Final Draft
Overview of Michael Burry and Warren Buffett's Business Letters
We looked at the discourse community of business as it is our major area of study. When looking for texts, we decided to take a look at how accomplished investors of recent memory communicate to their audience (shareholders/investors in the company) using appeals, canons, and analytical tools. The genre used for this scientific discourse is business letters. We felt two of the most relevant investors to our scientific discourse were Warren Buffett (Berkshire Hathaway) and Michael Burry (Scion Capital). We picked these two investors to analyze because of their opposite nature of communication to their investors and shareholders. With this in mind, we felt it would be most appropriate to analyze all three appeals, as well as style, audience, and purpose. We feel these aspects allow us to properly analyze the letters as well as compare and contrast them between each other. Additionally, in order to help us to better understand the necessary components of what goes into successful business writing, we felt it was most appropriate to interview our business writing professor, Dr. Forsa.
Interview with Business Writing Professor
When we conducted an interview with our business writing professor Dr. Forsa, we wanted to ask questions about what she felt were critical aspects to business writing. In doing so, she explained to us that some key aspects to incorporate in business writing. These included completeness, concreteness, correctness, consideration for audience, clarity, and conciseness. In these aspects, she emphasizes the importance of business writing being informative and providing facts/statistics. She also talked about having a confident tone and clear, concise language. This would help in making writing straight to the point, which is the main goal of business writing. Dr. Forsa mentioned the importance of your writing being audience centered as well to help it be effective. Dr. Forsa talked about how the difference between ethical and unethical when making writing business effective. In conclusion, Dr. Forsa provided us with important aspects to look at when analyzing our letters for Michael Burry and Warren Buffett.
Michael Burry’s January 8, 2001 Business Letter to Scion Value Fund Investors
In Michael Burry’s letter to his investors in 2001 he talks about how he had a great year by outperforming the S&P 500 by 14.08%. He as a manager breaks down how his capital allocation decisions are based on the value of a individual investment. This strategy helps with the fund not revealing individual portfolio decisions in order to obtain supra-normal returns. Burry then defines how his fund is in fact a hedge fund that feels its best hedge is one that buys stocks that are safe and cheap. Burry feels as if this tactic helps with minimizing the downside potential of the portfolio. Burry promised his investors the high expense ratio they had will decline in the future as a result of the fund having more assets under management. As Burry’s letter continues he talks about how he made an agreement with Gotham Capital V., LLC and White Mountains Management Company to give up a percentage of Scion Capital to these companies in order to jump start assets under management. As a result, funds expense ratio will be reduced, while Burry will still retain majority interest in Scion Capital. Burry concludes his letter by telling his investors the $1 million he has invested in Scion Capital, and telling them how Scion Capital is the only fund he invests in.
Through looking at the summary of Michael Burry’s 2001 business letter I was able to analyze the appeals of ethos and logos, and canon of style. One way is he used ethos was telling his investors his fund outperformed the S&P 500 by 14.08%. This significant because Burry states how he utilizes the S&P 500 as a benchmark for the market. By outperforming the market by 14.08% it gives his investors credibility and confidence in his abilities as a manager of the fund's portfolio. Another appeal Burry used was logos as he gave his investors the best way to go about buying stocks is for them to be safe and cheap. This proves to be logical because you want to minimize the downside risk because that is money you can’t get back. If you were to gain a lot of money in an investment you can afford to lose it. I then looked at the style he used in his 2001 letter and saw how his tone had great confidence with in it as his fund had a great performance during the year. He stated confidence by saying, “Over periods greater than 5 years you should rightfully expect the fund to beat the S&P 500 handily.” Burry told investors the fund would outperform the S&P 500 “handily” is a strong confident statement to say the least.
Warren Buffett’s 2001 Letter
In Buffett’s 2001 letter to shareholders, he explains his poor performance of late and is clearly very upset with himself. He assures investors that neither he nor his wife has ever sold a share of their stock and they don’t intend to moving forward. He reiterates that over 99% of his net worth is invested in company stock. Buffett is also quick to remind his investors that he cannot replicate his massive returns from early in his career due to the size of his fund as presently constructed. Nonetheless, Buffett does still admit that he must do better and expects better of himself moving forward. For the year, the book value of Berkshire Hathaway decreased by 6.2% compared to a negative return of 11.9% on the year for the S&P 500 (including dividends). Therefore, Buffett still outperformed the market despite being so critical of himself. He goes on to talk about his acquisitions for the year and how they will help Berkshire Hathaway moving forward. At the end of the letter, he takes time to tout the staff that works at Berkshire and the fact that he has hired 40,000 employees in the last year.
Throughout this letter, we can see Buffett appeal to the reader’s ethos, pathos, and logos. When he talks about how he is disappointed in his recent returns, it is clear he is trying to persuade investors to stick with him using more of an emotional sense or pathos. He uses an ethical appeal, or ethos, when discussing how CEO’s can walk away with such vast fortunes while leaving shareholders in the dust. In order to get this point across, Buffett tells an anecdote which can also appeal to the reader’s emotions. It is important to note that Buffett ensures that many of the executives of the companies he bought in the year 2001, he made purchase an extensive amount of shares so that these executives are working on their own behalf. This only furthers the ethical appeal he makes to his readers. When using logos, Buffett is sure to use exact numbers to explain his logic. For example, on page 7 of the document, he uses an approach where he has a chart of numbers relevant to what he is discussing and refers back to it consistently. I classify this as a logical appeal because of the way Buffett does not try to confuse his readers but rather help explain exactly what is going on. Through his writing, it is easy to encompass exactly how logical and rational of a thinker Buffett is. This can be related back to what Dr. Forsa said in our interview when she emphasized the importance of being informative and providing facts/statistics.
