Michael Burry of The Big Short fame is back in the headlines this summer for gambling more than 90% of his portfolio on a market downturn. The eccentric hedge fund manager, who accurately predicted the 2008 subprime mortgage crisis, is the only Wall Street figure to have a film made in his honor; the 2015 movie by Adam McKay chronicles how this former doctor struck gold by taking ultra-speculative positions against the U.S. mortgage derivatives market. When the housing market, based on high-risk subprime loans, collapsed in 2008, Burry became a millionaire. And a legend. He has now bet $1.6 billion on a US stock market crash. There’s no sign his bet will pay off so far, but investors everywhere are holding their breath.
Burry’s ‘short’ bet against the unbridled US mortgage industry of 2005-2007 earned him $100 million in three years. His gamble is now considered one of the great punts in stock market history. It was not only about getting rich in a short period of time, it was doing so by going against the establishment. Who wouldn’t want that? But Burry isn’t the only Wall Street wizard and his is not the only winning tactic.
Each of history’s most famous investors has had a golden moment, whether it was putting the British government in a bind, investing in banks when the sector appeared to be in freefall or covering themselves against the economic and financial crisis caused by the coronavirus pandemic. Soros, Ackman, Tepper, Burry and Buffett are so famous, their stories have turned them into celebrities.
1. Buffett and his love affair with Apple
Born in Omaha, US, in 1930, Warren Buffett has been dubbed the world’s sharpest investor. He started from zero – well, not quite, as his father was a politician and owned a stock market firm – to become one of the richest men on the planet, with a fortune of $120 billion. The Omaha Oracle built up his capital through his company Berkshire Hathaway, whose investments have been spread across a wide range of businesses over six decades.
Buffett, 93, has shares in Coca Cola, Bank of America and Kraft Heinz. But if there is one investment that stands out above all others, it is Apple. He first bought shares in the iPhone firm in 2016, relatively recently, but the performance of the stock has been so spectacular that it now represents 51% of his entire portfolio, something he has never experienced before.
Buffett had always stressed the importance of diversifying investments. Until his windfall with Apple, that is. His conglomerate Berkshire Hathaway bought securities in 2016 worth $1 billion. And then it kept buying. And the stock kept going up. In total, the group is estimated to have invested $36.3 billion in the Apple brand, now worth $194 billion, thanks to an average revaluation of almost 400%. In absolute terms, this represents an enormous $158 billion in just over six years, of which $40 billion belongs to Buffett. Never before has anyone earned so much from one investment in such a short time.
2. Bill Ackman: a hedge fund that vaccinated against Covid-19
New Yorker William Ackman, 57, belongs to a very different breed of investor. He studied art at Harvard, where he later earned a master’s degree in business. Although he started out in a conventional asset management firm focused on stock market investments, he soon became more attracted to the world of hedge funds. The domain of experienced investors and professional traders, this type of vehicle allows for a huge degree of flexibility: investors can take on debt, they can bet everything on one asset, and they can take short positions in order to profit from the devaluation of an asset.
After a brilliant career, Bill Ackman created his own hedge fund, Pershing Square Capital Management, in 2004. Starting with an initial capital of $54 million, it now manages assets worth almost $20 billion. The activity of a hedge fund manager is very different from that of a conventional investment manager. They often take positions in a company to act from within and encourage a change of direction or facilitate a merger. And when they bet on the devaluation of stock, they may – controversially – launch campaigns to undermine the company in question by highlighting its flaws. This is what Ackman’s hedge fund did with Herbalife, accusing it of running a pyramid sales scheme. However, the $50 million spent on a public relations campaign against the company proved ultimately unrewarding as its share price continued to rise four years after the onslaught began, and he was forced to abandon his strategy.
But betting on the devaluation of stock did work…
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