Real Fund Manager Reacts To The Big Short Mad Investor Scene

All right, all right. Welcome back to the channel. Today we got a reaction video. This one's from The Big Short. This is actually one of my favorite scenes. A lot of these reaction videos are blind. I've never seen it before. This one I have seen before. I love The Big Short. Great movie. One of my favorite finance movies I've ever seen. If you haven't seen it, go check it out or watch it on VidAngel if you want to bleep out all the words and everything like that. But it's a fantastic movie. So this scene you're about to see is about Michael Burry. He's going to get confronted from one of his investors. I actually use this example A lot when I talk to people about funds. This epitomizes why funds are so incredible. Why most people that are successful in finance end up running a fund. This little scene right here shows you exactly that reason. Now, if you're new to this page, my name is Bridger Pennington. We talk everything funds and finance on this page. I've launched 2 investment funds, launching a 3rd fund right now. And we help people launch and scale their own investment funds in private equity, hedge funds, venture capital, real estate funds, debt funds, almond farm funds, for crying out loud. We've helped dozens and dozens of people launch and scale their funds. So with that introduction, let's dive into this clip from The Big Short. Okay, so this is Michael Burry, played by Christian Bale. He comes off as very, I don't know, Asperger's or autistic, something like that. He's got a glass eye, very, very technical, and he just digs through numbers, kind of a quant kind of guy, not very social, right? You'll see his social cues aren't the greatest. But that's okay, there's a lot of funds that run off like this. And by the way, Michael Burry's a fun guy to follow online. He recently this year shorted all, pretty much as much as he could, US Treasury bonds, he shorted Tesla, he shorted a lot of different big things. He has these big plays with his fund. He's kind of known as this short, ever since this too as well, he's been just famous for shorting markets. And so it's fun to follow him and see what he's doing. Alright, so let's see what he's got here.

Value screen master.

So he's listening to loud music in his office. He's got a bunch of math. They're down 9.3% right now.

He's letting the fund tank.

The people outside too, just, they're like, man, no one can talk to him. Is that the real Michael Burry? Holy crap, hold on one second, hold on one second. Didn't that look like the real Michael Burry? Hold on. Okay, hold on, hold up real quick. That looks just like the real Michael Burry. Okay, hold up. Here we go. There's Michael Burry. That kind of looks like him. Am I insane? Is Michael Burry in The Big Short? He might be. Let me see.

Let's Google it.

Hey, we got Google. Yeah, it doesn't look like he's in it. Okay, come on though. Like, am I— it's a side note, but I think that looks just like Michael Burry. Maybe it's his son or something. All right, back to the reaction. We may have found a cameo Michael Burry in the— that looks, man, that's crazy though. It looks just like him. All right, so this scene, Michael Burry's been running—

they have already shorted the housing market.

Okay? They are every month are paying premiums to hold their short position. That was one of the biggest things. He knew it was going to crash. He just didn't know when. So every month, imagine every— I don't know what the payments were, but imagine every month you're paying out $1 million or $5 million or $10 million a month. You are paying out every single month to hold your short position because you believe it's going to go down. Their fund is already down 9.3% this year. And right here, you're going to see one of their biggest investors walk in. So this is a big investor. No, he actually prefers— He's coming in there like, oh shoot, like crap, we got to stop this guy. And Michael's just got his music playing. They come in.

Hey, Lawrence.

They're like, shoot, what's going to happen?

We have no confidence in your ability to identify macroeconomic trends.

I don't know if you heard that. He goes, I have no confidence in your ability to identify macroeconomic trends.

You flew here to tell me that?

Why?

Anyone could see that there's a real estate bubble.

Actually, no one can see a bubble. That's what makes it a bubble.

That's dumb, Lawrence. There's always markers. Mortgage fraud has quintupled since 2000, and the average take-home pay is flat, but home prices are soaring. That means the homes are debt, not assets.

So Mike Burry of San Jose, a guy who gets his hair cut at Supercuts and doesn't wear shoes, knows more than Alan Greenspan and Hank Paulson.

Oh, Dr. Michael Burry, yes he does.

It was Dr. Michael Burry. You can kinda see, right? He's quite an interesting character. So this is a common thing that happens, okay, in the fund world. Investor, now this is fund syndications, anything. Anytime you take investor money, This is a common situation. Investor comes in, their patience has worn thin. Where's my money? My return isn't here yet. What's going on? And they'll do different things, right? And it depends on your structure of your entity and business. You'll see this just play out in a second, but you'll see Steve Jobs gets voted, the investors got together and voted him out of Apple. OK? That's in an Inc. In a syndication, sometimes people syndicate money together. The money can also vote and decide. Inside of a fund, when you set up a fund, investor comes to get mad, you say, screw you. I have the fund. If you want to pull your money out in our little LP and PPM, you can. And you can write the rules. That's the best part of a fund. Hey, you want to pull your money out? Cool. It's a 50% penalty to pull your money out. Funds give you so much control. Watch this scene.

