Michael Burry: 5 Life Lessons That Made Him Rich (UCLA Speech)

A key life lesson that I learned in my early 20s is that the best way to get better at something is to learn from those who've already successfully achieved what you're trying to do. This made me realize that to be a better investor, I needed to turn off CNBC. I needed to try and instead digest as much information as I possibly could from people like Warren Buffett, Charlie Munger, Ray Dalio, and so on. When I read Michael Lewis's book, "The Big Short," I realized that I needed to add Michael Burry to that list.

But the problem is that Michael Burry, he's a really hard man to follow. He barely tweets; he doesn't really do any CNBC interviews, podcasts, or Q&As. There's really nothing. However, back in 2012, he did give a speech to graduates of UCLA, where he discussed five key pieces of advice that helped shape his way of thinking: principles that have led him to really quite phenomenal investing success. So, with that said, it gives me great pleasure to welcome the UCLA economics commencement speaker, Dr. Michael Burry.

Principle number one: Be ultra-realistic. From my earliest years, I found that life, for all its amazing possibilities, very often does not make sense and, at least as often, is not fair. Today, it is absolutely not fair, the world you're being dealt. There are many ways to deal with an unfair world; one may tune out, drop out, run away. One may get angry; one may fight. One could do, ultimately, what I did: accept the world for what it is, work hard to exploit the opportunities it presents, and try to do so in as just a manner as possible.

Now, "accept the world for what it is" probably isn't the most hopeful, uplifting quote you necessarily want to stick up on your wall, but it is extremely important to remember in order to think clearly and make rational investment decisions. In life, it's very easy to get swept up in what could be, as opposed to what is. However, in investing, this very often leads to speculation and poor decision-making. Because when it comes to finding investment opportunities, you want to ensure that you're buying something that is already high quality and undervalued right now, in current conditions. You don't want to speculate on something that might probably be good in the future but is mediocre today.

This application of ultra-realistic thinking is also something that Ray Dalio, the founder of the world's most successful hedge fund, Bridgewater Associates, also lists as one of his core principles for success. Truth is the essential foundation for producing good outcomes. Realizing that made me a hyper-realist, by which I mean I became someone who has discovered the great rewards of deeply understanding, accepting, and working with reality as it is, and not as I wish it would be. So if you want a simple way to vastly improve your decision-making, particularly in the realm of the stock market, just remember to be ultra-realistic.

And then that leads us to Barry's second lesson: Learn to question everything and don't assume that information from authoritative sources is always right. In 2010, I published an op-ed in The New York Times posing what I thought was a valid question to the Federal Reserve, Congress, and the president. I saw the crisis coming; why did not the Fed? Never did any member of Congress, any member of government for that matter, reach out to me for an open, collegial discussion on what went wrong or what could be done. Rather, within two weeks, all six of my defunct funds were audited. The Congressional Financial Crisis Inquiry Commission demanded all my emails and lists of the people with whom I had conversed, going back to 2003. A little later, the FBI showed up—a million in legal and accounting costs and thousands of hours of time wasted—all because I asked questions.

That summer, the Federal Reserve put out a paper that concluded nothing in the field of economics or finance could have predicted what happened with regards to the housing bust and subsequent economic fallout. Our nation's economic policies are born of a synthesis of theories on how to deal with the Great Depression of the 1930s, yet seem unable to honestly examine the most recent one. Sadly, at the highest levels of economic thought in government, questions are not tolerated. It is as if we are dealing with the binary judgment of a fundamentalist religion.

I find this really interesting: the biggest financial crisis since the Great Depression, and the government and the Fed refused to consider that their judgment was wrong. They refused to understand how the situation could have been predicted or avoided, even when people like Michael Burry saw it coming and they moved to either sidestep it or profit from it. Unfortunately, the truth of the world is that very few people actually do take the time to genuinely understand the truth of what they believe. I think there are a lot of people who simply trust what they have fed; they spread what they've heard. But there are very few people who actually take the time to go in and do the digging.

Socrates—look him up—oh, it's under Socrates. Oh yeah, the only true wisdom consists in knowing that you know nothing. This simply does not work when it comes to investing because, ultimately, the market doesn't care what you believe to be true. In investing, you make money by being right, so healthy skepticism is really a must for good investors. You need to question everything you hear and take the time to find the truth. Remember, sometimes even the most authoritative sources are wrong; you know doctors get things wrong, lawyers get things wrong, officials get things wrong. So no matter where the info is coming from, always question whether it's truly reliable.

And with that said, let's move on to lesson number three, which is actually very closely related to questioning everything: continuing to educate yourself throughout life. Now, there are two kinds of working hard: you can work smart, or you can work dumb. When I was in sixth grade, my dad dumped a pile of bricks in the backyard, and after school, he had us move the bricks to the side yard. The next day, he had us move them back to the backyard. The next day, back to the side yard, and so forth. This continued for quite a while. I'm not sure what he intended by this, but I did learn that hard work for hard work's sake alone would not do.

