Michael Burry was a neurologist in residency with Asperger’s syndrome when his meticulous and data-driven skill set was first discovered by investors.
After posting a message on an investing blog about how he was sick of medicine and wanted to switch career fields, he was contacted by two major stock market investors.
Over the course of the next few years, Burry’s market predictions were so accurate that he gained recognition, picking up on key details that others had missed.
This gave him an extreme edge when analyzing stocks.
His success and the following he gained, led him to build the connections that enabled him to found Scion Capital in 1996.
And in 2003 and 2004, an unexplainable anomaly made him begin pouring over housing loan data.
Something did not add up mathematically, and he couldn’t rest until he figured out what was going on.
The data and the messages being portrayed to the public contradicted each other. And it soon became obvious that many of these subprime loans were not what they appeared or pretended to be.
Burry’s two years of research led him to believe that an unprecedented national housing crash would destroy many of Wall Street’s most leveraged and reckless banks.
Obsessed with his discovery, in 2005 Burry invested his entire hedge fund into credit default swaps or CDSs. These are insurance policies that let him bet against the subprime mortgages. He was predicting a meltdown.
If a subprime bond based-security defaulted, he would get a major payday.
Burry was 100% convinced by the data.
But his investors were not so certain. In fact, many began suing him to get their money back.
Because in 2005, the mortgage market didn’t melt down. U.S. housing prices kept rising.
They also kept rising into 2006.
And insurance policies, like CDSs, cost money.
So throughout this time, Burry began losing money.
And his clients paying 2% management fees, were not happy about it.
This caused extreme stress for Burry, but he could not back down.
For Burry this was a matter of 2 + 2 = 4. He could not change course.
Finally, late in 2006, his data driven prediction started coming true. Home prices started to fall.
In 2007, 25 home mortgage originators went bankrupt in the first quarter alone.
But there was a problem. All his money was in CDSs.
And the value of the CDSs are not tracked like stock prices.
They are marked daily by the banks that originate these loans and insurance policies against them.
Burry couldn’t make any money unless the big banks he was betting everything against – admitted these loans were failing – and that his insurance policies were increasing in value.
But what did the big banks do in 2007?
They lied.
They claimed their loans were just fine, and that they didn’t have to pay off the insurance policies.
The same ones Burry had spent years buying.
Going into 2008, as the housing crisis became undeniable, Burry was faced with a war on two fronts.
His clients hated him for three years of losses.
And the big banks that lied, altered their accounting so that he could not receive the money he was owed.
But finally, later in 2008, everything changed.
Goldman Sachs flipped on the subprime loan market, shorting the heck out of it… Just like Burry.
This opened the floodgates.
Soon, Morgan Stanley was banging on Burry’s door, begging to buy his portfolio of subprime CDSs for $800 million.
In 2008, Burry had $150 million in his hedge fund. And decided to take the offer.
He gave his clients $700 million in profits, and was able to keep $100 million for himself, making a nearly 500% return in eight years (when the market was flat).
But sadly, Burry was not treated as a hero by his investors.
And the amount of vitriol Burry had received over the course of those three years was too much for him.
He closed the fund, and decided to simply manage his own money.
Until 2013…
An Excellent Change in Strategy
So why am I telling you this story today?
Last week, Michael Burry came back into headline news when he made a $1.6 billion dollar bet that the stock market is going to crash.
But this time he’s not putting all his money into one big bold conviction bet.
Burry is combining it with high-quality dividend blue chips.
In addition to betting $900 million against the S&P 500 and $700 million against the Nasdaq, he’s buying deep value high-yield dividend blue chips like CVS and Stellantis (the old Chrysler).
Who knows when his prediction will come true.
Eventually another stock market crash is bound to happen.
But what I find more fascinating and credible is that he’s learned the power of high-quality dividend blue-chips.
These stocks pay you to get rich, which is the ultimate luxury and the basis of our income-oriented investment strategy at Wide Moat Research.
And best of all, it doesn’t involve years of waiting on a major conviction to play out.
Instead, you can live your life without stressing about every headline news article.
I just wrote about one play that can help you do that.
It’s yielding almost 8%… That’s more than twice the yield of CVS that Michael Burry is getting.
Its cash flow is 96% contracted or regulated, making it rock solid.
Not only has it raised its dividend for 23 consecutive years, but its yield is also the highest it’s been in 23 years. That makes this a once-in-a-generation opportunity to purchase this stock.
Instead of having to pay for our highest-conviction plays… We’ll be getting paid for them.
To find out what this pick is, click here to sign up for our Fortress Portfolio service.
The goal of Fortress is to accelerate your financial goals with high-quality dividend blue chips. And with the power of this portfolio, you can rest easily as you make money while you sleep.
If Michael Burry had learned this strategy sooner, those three years of sleepless nights could have been prevented.
We can’t all be stock market mathematical geniuses like Burry… But we can learn from their lessons and find a path to wealth with less risk and just as much potential upside.
Safe Investing,
Adam Galas
Analyst, Intelligent Income Daily