As Scion Asset Management is once again in the news, this time for founder Dr. Michael Burry’s early position (2019) in GameStop (GME), it is worthwhile looking at what else Dr. Burry has been saying and trading.
Burry, is perhaps best known for being one of the protagonists of the book and the movie The Big Short, and he is apparently determined to go against Elon Musk’s company, just as he did with the US real estate market in 2007. Once again, he is being called crazy, but his trade against U.S. housing as well as his GameStop trade did extraordinarily well.
‘The Big short”
In 2010, Michael Lewis described Burry’s epic trade in his book ‘The Big short” which was made into a movie in 2015, with Christian Bale portraying Dr. Burry in the film. The famous investor earned his M.D. from Vanderbilt and went on to start but not finish a residency in neurology at Stanford University Medical Center before becoming a full-time fund-manager.
A self-described value investor, Burry sensed the housing crisis looming over the US before many others and began to invest against the housing market to the chagrin of his fund’s investors. Mainly through ‘swaps’ or credit default swaps on mortgage bonds, Burry maintained a bearish position for several years that, despite the revolt of some of his investors the premiums to be paid were increasingly high, paid off handsomely when the 2007 the collapse came and defaults soared. The fund closed in 2008 with a yield of nearly 500% and a profit of more than $ 700 million.
After starting a new fund in 2013, Dr. Burry now has another short in mind.
Bearish position in Tesla
At the beginning of December, with Tesla culminating a spectacular 2020, in which it rose by more than 700%, Burry confirmed a bearish position in Tesla by his Twitter account. Within a month, as Tesla stock continued to rise, Musk had become the richest man in the world from his ownership of close to 20% of TSLA. Undiscouraged Burry made public comments in early January indicating that he will stay the course on the short position in Tesla as he continues to theorize that the electric car company will suffer a major correction.
Justifying his position and the risks involved in holding a short position, Burry referred to his bet against housing prior to the Great Financial Crisis: “Well, my last big short got bigger and bigger and BIGGER too. ” “Enjoy it while it lasts,” he also tweeted in what seemed like a message towards those who defend long positions at Tesla.
This was followed by comments last week where Burry pointed out that Tesla’s $270 million net income from last quarter was only made possible by the Company’s sale of over $400 million of regulatory credits to other carmakers.
Given that Scion has realized profits on it’s GME trade along the way and was at last count holding 1.7 million shares that had risen in value from $17 million at the end of September to almost $600 million last week it might be worth considering the good doctor’s investment thesis on Tesla. It seems that once again Scion is knocking on the door of another potential “Big short”.
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