Michael Burry Short Position and the Power of Contrarian Investing

Michael Burry's short position on subprime mortgages in 2005 was a contrarian bet that paid off handsomely. He was one of the few investors who recognized the impending housing market crash.

Burry's hedge fund, Scion Asset Management, had a short position of over $100 million in subprime mortgage-backed securities. This was a significant bet against the market, as many investors were eager to buy into the housing bubble.

Burry's contrarian approach to investing was rooted in his understanding of the complexities of the subprime market. He spent countless hours researching and analyzing the data, which led him to conclude that the market was unsustainable.

By taking a contrarian stance, Burry was able to profit from the subsequent collapse of the subprime market, earning returns of over 50% in 2007. His success was a testament to the power of contrarian investing, which involves making bets against the crowd.

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Michael Burry is a medical doctor by training, but he made a career shift to become a hedge fund manager. He founded Scion Asset Management in 2000.

Burry's investment strategy is focused on value investing, which involves looking for undervalued companies with strong fundamentals. He has a reputation for being a contrarian investor, often taking positions that are opposite to the market consensus.

Burry's most notable investment success was his short position in the housing market, which he began in 2005. He predicted that the housing market would collapse, and he made a fortune by shorting subprime mortgage-backed securities.

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In the 2015 film The Big Short, Christian Bale portrays Michael Burry, who was one of the first investors to take a short position against the housing market.

Burry's character in the film highlights his role as a pioneer in identifying and profiting from the impending housing market collapse.

Christian Bale's portrayal of Burry in The Big Short has helped bring attention to Burry's investment strategy and his role in the financial crisis.

Here are some key facts about Burry's film appearance:

Michael Burry's short position is a fascinating topic, and I'm excited to dive into the details. He has a history of shorting high-flying technology stocks and funds, including Cathie Wood's flagship ARK Innovation ETF (ARKK) and Elon Musk's Tesla Inc. (TSLA).

In the third quarter of 2023, Burry decided to hedge against the global semiconductor market, which had been doing well in 2023 after economies recovered from the COVID-19 pandemic and supply chain problems were alleviated. He shorted BlackRock Inc.'s (BLK) semiconductor fund, but unfortunately for him, BlackRock's success has not abated, leaving his choice looking wobbly at the opening of 2024.

Burry's top five sells include the SPDR S&P 500 ETF (ASX: SPY), which he sold 51.05% of his portfolio, and the Invesco QQQ Trust (NYSE: QQQ), which he sold 42.54% of his portfolio.

Here are the details of Burry's top five sells:

Burry's investment strategy is centered around identifying undervalued assets that the market is overlooking or over-rewarding, and he has a reputation for being a contrarian investor.

The Subprime Crisis was a sharp increase in high-risk mortgages that went into default beginning in 2007. This led to the Great Recession, the most severe economic downturn since the Great Depression.

The housing boom of the mid-2000s, combined with low interest rates, prompted many lenders to offer home loans to individuals with poor credit. Many of these borrowers were unable to make payments on their subprime mortgages.

The real estate bubble burst, causing widespread defaults on subprime mortgages, which in turn contributed to the Great Recession. The economic downturn was severe and far-reaching, affecting many people and businesses.

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Michael Burry is known for his successful short trades, but his exploits leading up to the 2008 financial crisis have been immortalised in the film The Big Short.

Burry realised that the mortgage market might be unsound when he noticed that basement-bottom lending standards had become commonplace.

The key takeaway from Burry's success is that he focused on the lenders, not the borrowers, as the lenders' restraint is crucial in preventing financial crises.

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Burry persuaded Deutsche Bank and Goldman Sachs to sell him credit-default swaps on subprime-mortgage bonds, which led to a significant profit of $100m personally and $700m for his clients in 2007.

Burry's short trades have not always been successful, as he incorrectly predicted a recession in 2023 and admitted to being wrong.

Michael Burry's big losses in the second quarter of 2023 were a result of his short positions, particularly in the SPDR S&P 500 ETF Trust and the Invesco QQQ Trust. He bought four million put options in these ETFs, which are used to sell an underlying asset by a set time for a set price.

Burry's losses didn't deter him, as he continued to hold his short positions, with nearly half of his current portfolio being a put option against the SPDR S&P 500 ETF Trust. This suggests he thinks the bubble will burst.

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Burry's recent portfolio moves indicate he's consolidating his long, single-stock holdings. He's cut many names in the last three months, with 20 fewer holdings than in the previous quarter.

He's also added to existing holdings, boosting his stake in Nexstar Media Group, REIT Hudson Pacific Properties, and crude oil shipping company Euronav. The only new long single stock position he's entered is into Booking Holdings, seemingly at the expense of industry rival Expedia Group.

Here's a summary of Michael Burry's recent portfolio moves:

Michael Burry's impressive track record as a short-seller is well-documented.

He profited from the subprime mortgage crisis by shorting the 2007 mortgage bond market, making $100 million for himself and $700 million for his investors.

Burry's investment firm, Scion Capital, shut down in 2008, but he didn't stop there - he incorporated a new private investment firm, Scion Asset Management, in 2013.

Here are some key facts about Michael Burry's career:

In April 2022, Burry tweeted that the Fed "has no intention of fighting inflation", a statement that sparked debate among investors and economists.