Later in observing the 10-year system so endemic to academic ventures, I would think to myself, "Hey, they're just moving a pile of bricks." In fact, I began to doubt traditional education. I committed myself to educating myself as opportunities arose. Each of your lives individually is an epic chance. You can leave here today and choose to never stop learning, never to stop asking questions. I must say it will not be without staggering difficulties. There will be times when you will stare at yourself in the mirror and wonder why. But faced with a setback, you will be most creative. Under stress, you will think better and act stronger.

I definitely agree with Michael Burry here. There are a lot of people who get super pumped to leave school because they think it means their education is done. In my opinion, that is a very bad mindset to have. Because even from my own experience, I can say that almost all of the most important lessons I've learnt in life have come after I left university. I left university with very limited negotiation and communication skills. I left really without any understanding of financial markets and investing. I had zero understanding of running my own business.

But forget about me; let's just apply this more specifically to just investing. You know, say you left uni six years ago with a finance degree, and then you just stopped learning. Well, I don't know about you guys, but the economy looks a hell of a lot different even now to what it was six years ago. You know, interest rates, inflation, supply chain, geopolitical factors—all the stocks you looked at six years ago are radically different today. In investing, you really can't get away with burying your head in the sand. You need to keep educating yourself continuously, as much as possible, to even stand a chance. Definitely keep learning.

And with that, let's move on to the fourth key lesson in Michael Burry's talk, and this one is to acknowledge that we are very privileged to have more information at our disposal than ever before. Twenty years ago, I had no Internet, no smartphone, no cell phone. I don't think you know, but I did invest my summer earnings in stocks and futures, and I remember being absolutely starved for information. I had to send away for financial statements, sometimes waiting weeks for a response. I would take a near daily trip to Westwood to pick up a Wall Street Journal to check yesterday's stock quotes.

Today, it's much different. Information swarms us; it comforts us; it disrupts us. It's an age of infinite distraction. For those so willing, you are the generation that has had instant messaging, Facebook, Twitter, and Angry Birds nagging your fingertips at every moment. It's been arguably as addictive as any drug throughout history. I do imagine it took some terrific willpower during your studies to focus. You hear a lot of successful investors talking about how difficult investing was back in their early days, and I think it's important to remember that from an information accessibility standpoint, now is a better time to invest than literally ever before.

We have so much data that is publicly reported, and from that data, we have access to countless resources that go ahead and analyze it all. So we really should be thankful that we have this access to all of this information that helps eventually guide our decision-making in our investing. But also, on the flip side, endless information can be incredibly distracting. So you want to watch interviews with the CEO, you want to watch factual reporting about the industry and production and headwinds and tailwinds, and so on. But you also need to remember that these days, every man and his dog has an opinion on every stock. So use data to guide your decision-making, but don't let opinion pieces sway you into making poor decisions in the market.

With that said, let's now move on to Michael Burry's last lesson from this talk, and this one is well summarized by Warren Buffett's rule number one of investing, which is: Don't lose money. Now, Michael Burry, in this next clip, instead uses the medical version of this phrase: Do no harm. If you are considering a career on Wall Street or in Washington, D.C., you should be aware of the social proof that operates there. This is that many, if not most, people will be doing questionable things that obviously make money and obviously earn respect from common peers. If you find yourself in such a place, I would ask you to consider a rule I learned as a physician: First, do no harm.

Besides, life is not that short. Life is well and long enough for you to come to regret any activity or habit involving the exchange of long-term risk for short-term benefit. This is what many, if not most Americans did during the refinancing and consumption boom of the last decade and what our government did in egging on the boom. This is also the gospel of drunk drivers and cheating spouses. Of course, when you encounter the opposite—the short-term risk exchanged for long-term benefit—consider hitting that button again and again and again.

Now Barry applies this to working in Wall Street, but really this applies to all investors that manage their own portfolios. You know, do no harm, as all the great investors say, investing isn't just a game of hitting winners; it's also a game of avoiding losers. As Barry says, don't ever get trapped into chasing short-term gain while taking on long-term risk. It might work out once or twice, but if you make a habit of doing that, it's only a matter of time before your portfolio comes crashing down. However, as Barry notes, if you can do the opposite—take on some sort of short-term volatility for long-term gain—you want to hit that button again and again.

But overall, don't forget the important rule: Do no harm. And with that said, guys, that will do us for this video. Thanks very much for watching! Definitely leave a like on the video if you enjoyed it, subscribe if you haven't done so, and check out the links in the description for Profitful, New Money Patreon, and New Money Clips if you're interested. But guys, apart from that, thanks very much for watching, and I'll see you guys in the next video.

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