Similarities and Differences between Buffet and Burry’s 2001 Letters
In choosing the two letters, we thought it would be appropriate to choose letters from 2001. The reason for this is partly because Scion Capital was only in existence from 2000-2008. However, we felt strongly that because 2001 was the year after the tech wreck, it would be interesting to compare how they handled adversity and communicated it through scientific discourse.
One of the key differences these two titans of their industry had in 2001 was their vastly different returns. Burry returned 2.08% while Buffett returned negative 6.2%. Speaking to this, Burry displayed a much higher level of confidence throughout the 2001 letters, raising his credibility. On the contrary, Buffett was upset with his returns. At this point in time, there were a lot of people questioning if Buffett’s value investing style was still as effective. His credibility throughout this time period certainly took a slight hit. As Dr. Forsa mentioned it is important to have a confident tone in business writing, while also being audience centered. It is clear that Burry has a higher level of confidence then Buffet, however this is not to say that Buffett is not confident. It is interesting that Buffett makes up for this lesser confidence through his reader centered style. Burry is not quite as reader centered like Dr. Forsa suggested, however he is so straight forward that his credibility is high.
Similarities between the philosophies of these two men are striking. Starting off, they both have the mentality of minimizing downside as opposed to maximizing upside. This is particularly interesting when talking about Burry as his fund is a hedge fund. Hedge funds are notorious for taking risks, but Burry is not swayed so easily. Using their straightforward mentalities, Burry and Buffett both communicate to their audience through using the appeal logos. This is done by the use of statistics to explain their performances and why they feel the performances are accurate or inaccurate. This use of statistics is most closely related to clarity and is straight to the point. These are two of the things Dr. Forsa relayed to us in our interview. The other thing she talked to us about was being informative to your audience and the statistical information of both letters certainly follows this structure.
Michael Burry’s January 6, 2002 Business Letter to Scion Value Fund
In Michael Burry’s 2002 letter to his investors he talks about how subprime pools and how A-1A and A-1B make up 79% of the subprime pool. He told his investors that AAA tranche are the best investment grade you can get, while BBB- tranche are the lowest investment grade you can get. He had told his investors to be aware of credit support as he believed high homeowners pricing could result in finance companies putting in a big amount of house loans into the subprime pool. By having a lot of loans in the subprime pool Burry told his investors there was a great possibility of the housing market being a bubble that was about to pop. Burry then continue to tell his investors to buy credit default swaps in order to protect themselves of the potential of the housing market crashing. These swap contracts were pay as you go. Burry then told his investors that with shorting the housing market with swap contract he believed in 5 years the pools shorted would see maximum stress. Burry continue to tell his investors to be patient with the swaps as they would not payoff until 2-2.5 years after 2007. Burry concluded his letter by stating how the portfolio is not setup to be diversified as the shorts are set-up for a increase chance of foreclosure. As a result, if the the housing market crashes the portfolio will generate great profit from shorting the housing market.
Through looking at the summary of 2002 letter Michael Burry wrote to his investors, I was able to analyze the appeals of logos, cannon of style, and analytical tool of purpose. Burry used logos in his letter as he provided his investors knowledge about subprime pool and what type of tranches there were in the pool. Also, he let his investors know that many housing loans would be made to compensate the homeowners pricing going up. This is logical as when a person buys a house who can’t afford to maintain the payments made for the house a typical person will take out a loan to keep their house. Burry used style in this letter by his tone being analytical and him directly stating the facts he shows about the market and his fund in a straightforward manner. This style speaks to Burry’s profession of being a hedge fund manager, as most people in business writing need to be straightforward with their writing while also being concise and clear to their audience. An analytical tool Burry used in the 2002 letter was purpose. He wanted his investors to know the purpose of this letter was to educate them on what he believed to be the start of the housing market potentially crashing. Also, the purpose was give his investors a strategy to defend themselves against this crash by shorting swap contracts that would make them money if the housing market were to crash. Burry educated his investors these swap contracts would gain them profit as they were pay as you go contracts. This meant that his investors who decided to follow his plan would not need to give up these contracts until they receive payment.
Warren Buffett’s 2008 Letter
Buffett, in his 2008 letter, has a very interesting delivery when compared to his other letters. This is more than likely due to the financial crisis. Nonetheless, Buffett interestingly does not deliver his letter in the same way as his other letters. This market downturn he instead chooses to explain what the underlying problem was in the financial system. Buffett takes considerably less blame this time around and rightfully so. After these brief paragraphs, the normal delivery of his letters are back. He talks about how far the American economy has come and how people should not be worried. Buffett appears to be unphased by the financial crisis other than his apologetic attitude toward his investors. He instead chooses to get right back to work.
In analyzing this letter, the first thing the reader comes across is Buffett’s appeal to logos. He is constantly citing statistics to back himself up. To his credit, it is very reader friendly as he is trying to make the reader understand his the statistics he is using. This is more than likely a product of the ongoing financial crisis. The style Buffett takes in this letter is somewhat similar to his 2001 letter, but with a few key differences. In many of Buffett’s letters, he is bullish on America which speaks to his style of positivity in his writing. This letter is no different as Buffett again relays to his audience that he is confident America will continue to thrive even amid such adversity. The audience can feel at ease knowing one the greatest investors ever is not panicking about the market. Buffett is very rational in calming the reader down by making it clear the market downturn is not a stock market issue, but rather a housing market and credit failure. Buffett’s purpose of this letter is not only to educate his investors on what happened in the finance world that lead to a crisis, but also to ensure he has never been more confident in his investing abilities. Buffett implies that this financial crisis is a great time to get cheap valuations on companies and profit in the long run.
Similarities and Differences between Burry’s 2002 letter and Buffett’s 2008
We decided to choose these two letters specifically because they both deal with the 2nd stock market crash of the 21st century and the last one the market has seen to date. We felt these two letters would be interesting to analyze given that the financial crisis of 2008 is widely considered to be the biggest depression outside of the great depression.
