The Big Short 2015 Movie: Michael Burry's Success in Contesting Wall Street's Beliefs and Securing a CDS Product

Preface

The 2015 film The Big Short brought to life the story of Michael Burry, a hedge fund manager who successfully bet against the housing market in the lead-up to the 2008 financial crisis. Burry's journey, featuring deep research, unwavering conviction, persistent negotiation skills, and relationship-building, is a captivating example of strategic investment making.

Strategic Insights: Deep Research and Analysis

One of the most critical factors in Michael Burry's success was his extensive research into the mortgage-backed securities (MBS) market. Burry identified a critical flaw: many MBS were based on subprime mortgages, which were highly likely to default. This research provided the foundation for his investment thesis, making a strong case for the inevitability of a significant correction in the housing market.

Conviction in His Investment Thesis

Burry's investment thesis was not just a hypothesis; it was a conviction driven by rigorous analysis. Unlike the prevailing optimistic sentiment on Wall Street at the time, Burry believed that the housing market was fundamentally flawed. This conviction was his driving force, enabling him to propose a CDS (Credit Default Swap) product to banks. A CDS allowed him to bet against specific MBS, a unique strategy that set him apart from other investors.

Persistence and Negotiation Skills

The path to securing the CDS product was not straightforward. Burry faced skepticism and refusal from several investment banks. His persistence played a crucial role in overcoming these challenges. By explaining the value proposition of the CDS and the potential profitability, Burry gradually won over key decision-makers in the banks. His ability to negotiate and communicate the benefits of his proposal was instrumental in securing the necessary agreement.

Building Relationships

Strategic cultivation of relationships was another key element in Burry's success. Despite initial resistance, Burry developed strong relationships with key officials at investment banks such as Deutsche Bank. These relationships provided him with access to the financial instruments he needed to execute his strategy. His reputation as a savvy investor and risk-taker further enhanced his standing, fostering respect and attention from the banks.

Market Conditions and Favorable Environment

The financial markets at the time were ripe for a significant shift. Rapid growth in MBS and increasing investor demand for new products created an environment where Burry's CDS proposal was more appealing. This favorable market condition played a significant role in convincing the banks of the potential profitability and strategic value of the CDS product.

Conclusion

Michael Burry's success in convincing Wall Street banks to create a CDS product for his firm was multifaceted. It was the result of thorough research, unwavering conviction, persistent negotiation skills, and the strategic cultivation of relationships. These factors combined with the favorable market conditions made it possible for Burry to challenge prevailing beliefs and achieve his goals, setting a remarkable precedent in the history of financial investing.