Essentially, Bogle was belittling Michael Burry because (a) Burry had no formal training in finance and (b) Burry had attracted almost no investment money when he started up his hedge fund.Forbes magazine had less-kind things to say about hedge funds back in July 2001 in an article called "The $500 billion Hedge Fund Folly." Their conclusion then was that "hedge funds soak you with high fees and under-perform the market." In the 2001 article, Forbes proposed the following as a working definition of a hedge fund: "A hedge fund is any investment company that is unregulated, has limited redemption privileges, and charges outrageous fees." The author also enlisted the help of John Bogle, the Vanguard index fund czar, to make the case against hedge funds. Bogle obliged, noting that it is not realistic for investors to expect the hedge fund industry of more than 6,000 funds and $500 billion in assets to outperform the rest of the market over the long term.
This is a reasonable observation, and I don't necessarily disagree with him. Unfortunately, he then went on to pick a name at random from a hedge fund directory to disparage, saying: "I don't know what to do about Scion Capital, started by Michael Burry M.D. after leaving his third year of residency in neurology. He started it mostly with his own money, $1.4 million, and he's looking for more. His technique to manage risk is to buy on the cheap and, if he takes a short position -- I hope you're all sitting down for this -- it is because he believes the stock will decline."
But Bogle picked the wrong guy to ridicule.
Michael Burry, as readers of Michael Lewis' The Big Short know, went on to become an incredibly successful hedge fund manager who outperformed the S&P index by nearly 250-fold between November 2000 and June 2008. (And, no, that is not a typo. His fund was up 489 percent during that period net of fees and expenses vs. a rise of 2 percent for the S&P.) He is most famous for correctly predicting (and betting on) the demise of subprime mortgage bonds.
My takeaway lesson is that there are a small number of superb investors out there who can consistently beat the market. Michael Burry is one. Warren Buffett is another. Unfortunately, retail investors cannot identify such money managers except in retrospect; thus we are better off using index funds.