One of the key differences we found in looking at Burry’s 2002 letter and Buffett’s 2008 letter was we were able to see difference between their tones. Burry’s tone continued to be analytical and presented in a straightforward manner as he continue to talk about how he saw an increase in the cost of buying a house. That resulted in an increase in amount of loans that Burry noticed started accumulating over the years. Buffett’s tone 2008 letter on the other hand had great optimism for the country. He did not see any trouble on horizon for the future of the country. Buffet used more generalized language, where Burry stick to what he knew best in that was stating the facts he saw in front of him.
While Buffett and Burry did have a difference in tone they continue to show a similarity when talking about the appeal logos. Burry and Buffett both used factual evidence to support each of their claims in the letters wrote. Burry provided numbers on the housing market that support his claim on encouraging investors to short the housing market with swap contracts. Buffett provided numbers about how stock prices are going down and housing prices as well as of 2008. Buffett made a opposing claim to Burry’s both also provide statistical evidence. As Dr. Forsa mention an important tool in business writing is to be informative to your audience by providing statistics and facts.
Conclusion
In conclusion, we have come to the realization that scientific discourse throughout the finance discourse community is both similar and different. The letters that Buffett and Burry write seem to take on the personality of the author. Buffett is a very outgoing and modest person. Therefore, his writing takes on a much more reader centered approach. Burry, on the other hand, suffers from a mild form of autism which leads his letters to be much more focused on advanced investors without much “fluff.” We noticed that these two different forms of writing influenced their audiences in different ways. While Buffett’s audience never faltered, Burry had to actively persuade his investors not to jump ship. Therefore, one of the main conclusions we could jump to about how to effectively communicate in the finance community is to provide complete clarity and transparency. In a field that is growing more and more complicated as time goes on, we feel this need for clarity and transparency is more pressing than ever. If we were to have furthered our research, one of the main things we would have looked it is how money managers who communicate effectively over time perform in comparison to money managers that don’t. Coupled with this would obviously be the share of money these managers were able to control without investors pulling out and if scientific discourse played a role in this. Perhaps a balanced research question would be do returns or scientific discourse play a larger role in investors keeping their money and trust in a particular money manager such as Burry or Buffett.
First Draft
Overview of Michael Burry and Warren Buffett's Business Letters
We looked at the discourse community of business and the genre of business writing. When looking at articles, we decided to take a look at the genre of business letters that Michael Burry and Warren Buffet send to their investors/shareholders. These letters were to educate their investors on the process they went through when looking at the Stock Market. Burry’s business letters show rhetoric throughout by persuading his investors. Burry’s use of appeals, canons, and analytical tools to made his writing more effective. Also, Burry uses certain vocabulary and tone to address his audience in the proper way of business writing. Similarly, Buffett also uses certain styles, deliveries, and genres when getting information across to his investors. He must use these effectively to instill confidence in his shareholders and justify his trading. Together, they both communicate to their messages to their audience, but perhaps in different ways.
Interview with Business Writing Professor
When we conducted an interview with our business writing professor Dr. Forsa, we wanted to ask questions about what she felt were critical aspects to business writing. In doing so, she explained to us that some key aspects to incorporate in business writing. These included completeness, concreteness, correctness, consideration for audience, clarity, and conciseness. In these aspects, she emphasizes the importance of business writing being informative and providing facts/statistics. She also talked about having a confident tone and clear, concise language. This would help in making writing straight to the point, which is the main goal of business writing. Dr. Forsa mentioned the importance of your writing being audience centered as well to help it be effective. Dr. Forsa talked about how the difference between ethical and unethical when making writing business effective. In conclusion, Dr. Forsa provided us with important aspects to look at when analyzing our letters for Michael Burry and Warren Buffett.
Michael Burry’s 2001 Business Letter to Scion Value Fund Investors
In Michael Burry’s letter to his investors in 2001 he talked about Behavioral Finance in the Stock Market. Burry persuades investor to think the S&P 500 is a a good alternative to the Scion Value fund because you can invest in it with “great ease and tax efficiency.” He continues to use rhetoric by stating how the S&P 500 “outperforming the great majority of money managers as well as most other indices over a great number of years.” Burry uses certain language that relates to business like stable, cost effective, tax efficiency, money managers, and indices. This terminology shows he is addressing his investors because the audience of the letter is familiar with these terms. Then Burry displays the uses of the canon arrangement to break up his letter in separate sections and paragraphs. This arrangement makes the paper more organized for his investors because the writing is straightforward and gets right to the point. Also, Burry thinks that it is “imperative for him as a manager to look at individual investments when making allocation decisions.” Burry uses rhetoric by persuading his investors to be well-educated by minimizing risk. Therefore, the investors can make money for the portfolio. Burry uses the canon style because his tone is very clear and concise like business writing should be. After that Burry states his strategy for a common stock as “maximizing the upside means first and foremost minimizing the downside.” Burry’s business writing is more effective by being deliberative because he believes minimizing the downside is what is best for the investment in the future. Burry’s letter is effective by showing his epideictic because his value of Scion Value fund is a target of 20% return for their portfolio. Burry concludes his letter by showing his confidence in Scion Value Fund by having 1 million invested in the fund. This is Burry’s vast majority of his net worth. Burry’s 2001 business letter was effective because of his use of persuasion, appeals, and canons.
