Top 10 Michael Burry Price Action Trading Quotes

Top 10 Michael Burry Price Action Trading Quotes

Michael J. Burry was once a physician then a hedge fund manager of Scion Capital from 2000 until 2008, before closing it to focus on his own personal investments and trades. Michael Burry was made famous by his depiction in the movie ‘The Big Short’ played by Christian Bale based on the book by Michael Lewis. Mr. Burry was one of the first people to recognize and profit big from the 2008-2009 subprime mortgage crisis. Here are ten of the top trading and investing quotes that could be the most helpful for understanding his investing and trading process. Burry has both been a value investor in stocks and a trader in credit default swaps. It is always great to hear from people that made a fortune in markets when the majority of people lost a lot of money. It takes genius to bet against the majority with the right timing.  

“It is ludicrous to believe that asset bubbles can only be recognized in hindsight.” – Michael Burry

Extremes market bubbles can be seen in real time based on the distance of price from any reasonable valuations or projections. 

“If you are going to be a great investor, you have to fit the style to who you are.” – Michael Burry

Your investing methodology has to fit your own belief system, personality, and risk tolerance or you will not be able to stick with it during drawdowns in capital. 

“Sometimes markets err big time. Markets erred when they gave America Online the currency to buy Time Warner. They erred when they bet against George Soros and for the British pound. And they are erring right now by continuing to float along as if the most significant credit bubble history has ever seen does not exist. Opportunities are rare, and large opportunities on which one can put nearly unlimited capital to work at tremendous potential returns are even more rare. Selectively shorting the most problematic mortgage-backed securities in history today amounts to just such an opportunity.” – Michael Burry

Michael Burry in real time explaining that the mortgage market was wrong and that he was going to bet that it would collapse. When the market is wrong it will eventually show you by price moving back to reality. 

“In essence, the stock market represents three separate categories of business. They are, adjusted for inflation, those with shrinking intrinsic value, those with approximately stable intrinsic value, and those with steadily growing intrinsic value. The preference, always, would be to buy a long-term franchise at a substantial discount from growing intrinsic value.” – Michael Burry

Buying the best companies for growth and earnings at a value price creates great risk/reward ratios and increases the probability of making money. 

“However, if one has been playing the buy-and-hold game with quality securities, one has been exposed to a substantial amount of market risk because the valuations placed on these securities have implied overly rosy scenarios prone to popular revision in times of more realistic expectation. This is one of those times, but it is my feeling that the revisions have not been severe enough, the expectations not yet realistic enough. Hence, the world’s best companies largely remain overpriced in the marketplace.” – Michael Burry

The problem with buy and hold investing is that the stock market reverts to the mean. Prices always return to their real valuations and it causes big drawdowns in capital since their is no exit strategy to lock in profits. 

“My positioning with my investors was always, I need three to five years.”- Michael Burry

Even the best investment and trading strategies need at least three to five years to play out. The short term can be random but over the long term over multiple market conditions an edge will play out in your favor. 

“Volatility does not determine risk.” – Michael Burry

Your position sizing, stop loss, and time frame determine your risk not the volatility of price action.  

“At one point, I recognized that Warren Buffett, though he had every advantage in learning from Ben Graham, did not copy Ben Graham but, rather, set out on his own path and ran money his way, by his own rules… I also immediately internalized the idea that no school could teach someone how to be a great investor.” – Michael Burry

You can learn from investing and trading legends but in the end you have to create your own trading system that fits your beliefs about the market along with your own return goals and risk tolerance. 

“It is a tenet of my investment style that, on the subject of common stock investment, maximizing the upside means first and foremost minimizing the downside. The deleterious effect of permanent capital loss on portfolio returns cannot be overstated.” – Michael Burry

Your risk/reward ratio is one of the most important aspects to look at before entering any position. It is more difficult to make money back than it is to lose it due to a reduced capital base to work with. If you lose 20% you must make back a 25% return to get back to even. 

“Credit-default swaps remedied the problem of open-ended risk for me. If I bought a credit-default swap, my downside was defined and certain, and the upside was many multiples of it.” – Michael Burry

Futures and option contracts can help with risk management by defining the risk to the cost of the contract but leaving the upside unlimited.