Michael Burry, the first guy to figure out how to make money from the subprime mortgage crisis, lost out in a way.
Burry saw the crisis coming. He realized he could make money from it by buying something called a credit default swap. This would pay out big time once crappy mortgage bonds failed.
Burry ran a hedge fund. He invested much of the money in his control in these credit default swaps. But this was a massive opportunity. Burry wanted to invest more. So he tried to raise money for a new fund, which would buy more credit default swaps.
Trouble was, Burry was an awkward guy, and not great at persuading. He shocked people with his predictions of catastrophe. Nobody gave him more money to invest.
Fast forward nine months. Burry’s ideas had spread around the industry. So another investor, John Paulson, attempted the exact same thing Burry had tried to do. From The Big Short:
“Paulson succeeded, by presenting it to investors not as a catastrophe almost certain to happen but as a cheap hedge against the remote possibility of catastrophe.”
This brings up a fundamental rule of persuasion. It’s perhaps the most important rule of them all:
Only tell people something that they are ready to accept.
In some situations, this can mean you don’t start with your biggest promise, your strongest proof, or your most shocking prediction. In the words of Gene Schwartz, the best thinker on this topic:
“The effectiveness of your headline is as much determined by the willingness of your audience to believe what it says, as it is by the promises it makes.”
So did Michael Burry lose out? Depends on your perspective. When it was time to cash in, Burry walked away with an estimated $100 million. John Paulson? $4 billion.
Want more billion-dollar persuasion ideas? Click here and sign up for my email newsletter.