Michael Burry’s 2002 Business Letter to Scion Value Fund
In Michael Burry’s letter in 2002 he addresses his fellow investors on the unstable subprime pool, and what they need to do to protect themselves. Burry discusses in his letter that “catching a peak would be critical in the success of shorting tranches of mortgage-backed securities.” The terminology Burry used in this statement such as peak, shorting, and tranches are the key terms to take away. These terms make the letter more effective because the investors already have the knowledge of knowing these terms. Burry is informative in his writing by introducing credit default swaps, which are “protection contracts that are pay as you go.” Burry makes his writing more effective by using logos because he states how “these swaps would be used for protection for shorting the subordinate tranches.” Burry’s confidence is making his writing more effective because the investors are wondering whether they are wrong and he is right about shorting tranches on the housing market. Burry uses the style delivery to make his writing more effective by providing a table of the Real Estate percentages of bankruptcy, foreclosure, owned, and total for loans in the housing market. Also, he used ethos by showing the credibility he has for seeing the unstable percentages of the housing market. Burry makes his writing more effective by being persuasive to tell his investors he bought $1.687 billion in notion value on credit default swaps. Also, the business letter was a genre in speech act because Burry research thoroughly the details on why he bought credit default swap contracts. Again Burry’s 2002 business letter was effective to his investors because of his use of persuasion, appeals, and canons to his investors.
Transition to Warren Buffett's Letters to Shareholders
While furthering our research, we went on to look at Warren Buffett’s annual letter to his shareholders. From these, we can get a different perspective on how a different fund manager shapes scientific discourse. While there are many similarities and differences between the two, it is clear they are both very unique in how they communicate to their investors. A further study may go on to analyze if their respective positions and the sense of how proven they are effects their writings. However, this analysis will stick to the writing.
Warren Buffett’s 1977 Letter
Within Buffett’s 1977 letter, he appears to talk to investors as if he were talking to an employee about the state of the company. This should be interpreted as he never appears to be hiding anything. One thing of note is that Buffett is brutally honest with investors. He has no problem telling people exactly what they need to know without spinning to make himself look like he’s doing a better job than he actually is. For example in this particular letter he says, “But, while our operating earnings per share were up 37% from the year before, our beginning capital was up 24%, making the gain in earnings per share considerably less impressive than it might appear at first glance.” Buffett takes no issue in telling his investors what metric he prefers to measure the company’s performance with while also adding that the number may be less impressive than it initially appears. This stance is somewhat uncommon in the business world and instills a significant amount of trust for his investors. It is also worth noting that Buffett’s stock rose in this year at a rather attention grabbing 46.8% while the S&P 500 posted a return of -7.4% including dividends.
Warren Buffett’s 1979 Letter
In his 1979 letter, Buffett appears to change his tone a little. As opposed to explaining why his performance could have been better, he sounds like an educator. The letter is completely informative and explains several aspects of business and how it operates. In similarity to his last one however, he does not talk as if he is speaking to someone of his own intellect. He instead caters it to his audience. Thus far in his letter he seems to be highly conscious of who his audience is and what he is trying to convey to them. This is the first letter in which he is truly self absorbed in not just relaying information to his audience, but educating them as well. The style Buffett portrays in his all of his letter up until 1979 is an appropriate mix of expository and narrative writing. It may also be noteworthy that Buffett’s stock returned a jaw dropping 102.5% in 1979.
Warren Buffett’s 1999 Letter
One of the more interesting letters Buffett wrote was the one after the dot-com bubble. This is the first letter I came across in which Buffett is perhaps overly critical of himself. Despite the fact the entire market was down, it interesting how Buffett seems to take the blame for the bubble that burst. “My "one subject" is capital allocation, and my grade for 1999 most assuredly is a D.” By being so hard on himself and essentially spending the first several paragraphs talking about his failures, Buffett reassures investors that he takes the down year hard. Again, as a reader, it makes you more confident in the fact that he will return to his usual gains. In the middle of Buffett’s discussion about his business, he even changes to a personal tone by talking about his management. It helps the reader feel more at ease in a time of uncertainty and also adds to the idea Buffett is trying to get across. I believe this idea is that Buffett’s only human. This section marks a drastic change in style which is fitting considering this entire letter seems to be a drastic change in style.
Warren Buffett’s 2008 Letter
Buffett, in his 2008 letter, has a very interesting delivery when compared to his other letters. This is more than likely due to the financial crisis. Nonetheless, Buffett interestingly does not deliver his letter in the same way as his 1999 letter. This market downturn he instead chooses to explain what the underlying problem was in the financial system. Buffett takes considerably less blame this time around and rightfully so. After these brief paragraphs, the normal delivery of his letters are back. He talks about how far the American economy has come and how people should not be worried. Again, Buffett’s style and tone continue to put confidence into his audience.
Warren Buffett’s 2016 Letter
In his most recent letter, Buffett does not change his style or delivery in the slightest. This letter encompasses a lot of the other letters and perhaps shows that he has grown and matured as an investor. He probably has less of a need to explain everything he does at this point in his long career. It is clear through his writing that his investors get the same feeling of security.
As one can probably guess, Mr. Buffett appeals to his readers through the use of logos. This is not uncommon for the industry, however Buffett does it in a way that is inconsistent with the industry. Instead of stating bold facts and throwing out big numbers, as many businessmen do, almost as an ethos technique, Buffett sticks hard to logos. He runs through his sound numbers and fundamentally correct evaluations of the performance of Berkshire Hathaway in an understandable way. Using logos effectively is one way Buffett sets himself apart from the industry and instills investor confidence in people from all over the world.
Conclusion
Through interviewing our business writing professor we were provided with tools to help us analyze Michael Burry and Warren Buffet's letters to their investors and shareholders. We looked at multiple letters from the both of them in order to see the tone of their business writing and how they communicated to their audience. We were able to break down their letters by looking at the use of persuasion, canons, and appeals. Through looking at these letters from these 2 different businessmen we discovered many similarities in the way they approach communicating with their audience, but also differences based on their personalties. Despite their being differences they use the same logic in the way they wrote. Both of these men show us that business writing is a particular genre where they write to get straight to the point by being concise and clear.
