Michael Burry, who became famous as an investor when he shorted subprime before the financial crisis, a story which was dramatized in The Big Short, is not a trained economist, and he has never gone to business school.
He is, on the contrary, a trained doctor.
Everything he has learned about stocks and economics, he has learned on his own by reading and investing, and it has made him a phenomenal investor.
The other day, he shared a picture of his favorite investing books on Twitter (N.B. the picture in this blog post is of my own bookshelf, as I don’t have the rights to use Michael Burry’s picture. You can see his tweet here.).
In this blog post, I will review the books that are on his bookshelf.
1. Securities Analysis by Benjamin Graham
But of course.
This is the bible.
Benjamin Graham went through the crash of 1929 as a portfolio manager.
In 1930, he thought the worst was over and borrowed money – on margin – to invest. He thought he was smart about it and buying at the bottom of a dip, but his fund suffered a loss of 70%.
He outperformed the market, which in the same period fell 80%, but who cares about details like that when you’re suffering: a 70% decline is dramatic and hard to make a comeback from. This meant, among other things, that Ben Graham did not receive any salary from his fund for five years.
That experience led Benjamin Graham – who in addition to running his investment fund also taught classes at Columbia University – to develop a special investment strategy, which today we call value investing.
Securities Analysis is the first and the most.
You can find it here.
He later wrote The Intelligent Investor, which is a slightly more readable version. You can find it here.
2. You Can Be a Stock Market Genius by Joel Greenblatt
There are different kinds of value investors.
Joel Greenblatt is a quantitative value investor.
What do I mean by that?
The quantitative fund managers invest according to certain metrics and key figures, and they invest automatically in a lot of companies.
The qualitative do the opposite. They handpick companies, analyze them carefully as whole businesses and only invest in a few companies at a time. Warren Buffett belongs to this category of investors (and so do I).
With investments in over 1,000 companies, it’s clear that Joel Greenblatt belongs to the quantitative kind (prioritizing automation and quantity over depth and quality).
If you want to know more about that strategy, he is the most well-known living proponent of the method (I say living because Benjamin Graham also invested this way).
You can find You Can Be a Stock Market Genius here.
He has also written The Little Book that Still Beats the Market, which you can find here. It is written for children in an easy-to-understand language.
3. The Making of an American Capitalist by Roger Lowenstein
Michael Burry has repeatedly said that it was Lowenstein’s biography of Buffett that got him on the path of value investing.
This week’s tweet also leads with a tribute to Lowenstein:
“The Making of an American Capitalist by Roger Lowenstein impressed upon me that Buffett is unique, and so must any investor be. Other books on my shelf.”
It’s a really good book. My own is full of handwritten comments, and I still look up stuff in it (for this blog post I looked up how much Benjamin Graham lost after 1929). You learn a lot about investing and Buffett’s style of investing from reading it.
You can find Lowenstein’s book about Warren Buffett here.
4. When Genius Failed by Roger Lowenstein
Roger Lowenstein describes the success and failure of the hedge fund Long-Term Capital Management in this book.
At one point, Warren Buffett actually tried to buy Long-Term Capital Management, which is narrated in Lowenstein’s other book above.
I haven’t read it yet, but I intend to, so not much to say about it yet.
You can find Lowenstein’s book on Long-Term Capital here.
5. All the Devils Are Here by Bethany McLean and Joe Nocera
If you liked The Big Short, this might be a book for you.
It’s about the financial crisis and what led to it.
Bethany McLean likes digging in the dirt. She has also written an eminent book about Enron, which you can find here.
Why should we spend time on the things in history that went wrong, like the financial crisis and Enron? You could argue that those things are over.
But they’re interesting to look at because we want to figure how to avoid them and how to navigate.
I have gone through a long list of bankrupt and fraudulent companies to see if there are any detectable red flags before companies collapse.
Those warnings signs can make a very important checklist that you go through before investing.
Obviously, we want a good return. To get a good return, there is one thing we must be able to steer clear of: the frauds and the bankruptcies. As Warren Buffett says: Rule No. 1 is, never lose money. Rule No. 2 is, remember rule No. 1.
You can find All the Devils Are Here here.
6. Atlas Shrugged by Ayn Rand
This is actually a fiction book from 1957.
Apparently, it describes a scenario very similar the financial crisis, and therefore the book has made a comeback.
I haven’t read it, but I’m curious about. It’s on my summer reading list now.
You can find it here.
7. Collateralized Debt Obligations & Structured Finance by Janet Tavakoli
With the subtitle New Developments in Cash & Synthetic Securitization.
It’s probably one of the books that helped Michael Burry when he shorted subprime before the financial crisis.
You can find it here.
8. Credit Derivatives by Janet Tavakoli
With the subtitle A Guide to Instruments and Applications.
Michael Burry’s version seems to be the one from 1998. You can find it here.
Janet Tavakoli has also published an updated edition, which you can find here.
9. Structured Credit Products by Moorad Choudhry.
It’s another one of those book that gave Michael Burry specialized knowledge that made it possible for him to see the bigger picture before the financial crisis.
You can find it here.
10. Three Collections of Buffet’s Shareholder Letters
It’s really nice to see what a big fanboy Michael Burry actually is.
He has all of Buffett’s letters in black leather books. There they stand on the bookshelf, like a priest’s favorite versions of the Bible.
He has three titles:
- Buffett Partnership Letters 1957-1970
- Berkshire Hathaway Letters 1977-1990
- Berkshire Hathaway Letters 1991-2001.
I can’t find the versions that Michael Burry has, but rest assured that you can find these letters online for free.
You can also purchase a collection that runs from 1965-2021 in Kindle version here for less than $4.
I have to admit, I have the Kindle version and I swear by using an e-reader. I have far more books in e-book format than in physical format. The e-reader is easy to travel with (I almost always travel only with hand luggage), and you can read in bed without turning on lights.
If it’s a theory-heavy book, I prefer to have it in a physical format so I can write and underline, and later pull it out and look at my notes. On the other hand, I always miss it when I’m traveling and can’t access it. Some books I have in both versions: physical and e-book.
Like I said: I have Buffett’s letters in e-format, but I’m envious of Burry’s delicious leather-bound editions.
Warren Buffett’s letters are a kind of highly esteemed bible for any of us.
11. Where Keynes Went Wrong by Hunter Lewis
The book is a discussion of whether Keynes’s financial instruments are still relevant.
I have not read it, but you can do so once you have ordered it here.
12. Financial Warnings by Charles Mulford
How can you detect the warning signs on fraudulent companies?
I love stuff like that, and this book from 1956 is now on my wish list. Unfortunately, it’s difficult to find. Let me know if you find it.
Who would not want to steer clear of the future Enron and Lehman Brothers? I would definitely like to read Financial Warnings, even though it was written over half a century ago.
You can see the book – but not buy it – here.
A Short Seller’s Books
What do I see when I skim Burry’s bookshelf?
There is no doubt that Michael Burry is a real value investor – a true fanboy.
I also see a mind with a focus on disasters and fault detection.
There is a lot of focus on the financial crisis, crashing, cheating and not much focus on how to spot a wonderful company (I would have liked to see at least one book on competitive advantages – or what about Philip Fisher’s classic Common Stocks and Uncommon Profits, which is about asking good questions to find good companies).
These are the books of a highly skilled short seller with one glass eye and one sharp eye on spotting problems.
Don’t forget to read my free e-book that explains my whole investing process – including my favorite way to calculate what a company is worth. You can get it here.
