonhui 17y ago
    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 17y ago
      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"
      - nandemo 17y ago
        nsoonhui's comment still applies. For instance, call options also have limited downside, but still the limit is 100% of your investment. And most of the time you do lose 100%. Apparently, Burry's achievement was that he found a way to "short" something when there was no "off-the-shelf" product to do so. Even so it's not easy to separate skill from luck.
flipbrad 17y ago
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 17y ago
  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.
  - OmniLarry 17y ago
    I think you're being too kind to them: http://www.independent.co.uk/news/business/news/congress-mauls-bosses-of-credit-ratings-agencies-969792.html http://www.independent.co.uk/news/business/news/congress-mau...
  - jsm386 17y ago
    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-to-blame-for-huge-losses/ http://www.ritholtz.com/blog/2009/07/calpers-rating-agencies... (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.
- anamax 17y ago
  > what part did credit rating agencies like Moodys have to play in all this? Don't forget the SEC. It gave a ratings monopoly to Moodys and two others (whose name escapes me). Yes - the SEC said that the ratings from Moodys and the other two are the only ones that count for regulatory purposes. What could go wrong.... Regulation is systemic risk.
albertcardona 17y ago
A very compelling read.
- scotty79 17y ago
  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.
delackner 17y ago
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.
- Retric 17y ago
  Also he was not exactly an outsider: In early 2004 a 32-year-old stock-market investor and hedge-fund manager, Michael Burry For everyone that lost big in the collapse someone made out like a bandit beforek, durring, or after it.
  - OmniLarry 17y ago
    Not exactly an insider either - raising money for his hedge fund as a doctor with a blog.
- yummyfajitas 17y ago
  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 17y ago
    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 17y ago
      http://en.wikipedia.org/wiki/Sarcasm http://en.wikipedia.org/wiki/Sarcasm
known 17y ago
http://www.worldtopinvestor.com/pub/index http://www.worldtopinvestor.com/pub/index
robak 17y ago
Anybody with a brain saw what was coming (I mean except brain washed 6-pack sheep): Peter Schiff for one, Jim Rogers for two, Marc Faber for three... these 3 guys alone have been crying day and night since circa 2000-2005 about the bubble and ways to make money on its collaps (buy gold, silver, oil). Myself, little schmuck, sold paid-off car in '07 to buy gold. It has been obvious all day long like 2+2=4. I mean, unless somebody got brainwashed by US "free media". Then they're lost. So, what's next? Hiper-inflation of course. 6packs will be caught by surprise again just to read articles after all about 32-year old "doctors" who "beat Wall Street". :-))) So far made 100% profit on my gold. What crisis?
robak 17y ago
Anybody with a brain saw what was coming (I mean except brain washed 6-pack sheep): Peter Schiff for one, Jim Rogers for two, Marc Faber for three... these 3 guys alone have been crying day and night since circa 2000-2005 about the bubble and ways to make money on its collaps (buy gold, silver, oil). Myself, little schmuck, sold paid-off car in '07 to buy gold. It has been obvious all day long like 2+2=4. I mean, unless somebody got brainwashed by US "free media". Then they're lost. So, what's next? Hiper-inflation of course. 6packs will be caught by surprise again just to read articles after all about 32-year old "doctors" who "beat Wall Street". :-))) So far made 100% profit on my gold. What crisis?
patrickk 17y ago
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 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 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 17y ago
  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. :)
jderick 17y ago
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.
jderick 17y ago
What is he doing now? I hope he is still investing.
- jakarta 17y ago
  From what I have heard, he is in the middle of a lawsuit right now with some of his investors.
sireat 17y ago
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 17y ago
  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.