Overview of Michael Burry and Warren Buffett's Business Letters
We looked at the discourse community of business as it is our major area of study. When looking for texts, we decided to take a look at how accomplished investors of recent memory communicate to their audience (shareholders/investors in the company) using appeals, canons, and analytical tools. The genre used for this scientific discourse is business letters. We felt two of the most relevant investors to our scientific discourse were Warren Buffett (Berkshire Hathaway) and Michael Burry (Scion Capital). We picked these two investors to analyze because of their opposite nature of communication to their investors and shareholders. With this in mind, we felt it would be most appropriate to analyze all three appeals, as well as style, audience, and purpose. We feel these aspects allow us to properly analyze the letters as well as compare and contrast them between each other. Additionally, in order to help us to better understand the necessary components of what goes into successful business writing, we felt it was most appropriate to interview our business writing professor, Dr. Forsa.
Interview with Business Writing Professor
When we conducted an interview with our business writing professor Dr. Forsa, we wanted to ask questions about what she felt were critical aspects to business writing. In doing so, she explained to us that some key aspects to incorporate in business writing. These included completeness, concreteness, correctness, consideration for audience, clarity, and conciseness. In these aspects, she emphasizes the importance of business writing being informative and providing facts/statistics. She also talked about having a confident tone and clear, concise language. This would help in making writing straight to the point, which is the main goal of business writing. Dr. Forsa mentioned the importance of your writing being audience centered as well to help it be effective. Dr. Forsa talked about how the difference between ethical and unethical when making writing business effective. In conclusion, Dr. Forsa provided us with important aspects to look at when analyzing our letters for Michael Burry and Warren Buffett.
Michael Burry’s January 8, 2001 Business Letter to Scion Value Fund Investors
In Michael Burry’s letter to his investors in 2001 he talks about how he had a great year by outperforming the S&P 500 by 14.08%. He as a manager breaks down how his capital allocation decisions are based on the value of a individual investment. This strategy helps with the fund not revealing individual portfolio decisions in order to obtain supra-normal returns. Burry then defines how his fund is in fact a hedge fund that feels its best hedge is one that buys stocks that are safe and cheap. Burry feels as if this tactic helps with minimizing the downside potential of the portfolio. Burry promised his investors the high expense ratio they had will decline in the future as a result of the fund having more assets under management. As Burry’s letter continues he talks about how he made an agreement with Gotham Capital V., LLC and White Mountains Management Company to give up a percentage of Scion Capital to these companies in order to jump start assets under management. As a result, funds expense ratio will be reduced, while Burry will still retain majority interest in Scion Capital. Burry concludes his letter by telling his investors the $1 million he has invested in Scion Capital, and telling them how Scion Capital is the only fund he invests in.
Through looking at the summary of Michael Burry’s 2001 business letter I was able to analyze the appeals of ethos and logos, and canon of style. One way is he used ethos was telling his investors his fund outperformed the S&P 500 by 14.08%. This significant because Burry states how he utilizes the S&P 500 as a benchmark for the market. By outperforming the market by 14.08% it gives his investors credibility and confidence in his abilities as a manager of the fund's portfolio. Another appeal Burry used was logos as he gave his investors the best way to go about buying stocks is for them to be safe and cheap. This proves to be logical because you want to minimize the downside risk because that is money you can’t get back. If you were to gain a lot of money in an investment you can afford to lose it. I then looked at the style he used in his 2001 letter and saw how his tone had great confidence with in it as his fund had a great performance during the year. He stated confidence by saying, “Over periods greater than 5 years you should rightfully expect the fund to beat the S&P 500 handily.” Burry told investors the fund would outperform the S&P 500 “handily” is a strong confident statement to say the least.
Warren Buffett’s 2001 Letter
In Buffett’s 2001 letter to shareholders, he explains his poor performance of late and is clearly very upset with himself. He assures investors that neither he nor his wife has ever sold a share of their stock and they don’t intend to moving forward. He reiterates that over 99% of his net worth is invested in company stock. Buffett is also quick to remind his investors that he cannot replicate his massive returns from early in his career due to the size of his fund as presently constructed. Nonetheless, Buffett does still admit that he must do better and expects better of himself moving forward. For the year, the book value of Berkshire Hathaway decreased by 6.2% compared to a negative return of 11.9% on the year for the S&P 500 (including dividends). Therefore, Buffett still outperformed the market despite being so critical of himself. He goes on to talk about his acquisitions for the year and how they will help Berkshire Hathaway moving forward. At the end of the letter, he takes time to tout the staff that works at Berkshire and the fact that he has hired 40,000 employees in the last year.
Throughout this letter, we can see Buffett appeal to the reader’s ethos, pathos, and logos. When he talks about how he is disappointed in his recent returns, it is clear he is trying to persuade investors to stick with him using more of an emotional sense or pathos. He uses an ethical appeal, or ethos, when discussing how CEO’s can walk away with such vast fortunes while leaving shareholders in the dust. In order to get this point across, Buffett tells an anecdote which can also appeal to the reader’s emotions. It is important to note that Buffett ensures that many of the executives of the companies he bought in the year 2001, he made purchase an extensive amount of shares so that these executives are working on their own behalf. This only furthers the ethical appeal he makes to his readers. When using logos, Buffett is sure to use exact numbers to explain his logic. For example, on page 7 of the document, he uses an approach where he has a chart of numbers relevant to what he is discussing and refers back to it consistently. I classify this as a logical appeal because of the way Buffett does not try to confuse his readers but rather help explain exactly what is going on. Through his writing, it is easy to encompass exactly how logical and rational of a thinker Buffett is. This can be related back to what Dr. Forsa said in our interview when she emphasized the importance of being informative and providing facts/statistics.
