The Man Who Predicted the Housing Market Crash Just Made a Big Move

Dr. Micheal Burry’s big bets on “four companies”

S I Ahmed
S I Ahmed
Nov 14 · 5 min read
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Image: GQ

The 2008 financial crisis had rolled forward a series of events that many financial experts had fathomed for decades. People started defaulting on their loans, businesses went bankrupt and an asset class which people believed would never “tank” came down drastically in value due to speculation and other widespread bets placed through various derivative contracts.

Ever since then, Dr. Burry has been a key figure in the US financial markets. His latest 13-F filing reveals massive bets placed on a handful of companies a pattern similar to the months prior to the 2008 crisis.

Even though the firm’s equity holdings are sitting at $91 million, the firm’s portfolio is in fact worth slightly over $315 million.

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Image credit: Author
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Image credit: Author

During the first quarter of 2020, he held diversified positions in multiple stocks such as .

However, post the second quarter he readjusted the portfolio by acquiring smaller portions in various other stocks in addition to purchasing massive amounts of “call options” on various companies.

According to Investopedia,

”.

In general, an option is a contract between two investors. One of them is writing the option, and the other is buying the call option.

An advantage for the buyer is that he/she can choose not to exercise this right if the stock is trading at a price lower than X.

But in case the stock price surges above X, he/she can buy the shares for X, and subsequently, sell it in the markets for a higher price resulting in a profit.

With regards to Dr.Burry, his 13-F filings didn’t disclose the strike price and expiry dates for all the long positions he had acquired. So, it is correct to say that they own $91 million in stocks but the firm’s “” is worth slightly over $315 million inclusive of all the “”.

Some of his biggest call option positions are Google, Facebook, Booking Holdings Ltd, and Goldman Sachs.

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Illustration: chriswhetzel.com

The famous fund manager as portrayed in the award-winning movie “” rose to fame in 2008 as he ‘shorted’ the ‘housing market’ by buying put contracts on CDOs, credit default swaps, and other mortgage-backed securities, emphasizing the fact that the housing market was extremely overvalued, and when the bubble did burst, he instantly received millions for his in-depth analysis.

As far as 2020 is concerned, towards the end of Q2 he had .

He sold out Facebook stock but acquired call options to perhaps weigh out the ad-controversies and profit from the stock once it rebounds.

A similar logic could be applied to Booking Holdings Ltd since the travel industry has taken a beating, once the markets rebound the stock should reflect a change in fundamentals similar to Carnival Cruises.

“Dr. Burry slashed Scion’s Gamestop (GME) stake during Q2. GME represented 3.79% of the long portfolio, down from 12.23% in Q1. Scion filed a 13D targeting Gamestop in August of 2019 when the stock was at $3.87. In a letter to management, Burry recommended a ‘game-changing’ buyback of shares”.

Calls are therefore, an alternative to buying a stock outright.

If the stock price rises you can end up with a profit, without taking on all of the downside risks that would otherwise result from owning the stock.

But one should err on the side of caution with such matters, especially with short-term calls. If you buy too many option contracts, you end up increasing your risk.

Part of the conventional definition also suggests that “options may expire as being worthless and one can lose their entire investment, whereas if someone decides to own the stock it will usually still be worth something to that individual”.

It is safe to assume that his firm is “” for most of his positions but one can only make assumptions heading into the investment world. However, in hindsight, everything appears to be accurate.

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Image: Mauldin Economics

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S I Ahmed

Written by

S I Ahmed

An academic & a former investment analyst. Currently a Ph.D. candidate at Aston University. Enjoys writing on a variety of topics to satiate curious minds.

The Startup

Medium's largest active publication, followed by +731K people. Follow to join our community.

S I Ahmed

Written by

S I Ahmed

An academic & a former investment analyst. Currently a Ph.D. candidate at Aston University. Enjoys writing on a variety of topics to satiate curious minds.

The Startup

Medium's largest active publication, followed by +731K people. Follow to join our community.

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