142 points by jakarta 17y ago

bpick 17y ago

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 17y ago
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 17y ago
  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 17y ago
    postalservice@gmail.com
- miked 17y ago
  George Soros had to hide from Nazis as a child. I hardly blame him for having to hide, but did he have to go out and help confiscate the property of his fellow jews? Couldn't he have stayed home? Not to mention that he's been convicted of insider trading. http://www.google.com/search?client=safari&rls=en&q=george+soros+nazi+collaborator&ie=UTF-8&oe=UTF-8 http://www.google.com/search?client=safari&rls=en&q=... KROFT: (Voiceover) You're a Hungarian Jew... Mr. SOROS: (Voiceover) Mm-hmm. KROFT: (Voiceover) ...who escaped the Holocaust... (Vintage footage of women walking by train) Mr. SOROS: (Voiceover) Mm-hmm. (Vintage footage of people getting on train) KROFT: (Voiceover) ... by -- by posing as a Christian. Mr. SOROS: (Voiceover) Right. (Vintage footage of women helping each other get on train; train door closing with people in boxcar) KROFT: (Voiceover) And you watched lots of people get shipped off to the death camps. Mr. SOROS: Right. I was 14 years old. And I would say that that's when my character was made. KROFT: In what way? Mr. SOROS: That one should think ahead. One should understand and -- and anticipate events and when -- when one is threatened. It was a tremendous threat of evil. I mean, it was a -- a very personal experience of evil. KROFT: My understanding is that you went out with this protector of yours who swore that you were his adopted godson. Mr. SOROS: Yes. Yes. KROFT: Went out, in fact, and helped in the confiscation of property from the Jews. Mr. SOROS: Yes. That's right. Yes. KROFT: I mean, that's -- that sounds like an experience that would send lots of people to the psychiatric couch for many, many years. Was it difficult? Mr. SOROS: Not -- not at all. Not at all. Maybe as a child you don't -- you don't see the connection. But it was -- it created no -- no problem at all. KROFT: No feeling of guilt? Mr. SOROS: No. KROFT: For example that, 'I'm Jewish and here I am, watching these people go. I could just as easily be there. I should be there.' None of that? Mr. SOROS: Well, of course I c -- I could be on the other side or I could be the one from whom the thing is being taken away. But there was no sense that I shouldn't be there, because that was -- well, actually, in a funny way, it's just like in markets -- that if I weren't there -- of course, I wasn't doing it, but somebody else would -- would -- would be taking it away anyhow. And it was the -- whether I was there or not, I was only a spectator, the property was being taken away. So the -- I had no role in taking away that property. So I had no sense of guilt.
  - nazgulnarsil 17y ago
    hey judging people who went through horrific experiences looks like fun! can I play?
    - anamax 17y ago
      > hey judging people who went through horrific experiences looks like fun! can I play? Those horrific experiences weren't accidents. They happened because enough folks said "it's okay for me to do {bad thing} because {excuse}". Also, imagine the response if it came out that a Pope or a Republican had done something similar.
      - nazgulnarsil 17y ago
        I have never bought the grassroots explanation of history, on the good or bad side. bad people bend good people and good systems to their purposes because they can. I'm wary about assigning excess blame to people responding to the incentives placed in front of them, even under ideal conditions. there are good reasons why intent plays such a large role in our conception of justice.
        anamax 17y ago
        > there are good reasons why intent plays such a large role in our conception of justice. Actually, the reason that we consider intent is that we think that intent has some bearing on outcome. The argument is "but for {unexpected}, the outcome would have been good". However, if {unexpected} is not actually unexpected, that argument does not apply. > I'm wary about assigning excess blame to people responding to the incentives placed in front of them, even under ideal conditions. In what universe is it "excess" to blame someone for the expected outcome of their actions? They got some benefit for cooperating with evil - why is it wrong to blame them for that?
clistctrl 17y ago
I agreed with you at first, but as the article progressed I think the personal life was an extremely important aspect for connecting with him. Personally I really enjoyed it.
defen 17y ago
I agree. I had trouble identifying with the guy so I ended up skipping the personal life stuff. The part about the market and his hedge fund was fascinating though.
GFischer 17y ago
I actually liked the personal life stuff a lot - I can describe myself as someone "happy in my own head" and with few friends too (but with far less money :P ). I find it fascinating that he married twice, too. Maybe I should move to the US :) . Of course the personal stuff has been novelized and simplified a bit, but that's to be expected :)

greenlblue 17y ago

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.