Similarities and Differences between Buffet and Burry’s 2001 Letters
In choosing the two letters, we thought it would be appropriate to choose letters from 2001. The reason for this is partly because Scion Capital was only in existence from 2000-2008. However, we felt strongly that because 2001 was the year after the tech wreck, it would be interesting to compare how they handled adversity and communicated it through scientific discourse.
One of the key differences these two titans of their industry had in 2001 was their vastly different returns. Burry returned 2.08% while Buffett returned negative 6.2%. Speaking to this, Burry displayed a much higher level of confidence throughout the 2001 letters, raising his credibility. On the contrary, Buffett was upset with his returns. At this point in time, there were a lot of people questioning if Buffett’s value investing style was still as effective. His credibility throughout this time period certainly took a slight hit. As Dr. Forsa mentioned it is important to have a confident tone in business writing, while also being audience centered. It is clear that Burry has a higher level of confidence then Buffet, however this is not to say that Buffett is not confident. It is interesting that Buffett makes up for this lesser confidence through his reader centered style. Burry is not quite as reader centered like Dr. Forsa suggested, however he is so straight forward that his credibility is high.
Similarities between the philosophies of these two men are striking. Starting off, they both have the mentality of minimizing downside as opposed to maximizing upside. This is particularly interesting when talking about Burry as his fund is a hedge fund. Hedge funds are notorious for taking risks, but Burry is not swayed so easily. Using their straightforward mentalities, Burry and Buffett both communicate to their audience through using the appeal logos. This is done by the use of statistics to explain their performances and why they feel the performances are accurate or inaccurate. This use of statistics is most closely related to clarity and is straight to the point. These are two of the things Dr. Forsa relayed to us in our interview. The other thing she talked to us about was being informative to your audience and the statistical information of both letters certainly follows this structure.
Michael Burry’s January 6, 2002 Business Letter to Scion Value Fund
In Michael Burry’s 2002 letter to his investors he talks about how subprime pools and how A-1A and A-1B make up 79% of the subprime pool. He told his investors that AAA tranche are the best investment grade you can get, while BBB- tranche are the lowest investment grade you can get. He had told his investors to be aware of credit support as he believed high homeowners pricing could result in finance companies putting in a big amount of house loans into the subprime pool. By having a lot of loans in the subprime pool Burry told his investors there was a great possibility of the housing market being a bubble that was about to pop. Burry then continue to tell his investors to buy credit default swaps in order to protect themselves of the potential of the housing market crashing. These swap contracts were pay as you go. Burry then told his investors that with shorting the housing market with swap contract he believed in 5 years the pools shorted would see maximum stress. Burry continue to tell his investors to be patient with the swaps as they would not payoff until 2-2.5 years after 2007. Burry concluded his letter by stating how the portfolio is not setup to be diversified as the shorts are set-up for a increase chance of foreclosure. As a result, if the the housing market crashes the portfolio will generate great profit from shorting the housing market.
Through looking at the summary of 2002 letter Michael Burry wrote to his investors, I was able to analyze the appeals of logos, cannon of style, and analytical tool of purpose. Burry used logos in his letter as he provided his investors knowledge about subprime pool and what type of tranches there were in the pool. Also, he let his investors know that many housing loans would be made to compensate the homeowners pricing going up. This is logical as when a person buys a house who can’t afford to maintain the payments made for the house a typical person will take out a loan to keep their house. Burry used style in this letter by his tone being analytical and him directly stating the facts he shows about the market and his fund in a straightforward manner. This style speaks to Burry’s profession of being a hedge fund manager, as most people in business writing need to be straightforward with their writing while also being concise and clear to their audience. An analytical tool Burry used in the 2002 letter was purpose. He wanted his investors to know the purpose of this letter was to educate them on what he believed to be the start of the housing market potentially crashing. Also, the purpose was give his investors a strategy to defend themselves against this crash by shorting swap contracts that would make them money if the housing market were to crash. Burry educated his investors these swap contracts would gain them profit as they were pay as you go contracts. This meant that his investors who decided to follow his plan would not need to give up these contracts until they receive payment.
Warren Buffett’s 2008 Letter
Buffett, in his 2008 letter, has a very interesting delivery when compared to his other letters. This is more than likely due to the financial crisis. Nonetheless, Buffett interestingly does not deliver his letter in the same way as his other letters. This market downturn he instead chooses to explain what the underlying problem was in the financial system. Buffett takes considerably less blame this time around and rightfully so. After these brief paragraphs, the normal delivery of his letters are back. He talks about how far the American economy has come and how people should not be worried. Buffett appears to be unphased by the financial crisis other than his apologetic attitude toward his investors. He instead chooses to get right back to work.
In analyzing this letter, the first thing the reader comes across is Buffett’s appeal to logos. He is constantly citing statistics to back himself up. To his credit, it is very reader friendly as he is trying to make the reader understand his the statistics he is using. This is more than likely a product of the ongoing financial crisis. The style Buffett takes in this letter is somewhat similar to his 2001 letter, but with a few key differences. In many of Buffett’s letters, he is bullish on America which speaks to his style of positivity in his writing. This letter is no different as Buffett again relays to his audience that he is confident America will continue to thrive even amid such adversity. The audience can feel at ease knowing one the greatest investors ever is not panicking about the market. Buffett is very rational in calming the reader down by making it clear the market downturn is not a stock market issue, but rather a housing market and credit failure. Buffett’s purpose of this letter is not only to educate his investors on what happened in the finance world that lead to a crisis, but also to ensure he has never been more confident in his investing abilities. Buffett implies that this financial crisis is a great time to get cheap valuations on companies and profit in the long run.
Similarities and Differences between Burry’s 2002 letter and Buffett’s 2008
We decided to choose these two letters specifically because they both deal with the 2nd stock market crash of the 21st century and the last one the market has seen to date. We felt these two letters would be interesting to analyze given that the financial crisis of 2008 is widely considered to be the biggest depression outside of the great depression.
