Michael Burry: Case Study: The Importance Of Following Your Own Rules

Johnny HopkinsMichael BurryLeave a Comment

In his March 29, 2001 Journal Entry, Michael Burry discusses two examples of when he failed to follow his own rules that cost him. Here’s an excerpt from the entry:

Investment managers are bound to be wrong many, many times in their lives. This is a business of managing emotion as much as managing money, and taking one’s lumps is the surest path to a more erudite view.

So it is time to own up to a few mistakes. In my last entry, I outlined my pessimistic outlook for technology shares based on the devious, unfriendly manner in which many tech managers try to hide the truth from shareholders. Two of my holdings do not reflect that pessimism.

DiamondCluster (DTPI, news, msgs) and London Pacific Group (LDP, news, msgs) were very big timing mistakes.

The same mistakes I made at the beginning of the last round — being overly optimistic as a new round gets under way, and under some self-imposed pressure to make some moves.

Optimism in such cases is rarely warranted. Nearly without fail, egg will befall one’s face. With stocks in freefall, I thought, “Well, these two are interesting situations and we have at least six months.” Unfortunately, every time I think like that I become cavalier in my timing.

The fact of the matter is I should always wait for my rules to kick in – and that includes waiting for falling knives to lay motionless on the floor before trying to pick them up. I violated these rules, and now I’ve lost two fingers to a couple of very sharp blades.

You can read the entire journal entry amongst a collection of his entries here:

Michael Burry, MSN Money Articles

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