tlack 17y ago
Those pension funds and states should not have invested in dangerous securities. Let's face it: the money seemed easy and these guys took very dangerous investments, with money that was not safe to play with.
- greenlblue 17y ago
  That doesn't justify what he did. The right thing to do would have been to let people know of what was happening. Just because the financial system rewards greed/selfishness does not mean people shouldn't act ethically when the consequences of their actions could mean the loss of hard earned money by honest hard working people with families, medical expenses, college loans, etc. Then again the guy has Asperger's syndrome so most of the ethics and empathy is probably lost on him.
  - dwwoelfel 17y ago
    The politicians were warned over and over again. They denied that any problem even existed. Here's what Barney Frank had to say: For example, during a hearing on September 10, 2003, before the House Committee on Financial Services considering a Bush administration proposal to further regulate Fannie and Freddie, Rep. Frank stated: "I want to begin by saying that I am glad to consider the legislation, but I do not think we are facing any kind of a crisis. That is, in my view, the two Government Sponsored Enterprises we are talking about here, Fannie Mae and Freddie Mac, are not in a crisis. We have recently had an accounting problem with Freddie Mac that has led to people being dismissed, as appears to be appropriate. I do not think at this point there is a problem with a threat to the Treasury." (http://www.judicialwatch.org/news/2009/dec/judicial-watch-announces-list-washington-s-ten-most-wanted-corrupt-politicians-2009 http://www.judicialwatch.org/news/2009/dec/judicial-watch-an...)

zanek 17y ago

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

owinebarger 17y ago

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 17y ago
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.

nsoonhui 17y ago

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 17y ago
Did you even read the article?
- nsoonhui 17y ago
  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 17y ago
    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"
    - nandemo 17y ago
      nsoonhui's comment still applies. For instance, call options also have limited downside, but still the limit is 100% of your investment. And most of the time you do lose 100%. Apparently, Burry's achievement was that he found a way to "short" something when there was no "off-the-shelf" product to do so. Even so it's not easy to separate skill from luck.

flipbrad 17y ago

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 17y ago
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.
- OmniLarry 17y ago
  I think you're being too kind to them: http://www.independent.co.uk/news/business/news/congress-mauls-bosses-of-credit-ratings-agencies-969792.html http://www.independent.co.uk/news/business/news/congress-mau...
- jsm386 17y ago
  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-to-blame-for-huge-losses/ http://www.ritholtz.com/blog/2009/07/calpers-rating-agencies... (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.
anamax 17y ago
> what part did credit rating agencies like Moodys have to play in all this? Don't forget the SEC. It gave a ratings monopoly to Moodys and two others (whose name escapes me). Yes - the SEC said that the ratings from Moodys and the other two are the only ones that count for regulatory purposes. What could go wrong.... Regulation is systemic risk.

albertcardona 17y ago

A very compelling read.

scotty79 17y ago
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.

delackner 17y ago

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.

Retric 17y ago
Also he was not exactly an outsider: In early 2004 a 32-year-old stock-market investor and hedge-fund manager, Michael Burry For everyone that lost big in the collapse someone made out like a bandit beforek, durring, or after it.
- OmniLarry 17y ago
  Not exactly an insider either - raising money for his hedge fund as a doctor with a blog.
yummyfajitas 17y ago
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 17y ago
  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 17y ago
    http://en.wikipedia.org/wiki/Sarcasm http://en.wikipedia.org/wiki/Sarcasm

known 17y ago

http://www.worldtopinvestor.com/pub/index http://www.worldtopinvestor.com/pub/index

robak 17y ago

Anybody with a brain saw what was coming (I mean except brain washed 6-pack sheep): Peter Schiff for one, Jim Rogers for two, Marc Faber for three... these 3 guys alone have been crying day and night since circa 2000-2005 about the bubble and ways to make money on its collaps (buy gold, silver, oil). Myself, little schmuck, sold paid-off car in '07 to buy gold. It has been obvious all day long like 2+2=4. I mean, unless somebody got brainwashed by US "free media". Then they're lost. So, what's next? Hiper-inflation of course. 6packs will be caught by surprise again just to read articles after all about 32-year old "doctors" who "beat Wall Street". :-))) So far made 100% profit on my gold. What crisis?

robak 17y ago

patrickk 17y ago

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 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 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 17y ago
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. :)

jderick 17y ago

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.

jderick 17y ago

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

jakarta 17y ago
From what I have heard, he is in the middle of a lawsuit right now with some of his investors.

sireat 17y ago

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 17y ago
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.