One of the key differences we found in looking at Burry’s 2002 letter and Buffett’s 2008 letter was we were able to see difference between their tones. Burry’s tone continued to be analytical and presented in a straightforward manner as he continue to talk about how he saw an increase in the cost of buying a house. That resulted in an increase in amount of loans that Burry noticed started accumulating over the years. Buffett’s tone 2008 letter on the other hand had great optimism for the country. He did not see any trouble on horizon for the future of the country. Buffet used more generalized language, where Burry stick to what he knew best in that was stating the facts he saw in front of him.
While Buffett and Burry did have a difference in tone they continue to show a similarity when talking about the appeal logos. Burry and Buffett both used factual evidence to support each of their claims in the letters wrote. Burry provided numbers on the housing market that support his claim on encouraging investors to short the housing market with swap contracts. Buffett provided numbers about how stock prices are going down and housing prices as well as of 2008. Buffett made a opposing claim to Burry’s both also provide statistical evidence. As Dr. Forsa mention an important tool in business writing is to be informative to your audience by providing statistics and facts.
Conclusion
In conclusion, we have come to the realization that scientific discourse throughout the finance discourse community is both similar and different. The letters that Buffett and Burry write seem to take on the personality of the author. Buffett is a very outgoing and modest person. Therefore, his writing takes on a much more reader centered approach. Burry, on the other hand, suffers from a mild form of autism which leads his letters to be much more focused on advanced investors without much “fluff.” We noticed that these two different forms of writing influenced their audiences in different ways. While Buffett’s audience never faltered, Burry had to actively persuade his investors not to jump ship. Therefore, one of the main conclusions we could jump to about how to effectively communicate in the finance community is to provide complete clarity and transparency. In a field that is growing more and more complicated as time goes on, we feel this need for clarity and transparency is more pressing than ever. If we were to have furthered our research, one of the main things we would have looked it is how money managers who communicate effectively over time perform in comparison to money managers that don’t. Coupled with this would obviously be the share of money these managers were able to control without investors pulling out and if scientific discourse played a role in this. Perhaps a balanced research question would be do returns or scientific discourse play a larger role in investors keeping their money and trust in a particular money manager such as Burry or Buffett.
First Draft
Overview of Michael Burry and Warren Buffett's Business Letters
We looked at the discourse community of business and the genre of business writing. When looking at articles, we decided to take a look at the genre of business letters that Michael Burry and Warren Buffet send to their investors/shareholders. These letters were to educate their investors on the process they went through when looking at the Stock Market. Burry’s business letters show rhetoric throughout by persuading his investors. Burry’s use of appeals, canons, and analytical tools to made his writing more effective. Also, Burry uses certain vocabulary and tone to address his audience in the proper way of business writing. Similarly, Buffett also uses certain styles, deliveries, and genres when getting information across to his investors. He must use these effectively to instill confidence in his shareholders and justify his trading. Together, they both communicate to their messages to their audience, but perhaps in different ways.
Interview with Business Writing Professor
When we conducted an interview with our business writing professor Dr. Forsa, we wanted to ask questions about what she felt were critical aspects to business writing. In doing so, she explained to us that some key aspects to incorporate in business writing. These included completeness, concreteness, correctness, consideration for audience, clarity, and conciseness. In these aspects, she emphasizes the importance of business writing being informative and providing facts/statistics. She also talked about having a confident tone and clear, concise language. This would help in making writing straight to the point, which is the main goal of business writing. Dr. Forsa mentioned the importance of your writing being audience centered as well to help it be effective. Dr. Forsa talked about how the difference between ethical and unethical when making writing business effective. In conclusion, Dr. Forsa provided us with important aspects to look at when analyzing our letters for Michael Burry and Warren Buffett.
Michael Burry’s 2001 Business Letter to Scion Value Fund Investors
In Michael Burry’s letter to his investors in 2001 he talked about Behavioral Finance in the Stock Market. Burry persuades investor to think the S&P 500 is a a good alternative to the Scion Value fund because you can invest in it with “great ease and tax efficiency.” He continues to use rhetoric by stating how the S&P 500 “outperforming the great majority of money managers as well as most other indices over a great number of years.” Burry uses certain language that relates to business like stable, cost effective, tax efficiency, money managers, and indices. This terminology shows he is addressing his investors because the audience of the letter is familiar with these terms. Then Burry displays the uses of the canon arrangement to break up his letter in separate sections and paragraphs. This arrangement makes the paper more organized for his investors because the writing is straightforward and gets right to the point. Also, Burry thinks that it is “imperative for him as a manager to look at individual investments when making allocation decisions.” Burry uses rhetoric by persuading his investors to be well-educated by minimizing risk. Therefore, the investors can make money for the portfolio. Burry uses the canon style because his tone is very clear and concise like business writing should be. After that Burry states his strategy for a common stock as “maximizing the upside means first and foremost minimizing the downside.” Burry’s business writing is more effective by being deliberative because he believes minimizing the downside is what is best for the investment in the future. Burry’s letter is effective by showing his epideictic because his value of Scion Value fund is a target of 20% return for their portfolio. Burry concludes his letter by showing his confidence in Scion Value Fund by having 1 million invested in the fund. This is Burry’s vast majority of his net worth. Burry’s 2001 business letter was effective because of his use of persuasion, appeals, and canons.
