Michael Burry's Big Short
TL;DR
Between 2005 and 2007, Michael Burry's Scion Capital purchased credit default swaps (CDS) referencing subprime mortgage bonds. When the housing market collapsed in 2007-2008, the trade returned approximately 489% net to investors over the fund's life. The position was NOT visible on Form 13F — CDS are derivatives outside the 13(f) securities list — but the broader trade is one of the most-studied short-thesis cases in modern investment history.
Michael Burry's 2005-2008 subprime trade is documented in detail in Michael Lewis's The Big Short (2010), Burry's own 2008 investor letters, and a 2010 New York Times op-ed Burry wrote describing the thesis. What follows is a factual reconstruction from those public sources — useful both as historical context AND as a worked example of what 13F filings CAN'T show you.
The thesis (2005-06)
Burry's thesis, developed by reading actual mortgage-backed-security prospectuses, rested on four observations:
- Underwriting deterioration — no-doc, stated-income, and option-ARM loans had grown from negligible to majority share of new origination
- Adjustable-rate reset cliff — many 2004-2006 vintage loans had 2-3 year teaser rates resetting to materially higher payments in 2007-2008
- Geographic concentration — subprime origination was concentrated in California, Florida, Arizona, Nevada — markets with the largest price appreciation and weakest fundamentals
- Rating-agency mispricing — BBB-tranches of mortgage securitizations were rated to imply default rates incompatible with the underlying loan-pool characteristics
The trade structure
The trade vehicle was credit default swaps — specifically, CDS on individual residential mortgage-backed securities (RMBS) tranches and on the broader ABX subprime index. Mechanics:
- Long the CDS — Burry paid quarterly premiums to dealers (Goldman Sachs, Deutsche Bank, others) for protection against default on specific RMBS tranches
- Mark-to-market drag — as house prices kept rising in 2006, the CDS premiums went up; Burry's monthly P&L marks LOOKED like losses despite the underlying thesis strengthening
- Investor revolt — Scion LPs threatened redemptions in 2006-07 as Burry continued paying premium against rising market
- Defaults begin Q1 2007 — early subprime defaults hit New Century, Fremont General, others; CDS premiums began converging to par on the bad tranches
- Massive realization 2007-08 — as Bear Stearns failed (March 2008) and Lehman (September 2008), the CDS protection paid out as ratings cascaded down and underlying tranches defaulted
Why this trade isn't in 13F filings
Credit default swaps are NOT 13(f) securities. The trade is visible only in: (a) Burry's own investor letters and quarterly commentary, (b) court filings from subsequent CDO-related litigation, (c) regulatory disclosures from the counterparty dealers, and (d) Michael Lewis's book reconstruction. Form 13F would have shown only Burry's LONG equity positions during the period — primarily a value-style portfolio of insurance and financial stocks, some of which BURRY SUBSEQUENTLY SHORTED but the shorts didn't appear on 13F either.
This is one of the cleanest illustrations of the 13F transparency gap: a trade that defined a fund's career was structurally invisible to public-filing- based research. The complete picture required reading investor letters AND public filings AND counterparty disclosures together.
Outcome and aftermath
Scion Capital posted a return of approximately 489% net of fees over its life, most of which came from the 2007-08 housing CDS trade unwind. Burry closed Scion to outside investors in 2008 and continued managing his own capital through Scion Asset Management, which has been a regular 13F filer since 2013 — these are the filings HoldLens currently tracks for Burry.
Burry has since publicly disclosed shorts on the SPY ETF, Tesla, semiconductors, and various individual names in subsequent years. Some of these shorts appear on 13F filings as put-option positions; some are visible only in his X posts; some never surface publicly until disclosed in retrospect.
Our view
The Big Short is the canonical example of why 13F-based research has a structural ceiling. Form 13F shows long US equity positions only — no shorts, no CDS, no foreign securities, no most derivatives. A fund manager running a substantial market-neutral or short-biased strategy will appear on 13F as a partial picture, often dramatically smaller than their actual economic footprint.
For HoldLens reading: Burry's current Scion Asset Management 13F is useful for tracking his long-side positioning, but it is NOT the complete picture of what Scion is doing. The 13F is a window, not the room. Use it for the directional read on long-side exposure; use Burry's own commentary (X posts, occasional letters) for the strategic context that 13F structurally can't carry.
Pure-reference encyclopedic entry for Form 13F (where Burry's long positions are reported) on our sister site: secfilingdex.com/learn/13f — including the 13(f) securities list that defines what 13F can and can't show.
Foundational reading on short-thesis investing
Michael Lewis's The Big Short is the canonical book on this trade specifically. These foundations (Graham, Lynch, Munger) frame the value-investing lens Burry built his analysis on.
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Not investment advice. Historical analysis from public investor letters + SEC filings + counterparty disclosures. Methodology.
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The $5B preferred + 700M-share warrants at $7.14 strike. ~$13B paper gain at 2017 exercise.
Pershing Square's 2012-2018 multi-year activist campaign.
September 16, 1992. The single-day macro trade that broke the Bank of England.
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See Burry's current Scion holdings on HoldLens
Live Scion 13F dossier — Burry's current long positions, quarter by quarter. Sister property: SecFilingDex.