Michael Burry: The Best Way For Investors To Minimize Risk Is… – ValueWalk Premium
Small cap equities Michael Burry

Michael Burry: The Best Way For Investors To Minimize Risk Is…

Here’s a great excerpt from Michael Burry’s 2001 Scion Capital Shareholder Letter in which he discusses the best way for investors to minimize risk saying:

Q2 hedge fund letters, conference, scoops etc

Small cap equities Michael Burry

Although an outsider might think the goal of prevailing modern investment practice to be one of mediocrity, there in fact remains much more competition to achieve gains in the market than there is competition to record losses. Laissez-faire security analysis paired to an entirely misdirected view of risk management nevertheless dooms most institutional portfolios to mediocre performance.

In fact, traditional risk management – centered on minimizing volatility in various forms – relies on theories that assume security analysis is a rather fruitless effort, courtesy of efficient markets. There is a great paradox in this line of thinking that should warn investors away from all portfolio managers that employ it. The correct view remains that risk is minimized not through the alchemy of volatility calculus but rather through respectful business evaluation.

Respectful business evaluation in turn requires respect for the boundaries of one’s fund of knowledge, however dynamic the boundaries may be. Venturing cash-first into unfamiliar territory nearly always results in either losses appropriate for the bonehead move or successes borne of dumb luck. Be assured that neither do I employ dumb luck as an input into my investment process nor do I count on its sudden appearance by my side. Risk management need not be more complicated than this.

You can read some of Michael Burry’s letters here – Scion Capital Shareholder Letters.

For more articles like this, check out our recent articles here.

Article by The Acquirer’s Multiple

Saved Articles

The Life and Career of Charlie Munger

Charlie is more than just Warren Buffett’s friend and Berkshire Hathaway’s Vice Chairman – Buffett has actually credited him with redefining how he looks at investing. Now you can learn from Charlie firsthand via this incredible ebook and over a dozen other famous investor studies by signing up below:

  • Learn from the best and forever change your investing perspective
  • One incredible tidbit of knowledge after another in the page-turning masterpiece of a book
  • Discover the secrets to Charlie’s success and how to apply it to your investing
Never Miss A Story!
Subscribe to ValueWalk Newsletter. We respect your privacy.

What’s missing today for many investors is real, straightforward advice.

Especially when it comes to Value Investing and Hedge Funds. 💵

That’s what makes ValueWalk Premium different. Some would say we’re “unusual.”

Our subscribers look forward to clear, easy-to-understand information they can act on.

Sign up for  today for only a few dollars a day and get a 3 day no obligation trial with a targeted 20% discount coupon code.

Cancel anytime during trial and you are never charged.

Limited time offer: For first 50 subscribers