Michael Burry’s 2002 Business Letter to Scion Value Fund
In Michael Burry’s letter in 2002 he addresses his fellow investors on the unstable subprime pool, and what they need to do to protect themselves. Burry discusses in his letter that “catching a peak would be critical in the success of shorting tranches of mortgage-backed securities.” The terminology Burry used in this statement such as peak, shorting, and tranches are the key terms to take away. These terms make the letter more effective because the investors already have the knowledge of knowing these terms. Burry is informative in his writing by introducing credit default swaps, which are “protection contracts that are pay as you go.” Burry makes his writing more effective by using logos because he states how “these swaps would be used for protection for shorting the subordinate tranches.” Burry’s confidence is making his writing more effective because the investors are wondering whether they are wrong and he is right about shorting tranches on the housing market. Burry uses the style delivery to make his writing more effective by providing a table of the Real Estate percentages of bankruptcy, foreclosure, owned, and total for loans in the housing market. Also, he used ethos by showing the credibility he has for seeing the unstable percentages of the housing market. Burry makes his writing more effective by being persuasive to tell his investors he bought $1.687 billion in notion value on credit default swaps. Also, the business letter was a genre in speech act because Burry research thoroughly the details on why he bought credit default swap contracts. Again Burry’s 2002 business letter was effective to his investors because of his use of persuasion, appeals, and canons to his investors.
Transition to Warren Buffett's Letters to Shareholders
While furthering our research, we went on to look at Warren Buffett’s annual letter to his shareholders. From these, we can get a different perspective on how a different fund manager shapes scientific discourse. While there are many similarities and differences between the two, it is clear they are both very unique in how they communicate to their investors. A further study may go on to analyze if their respective positions and the sense of how proven they are effects their writings. However, this analysis will stick to the writing.
Warren Buffett’s 1977 Letter
Within Buffett’s 1977 letter, he appears to talk to investors as if he were talking to an employee about the state of the company. This should be interpreted as he never appears to be hiding anything. One thing of note is that Buffett is brutally honest with investors. He has no problem telling people exactly what they need to know without spinning to make himself look like he’s doing a better job than he actually is. For example in this particular letter he says, “But, while our operating earnings per share were up 37% from the year before, our beginning capital was up 24%, making the gain in earnings per share considerably less impressive than it might appear at first glance.” Buffett takes no issue in telling his investors what metric he prefers to measure the company’s performance with while also adding that the number may be less impressive than it initially appears. This stance is somewhat uncommon in the business world and instills a significant amount of trust for his investors. It is also worth noting that Buffett’s stock rose in this year at a rather attention grabbing 46.8% while the S&P 500 posted a return of -7.4% including dividends.
Warren Buffett’s 1979 Letter
In his 1979 letter, Buffett appears to change his tone a little. As opposed to explaining why his performance could have been better, he sounds like an educator. The letter is completely informative and explains several aspects of business and how it operates. In similarity to his last one however, he does not talk as if he is speaking to someone of his own intellect. He instead caters it to his audience. Thus far in his letter he seems to be highly conscious of who his audience is and what he is trying to convey to them. This is the first letter in which he is truly self absorbed in not just relaying information to his audience, but educating them as well. The style Buffett portrays in his all of his letter up until 1979 is an appropriate mix of expository and narrative writing. It may also be noteworthy that Buffett’s stock returned a jaw dropping 102.5% in 1979.
Warren Buffett’s 1999 Letter
One of the more interesting letters Buffett wrote was the one after the dot-com bubble. This is the first letter I came across in which Buffett is perhaps overly critical of himself. Despite the fact the entire market was down, it interesting how Buffett seems to take the blame for the bubble that burst. “My "one subject" is capital allocation, and my grade for 1999 most assuredly is a D.” By being so hard on himself and essentially spending the first several paragraphs talking about his failures, Buffett reassures investors that he takes the down year hard. Again, as a reader, it makes you more confident in the fact that he will return to his usual gains. In the middle of Buffett’s discussion about his business, he even changes to a personal tone by talking about his management. It helps the reader feel more at ease in a time of uncertainty and also adds to the idea Buffett is trying to get across. I believe this idea is that Buffett’s only human. This section marks a drastic change in style which is fitting considering this entire letter seems to be a drastic change in style.
Warren Buffett’s 2008 Letter
Buffett, in his 2008 letter, has a very interesting delivery when compared to his other letters. This is more than likely due to the financial crisis. Nonetheless, Buffett interestingly does not deliver his letter in the same way as his 1999 letter. This market downturn he instead chooses to explain what the underlying problem was in the financial system. Buffett takes considerably less blame this time around and rightfully so. After these brief paragraphs, the normal delivery of his letters are back. He talks about how far the American economy has come and how people should not be worried. Again, Buffett’s style and tone continue to put confidence into his audience.
Warren Buffett’s 2016 Letter
In his most recent letter, Buffett does not change his style or delivery in the slightest. This letter encompasses a lot of the other letters and perhaps shows that he has grown and matured as an investor. He probably has less of a need to explain everything he does at this point in his long career. It is clear through his writing that his investors get the same feeling of security.
As one can probably guess, Mr. Buffett appeals to his readers through the use of logos. This is not uncommon for the industry, however Buffett does it in a way that is inconsistent with the industry. Instead of stating bold facts and throwing out big numbers, as many businessmen do, almost as an ethos technique, Buffett sticks hard to logos. He runs through his sound numbers and fundamentally correct evaluations of the performance of Berkshire Hathaway in an understandable way. Using logos effectively is one way Buffett sets himself apart from the industry and instills investor confidence in people from all over the world.
Conclusion
Through interviewing our business writing professor we were provided with tools to help us analyze Michael Burry and Warren Buffet's letters to their investors and shareholders. We looked at multiple letters from the both of them in order to see the tone of their business writing and how they communicated to their audience. We were able to break down their letters by looking at the use of persuasion, canons, and appeals. Through looking at these letters from these 2 different businessmen we discovered many similarities in the way they approach communicating with their audience, but also differences based on their personalties. Despite their being differences they use the same logic in the way they wrote. Both of these men show us that business writing is a particular genre where they write to get straight to the point by being concise and clear.