Michael Burry, the investor who predicted the 2008 subprime mortgage crisis, is renowned for his deep value investment approach. By analyzing his letters to investors, we can gain valuable insights into his investment philosophy centered around ‘ick’ stocks – those deeply undervalued, unpopular companies that most investors shy away from. In this article, we will explore Burry’s perspectives on topics like ignoring market cycles, the importance of psychological discipline, and how to identify fertile opportunities amidst market manias.
Overcoming bias towards market cycles and popular stocks
Burry emphasizes not following the herd mentality of cycling in and out of ‘upgrade stocks’ based on market swings. We tend to have recency bias, anchoring our decisions to experiences in our lifetimes rather than long-term fundamentals. But prudent investors should focus on absolute value over market cycles and consider quality companies at irrational lows, not just jump on what’s become temporarily unpopular.
Cultivating contrarian thinking with ‘ick’ stocks
Burry coined the term ‘ick investing’ to describe pursuing obscure, unloved companies that turn off most investors. By overcoming the instinctive aversion to these stocks and objectively assessing their deep value, skilled investors can find rare opportunities for asymmetric returns. The key is contrarian, independent thinking to block out the noise and focus on facts.
Patience and discipline are essential for deep value
Success with deep value investing requires patience and discipline, rather than chasing instant gratification. Burry emphasizes focusing on your own goals and circle of competence, not what others are doing. Having an investing philosophy tailored to your needs and sticking to it despite volatility is key to long-term gains.
Michael Burry’s deep value investment philosophy provides timeless insights like ignoring the crowd, controlling emotions, and letting compounding work over time. His letters reveal how psychological discipline is vital to identify fertile ground where others only see ‘ick’ stocks.