Once more, we’ve got a big-name investor selling off big positions. This time, it’s Michael Burry, who recently sold and reduced 18 positions, totaling more than 71% of his portfolio.
Are you starting to see a trend here? Because I am.
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Hello everyone, and welcome back to Investing with Antoaneta. In today’s blog, we’ll have a look at yet another big investment portfolio that went through major changes.
The most recent filings show that Michael Burry sold and reduced 18 stocks, for a total of 71.55% of his portfolio. First, we’ll quickly go over all of the positions on the list, and then we’ll talk about possible reasonings.
Michael Burry Sold and Reduced Stocks
Starting with the positions that he sold completely:
- Liberty LiLAC Group A (LILA) – 100%
- Precision Drilling Corp (PDS) – 100%
- Retail Opportunity Investments Corp. (ROIC) – 100%
- Altria Group Inc. -100% – tobacco
- Qorvo Inc. (QRVO) – 100%
- Trip.com Group Ltd. (TCOM) – 100%
- CVS Health Corp. (CVS) – 100% )
- Facebook -1 00% (social media)
- GameStop Corp. (GME) -100%
Here’s what he reduced:
- Kimball International Inc. (KBAL) – 9.09%
- Allstate Corp. (ALL) – 16.67%
- Designer Brands Inc. (DBI) – 25%
- RPT Reality (RPT) – 25.93%
- Uniti Group Inc. (UNIT) – 27.50%
- Qurate Retail Group Inc. CL A (QRTEA) – 36.36%
- Western Digital Corp. (WDC) – 40%
- Discovery Inc. (DISCA) -50%
- MSG Networks Inc. (MSGN) – 59.41%
Companies are Overpriced
“Cause and effect are not always what they seem, but students of the market should study history and look for correlations or analogies with prior behaviors, given human nature is a constant.”
He could be selling because stocks are way overpriced. That’s a solid reason by itself, especially if you own a lot of shares. You can always grab more of your favorite companies for cheap when they go back down, and, as we already mentioned, a lot of businesses out there are currently hitting their all-time highs.
“This is very much like the bubble in synthetic asset-backed CDOs before the Great Financial Crisis in that price-setting in that market was not done by fundamental security-level analysis.”
Again, this is something that we’ve already talked about – people have a lot of money laying around right now, and they want to throw it into the market. And, since most of them are either new or in a rush, they don’t bother doing the fundamental analysis that they should be doing. Most people don’t even know the intrinsic value of the stocks in their portfolios.
This causes a significant surge in prices, making them surpass the values of each share.
Buy low, sell high
Once again, this is basic stuff – investors want to be buying stocks when their price is lower than their intrinsic value and selling when it’s higher. Of course, Burry is well-aware of this principle. He’s demonstrated the ability to play the market on many occasions in the past. For example, during Q1 2020, he bought Facebook stock for an average of $180, and then he sold it in Q4 for an average of $270.
The Free Money problem
“The current generation is overloading future generations with either too much debt or hyperinflation.”
We’ve already talked about this in the last few blogs, so I’m not going to bore you by repeating everything again (if you missed them, follow the links in the description!). Long story short – there’s a lot of free money floating around, which makes the economy even shakier, and the US debt spikes up. Like all successful investors, Michael Burry is worried about what this means for the future.
The Crash Potential
“Index funds are now distorting prices for stocks and bonds in much the same way that CBO purchases did for subprime mortgages more than a decade ago.”
Michael Burry sees many similarities between the housing marketing that he shorted back in 2008 and the market situation that we’ve got today.
So, basically, in the 2008 housing crash, people could borrow a lot of money to buy real estate due to the subprime mortgages. As a result, housing prices went up.
Burry believes that we’re looking at a similar situation with the stock market today.
Now, I’m confident that this isn’t really “news” for any one of you here on the channel. A quick glance at the market is all it takes to confirm that we’re at an all-time high, where prices are much, much higher than they were before the whole health crisis thing started.
“The flows will reverse at some point, and it will be ugly when they do.”
Combine this with all of the other factors and the shaky economy, and you’ve got yourself a substantial crash potential.
Where did Michael Burry put his money?
Now, let’s have a look at what Michael Burry has been buying with all of the money he took out of his previous positions. He bought and added to 11 positions. Of course, we don’t have “real-time” data of his moves, but we have the next best thing – data from the recent quarter.
- Ares Capital Corp. (ARCC) – financial solutions
- SunCoke Energy Inc. (SXC) – energy
- Ingles Markets Inc. (IMKTA) – supermarket chain
- HollyFrontier Corp. (HFC) – petroleum
- CoreCivic Inc. (CXW) –
- Molson Coors Beverage Co. (TAP)
- GEO Group Inc. (GEO) – real estate
- Wells Fargo (WFC) – bank stock (Buffett sold this!)
- NOW Inc. (DNOW) – distribution supply
- Lumen Technologies Inc. (LUMN)
- Urstadt Biddle Properties Inc. (UBA)
And, if you don’t recognize most of these businesses, don’t worry, because you aren’t alone. That’s because most of them fit within the “small market cap” category.
- DNOW – 1.07 billion market cap
- Corecivic – 873 million market cap
- Geo Group – 701 million market cap
- SunCoke Energy – 538 million
Burry only invests in stocks that he believes are valued well, and today, there aren’t all that many companies that fit the bill. So, he went looking for smaller market caps. In this category, there are much fewer index funds and hyper investors. The stocks aren’t all that hyped up, and the prices are much lower.
Right now, there aren’t all that many great opportunities on the market. You could even go as far as saying that a lot of current investments offer more risk than the potential reward. And Burry agrees with this. All of the crypto and EV hype reminds him of the dotcom and housing bubbles. According to him, these investments are “Driven by speculative fervor to insane heights from which the fall will be dramatic and painful”.
Oh, and don’t bother looking for more insights and interesting quotes on his Twitter because he ended up deleting it after the SEC paid him a visit.
Still, he is a really interesting investor to keep an eye on, and I’ll definitely continue following his moves on the Stock Market in the future.
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Recommended for further reading:
- The Stock Market Investing Guide #2020: From Beginner to Intelligent Investor within 30 Days – How to Save Money, Generate Passive Income and Reach Financial Freedom
- The Financial Times Guide to Investing:The Definitive Companion to Investment and the Financial Markets: The Definitive Companion to Investment and the Financial Markets
- Stock Market Investing For Beginners: The Investment Guide
- The Barefoot Investor: The Only Money Guide You’ll Ever Need
- Stock Market Investing For Beginners: The Investment Guide – How to benefit from the crisis, invest in stocks and generate long-term passive income incl. ETF and Stock Picking Checklist