American - Businessman | June 19, 1971 -
Lost dollars are simply harder to replace than gained dollars are to lose.
Michael Burry
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In essence, the stock market represents three separate categories of business.They are, adjusted for inflation, those with shrinking intrinsic value, those with approximately stable intrinsic value, and those with steadily growing intrinsic value.
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Back in 2005 and 2006, I argued as forcefully as I could, in letters to clients of my investment firm, 'Scion Capital', that the mortgage market would melt down in the second half of 2007, causing substantial damage to the economy.
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I had begun to worry about the housing market back in 2003, when lenders first resurrected interest-only mortgages, loosening their credit standards to generate a greater volume of loans. Throughout 2004, I had watched as these mortgages were offered to more and more subprime borrowers - those with the weakest credit.
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Regardless of what the future holds, intelligent investment in common stocks offer a solid route for a reasonable return on investment going forward.
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I started trading stocks, options and futures while I was at UCLA, using my earnings from working summers at the old IBM plant on Cottle Road. I never lost interest in how companies work. It's fundamental to who I am.
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In June 2005, mortgage rates were at 40-year lows, and risk premiums on mortgage securities were at all-time lows. Once the banks migrated to the subprime area, there was little else that could be done to send housing prices higher.
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In early 2005, I really studied the prospectuses of these mortgage pools that were tranched out into different-rated slices rated by agencies like S&P and Moody's. They had names like Park Place and People's Choice. It was clear to me that many of the buyers of these repackaged subprime mortgages were doing little analysis.
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