Barefoot Investor: It pays to be a financial wolf and not a stock market sheep

It can pay to look past the ‘herd mentality’ that grips markets and make your own judgments, even if it makes you look stupid at the time.

Making money is never easy and making it quickly is even more difficult.

Investment legend Michael Burry met his wife on a dating website.

His profile read as follows:

“I’m a medical student with only one eye, an awkward social manner, and 145 thousand dollars in student loans.”

She wrote back: “You’re just what I’ve been looking for!”

(In other words, she was looking for honesty.) Burry was profiled in the book, and later movie, The Big Short, where he predicted the US housing meltdown before anyone else, and made himself a hundred million bucks in the process. My favourite scene:

Goldman Sachs: “You want to bet against the housing market?”

Burry: “Yes.”

Goldman Sachs: “Why? Those bonds only fail if millions of Americans don’t pay their mortgages. That’s never happened in history. If you’ll forgive me, Dr Burry, it seems like a foolish investment.”

Burry: “Well, based on prevailing sentiment, the market, the banks and popular culture, yes, it’s a foolish investment. But everyone’s wrong.”

Fast-forward to today, and Burry is back making three more ‘foolish’ bets:

First, he’s wagered a massive $680m bet against Tesla.

Tesla’s share price rocketed 743 per cent in 2020, making founder Elon Musk one of the richest people on earth.

Tesla CEO Elon Musk Picture: AFP

Yet just as the share price was roaring towards its peak last year, Burry said it was ‘ridiculous’ and started shorting the stock (which means that if Tesla’s share price falls then Burry can sell his Tesla shares for a profit).

It seems his bet is already paying off: Tesla shares have fallen 40 per cent from their all-time high.

Second, he’s said that he thinks Bitcoin is in a speculative bubble. (Duck for cover!)

Third, and most alarmingly, he believes that the massive money printing experiment the US is currently doing will lead to hyperinflation and economic catastrophe.

Here’s the point: while the stock market hits daily record highs, Burry is betting on doom ahead. So, is he right?

Well if you’ve been following me for any time you’ll know how I feel about short-term predictions. Studies have repeatedly shown that they mostly come down to luck. No-one has a crystal ball.

Yet what’s interesting to me is Burry’s psychology: he’s proven that he’s willing to look past the ‘herd mentality’ that grips markets to make his own judgments, even if it makes him look stupid at the time.

In other words, he’s a wolf, not a sheep.

Speaking of which, I met a few young rams the other day … apprentice tradies who were flipping crypto on their smoko.

These blokes, and just about everyone I talk to lately, are convinced that making money is quick and easy.

Now, I honestly don’t know if Burry will come out on top, or come a cropper.

But there’s one I do know: making money (and keeping it) is never easy. And making it quickly is even harder.

Tread Your Own Path!

TIMESHARE TRAGEDY

Dear Scott,

My husband and I are in our 60s and on the pension. In 2007 we went to an Accor timeshare seminar and signed up to their deal. We paid $22,000 upfront, plus an annual maintenance fee. We’ve only used the hotel three times (it’s always booked out). Yet we’ve been paying these annual fees ever since. Our bill this year was $990, and it goes up every year. We’ve been told we can’t get out of these annual payments unless we declare bankruptcy, or die. We’ve had to sell a lot of our assets to live. Help!

Julie and David

Hi guys,

This is outrageous.

You were robbed – with a pen – by a $12bn-dollar publicly listed company! At least with an old-fashioned holdup it’s done and dusted in a few minutes. These robbers are holding a gun to your head till the day you die! (Consumer group CHOICE found that timeshares can “lock you into contracts that run from 60 to 99 years, and can cost you as much as $450,000 over the long run”).

If I were in your shoes – pensioners on a low income – I wouldn’t pay them another cent. After all, they’ve already made their money twenty-fold from you. Fair cop!

However, if you do this they may play hardball and sic their debt collectors onto you, and even try and bankrupt you.

So it seems to me you have two choices: You can keep paying them till the day you die.

Or you can call the (financial) cops on these robbers. Give me a call during the week (when I have my financial counsellor hat on) and I’ll help you lodge a complaint with AFCA, the Australian Financial Complaints Authority.

WHAT THE FLIP?

Hey Scott

I just read your recent column and I have one question: how the flip do you not carry a phone? I’m quite interested in the logistics of such a daring lifestyle choice in this day and age.

Ben

Hi Ben,

I’m the first to admit my life choices aren’t for everyone, or even most. I went cold turkey last year and ditched my number, which had served me for 20 years. Today I have an Apple Watch that serves as a tracking device for my wife, family and close friends. In addition, it has an eSIM which allows me to make and receive calls (with AirPods), send voice-to-text messages, listen to podcasts, get directions via maps, order an Uber, and pay for things. I also carry around a notebook and pen, and can often be seen writing things down, or staring blankly into space. It started out as an experiment … but I don’t think I’ll go back. (Besides, I can always use my wife’s phone. Right, Liz?)

FINGERS IN THE JAM JAR

Hi Scott,

When kid #1 was born, I put $10,000 into an index fund for him. Kid #2 is now due and I’ve done the same. I have not set up the money in a trust, though. I DO NOT want to hand over the Jam Jar when they turn 18, unless the funds would help them with a home, business, etc. So do I have to sign them over at 18 to avoid capital gains tax? Or can I sign them over at 25, 30 or whatever?

Simon

Hi Simon,

Yes, if you bought them via a share broker, they’ll automatically transfer to your kids when they turn 18, and they’ll be free to cash them in and head off on a bender to Bali.

(An alternative to this is to purchase your index funds either in a family trust or via an investment bond, which allows you to nominate the age your kids can inherit the money.) So you’ve just created a trust fund kid, right?

Wrong!

Here’s how I’m doing it with my kids. Don’t hide the fact that you’ve invested money for them: it’s an awesome opportunity to show them how compound interest works.

But do let them know there will be NO handouts (and no Dad-sponsored Bali benders). Instead, set up what I call the ‘Barefoot Ladder’: Use the money to match them, dollar for dollar, for something they’re saving for: a car, a small business, a house deposit, plastic surgery (well, maybe not).

Either way, you choose what it is — and they work for it. And the harder they save, the more they get.

NIGHT-NIGHT, BAREFOOT

Hi Scott,

I’ve been a proud Barefooter for years. Last night my three-year-old son requested ‘The Doggie Book’ for his bedtime story. Thanks for being such a positive influence in our household.

Megan

Hey Megan,

That’s awesome! Take that, Bluey!

Scott

Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions

The Barefoot Investor for Families: The Only Kids’ Money Guide You’ll Ever Need

(HarperCollins) RRP $29.99

If you have a money question, go to barefootinvestor.com and #askbarefoot.

Originally published as Barefoot Investor: It pays to be a financial wolf and not a stock market sheep