That's cute. That's cute. Are you being sarcastic with us, Mike?

He's really getting in his face.

Lawrence, I don't know how to be sarcastic. I don't know how to be funny. I don't know how to work people. I, I just know how to read numbers.

How big's your short position right now?

$1.3 billion.

And the premiums?

Well, we pay—

$1.3 billion if you didn't catch that.

Roughly $80 to $90 million each year.

So, yeah, like I said before, $80 to $90 million a year he's paying in premiums. So, every month, he's paying out $5 to $10 million to hold this position to these banks.

The first to do this trade. Watch, it will pay. I may have been early, but I'm not wrong.

It's the same thing! It's the same thing, Mike!

You're managing a fund of, what, $555 million? In 6 years, it'll all be gone. On one—

So yeah, I mean, it's a good point. If you, $80, $90 million a year, 6 years, it's in, the whole fund is gone on one position. I mean, that is a confident bet. And, uh, yeah, it's pretty crazy.

The second quarter of '07 is when the adjustable rates kick in, and the defaults will skyrocket.

Yeah, says you.

How much is eligible for withdrawal before they do, say in the next 2 quarters, if your investors panic?

$302 million.

My God, Mike.

No.

$300— so if you didn't catch that, $302 million investors could withdraw if they wanted to, and they can— that's how much they could pull out, but the rest of it is locked up. I mean, it is— it cannot be pulled out. Even if investors panic, get mad, it cannot be removed.

No one will pull out. That would be suicide. I mean, I'm down 17% for the year, but if they trust me, and they trust me because I've already performed— No one—

No one trusts you!

No one! I sent several emails to my investors letting them know that the—

Several emails to my investors and we're down 19% this year, but it's okay.

The second quarter of '07 is when our housing positions show returns, and, uh, um, I've been very clear.

People will withdraw their money.

George, that would be so stupid.

I mean, So it depends, like I said before, it depends on how their fund is set up. Some funds, investors can withdraw their money on certain terms or certain notices or certain penalties. A lot of hedge funds you can withdraw your money with a 6-month notice, it just depends, right? It just depends on what they wrote. Sometimes it's a year, sometimes it's 2 years, it depends, okay? And he's saying investors are gonna panic and pull out their money if they know what's going on.

If the fund's capitals drop too much, then the swaps contracts Are voided, and then the banks get to keep all of the collateral.

Wait a minute, wait, what? The contracts are voided? The contracts are voided? Holy shit.

So if, yeah, if investors pull out, the contracts are voided, which is, you know, even a bigger bet.

Oh, motherfucker.

Michael, give me my money back. Michael, do you hear me? I want my money back.

So this investor wants his money back.

Give me my fucking money back, you motherfucker.

And I believe if I remember right, Michael just said, I think he says, no, tough. We're doing this, right? And it's, that's the beauty of running a fund. Now, Of all the examples that you see in The Big Short, Michael Burry's, I believe his position was the most risky. I mean, this dude went all in with his entire fund. These other guys, they put a piece or a little bit in, you know, they still were sane. Michael Burry was insane and he put $550 million, pretty much his whole fund in this, I think it was a $1.3 billion short position paying $80 to $90 million premiums a year. It's crazy, okay, just absolutely crazy. What they did. And it popped and it paid off and he became one of the most notorious and greatest investors of all time after that big bet. Now, most managers I think would say, we're going to do a conservative approach to this, we're going to do different strategic bets and still be diversified with our strategy. Michael, it looks like he went all in on this thing and hey, it paid off. But again, back to what I was saying before, that's the beauty of running a fund. That little situation happens all over the world of business. Anytime you've raised money, whether it's a VC startup, whether it's a fund, a syndication, a house flip, situations like that happen a lot, especially when people feel squeezed or pressured, investor versus manager, and it happens a lot. Inside of a syndication, other places, the investors have a lot of weight to pull on things. Inside of a fund, I mean, you are so protected from investors inside of a fund. That's why funds are so Great, that's why most people that are successful in finance end up running a fund. It gives you a lot of control, it limits your liability, and it limits your risk. And that risk and liability comes from investors. You still have the same amount of risks of investing and doing business, but risks of investors trying to pull money out or move or try to strong-arm you into a certain deal. Sometimes an investor will come to you and say, hey Bridger, I didn't pay my taxes last year. Can you sell some of the properties and get my money out? 'Cause I just, I forgot to pay taxes. And you say, no, sorry, the properties are not ready to sell yet. We got to still build them and develop them. If we sell now, we'll lose too much money. And you say, tough, sorry. I don't serve individual investors. I serve the fund. My fiduciary responsibility is to the fund. And again, that's why most successful people in finance and investing in business end up running a fund because of all those reasons. Thank you guys so much, and I'll see you on the next episode.

Bye.