The doctor who predicted the 2008 crash

Michael Burry, a former doctor turned investor, made history by predicting the 2008 financial crisis. While Wall Street celebrated the housing boom, Burry saw the collapse coming and turned his conviction into over $725 million, a 5x return

This week, we look into how Michael Burry went from a medical career to making one of the most legendary trades in financial history:

• 💼 From Medicine to Scion Capital

• 🏦 Predicting the 2008 financial collapse

• 📉 The aftermath of his Big Short

— Investor Briefcase Team

Michael Burry wasn’t your typical Wall Street insider. A trained doctor with an M.D. from Vanderbilt University, he spent his long nights during medical school and residency analyzing stocks and posting his findings on early investment forums. His detailed, contrarian insights quickly caught the attention of investors, including Joel Greenblatt.

Realizing his interest in investing outweighed that of medicine, Burry left his medical career behind in 2000 to launch Scion Capital backed by Greenblatt and himself. The timing was risky—markets were reeling from the dot-com crash—but Burry thrived. Scion posted a 55% return in its first year and over 25% annualized returns in the next three years, far outperforming the market.

Burry’s success came from his disciplined approach: finding undervalued companies, digging into the data, and making bold decisions when others hesitated. His early achievements at Scion set the stage for even bigger moves in the years to come.

In 2005, Burry’s attention turned to the housing market. Beneath the surface of the booming real estate sector, he discovered the shaky foundation of subprime mortgages. Loans were being issued to high-risk borrowers and packaged into mortgage-backed securities (MBS), which were then sold as safe investments.

Burry’s analysis revealed that these securities were set to fail. Convinced of an impending collapse, he began purchasing credit default swaps (CDS) to bet against the subprime mortgage market. The move baffled his investors, many of whom pushed back against what they saw as an overly pessimistic and risky trade.

Despite the skepticism, Burry stuck to his thesis. When the housing market collapsed in 2007-2008, Scion’s CDS positions paid off massively. The fund generated $725 million in profits for its investors, and Burry personally earned $100 million. His foresight not only validated his analysis but also exposed the systemic risks in financial markets.

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While the Big Short was a financial success, it came at a cost. The stress of holding his contrarian position and the backlash from skeptical investors took a toll on Burry. By 2008, he closed Scion Capital, deciding that the Big Short would be his final investment.

Burry returned to investing in 2013, launching Scion Asset Management. True to form, he continued to pursue bold and often contrarian positions, such as betting on water scarcity and criticizing passive investing trends. His ability to think independently and act decisively remains his hallmark to this day.

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Other infamous bold investors

> George Soros: Known for his bold bet against the British pound in 1992, Soros made $1 billion in profit by shorting the currency, an event known as "Black Wednesday."

> Carl Icahn: A prominent activist investor, Icahn has taken bold positions in companies like Apple and Netflix, often pushing for significant changes to unlock shareholder value.

> Warren Buffett: While known for his long-term value investing, Buffett made a bold move during the 2008 financial crisis by investing $5 billion in Goldman Sachs, which paid off handsomely.

> Bill Ackman: The founder of Pershing Square Capital Management, Ackman made a bold bet against Herbalife, calling it a pyramid scheme, and also made significant profits by shorting the market during the COVID-19 pandemic.

Each week we profile the most notorious investment stories.

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