Michael burry, who is often known as the “broken clock”, possesses the fame of making money through crashes. He made millions of dollars in the dot-com bubble, and again he earned millions during the 2008 housing market crisis. Now, he is all set to make millions more through the current recession.
Currently, Burry holds 11 stocks which are worth $165 million, and he also has around $3 million in option contracts. However, as per Burry’s form ADV, he is managing a portfolio of $291 million. So, where is the rest of the $123 million?
Well, this is what I intend to share with you today.
Burry manages a hedge fund named Scion Asset Management, which discloses its 13F filings every quarter. A 13F filing is a form which discloses the stock and option holdings of an institution. As a rule, all fund managers who are managing at least $100 million in assets are required to file a 13F filing. So, 13F filling by Burry posits that he owns 11 different stocks and 1 put option in his portfolio. All of these stocks possess a common theme of his short-term macroeconomic thesis. Burry expects inflation to accelerate in a cyclical fashion in the days to come. Therefore he has chosen those stocks that will thrive during the inflationary period.
It is a simple analogy that the input costs rise during inflationary periods, for instance, labour cost, material cost, and fuel cost, among others. As a result, profit margins shrink. For instance, high power industries mostly rely on fuel costs, and as fuel prices rise, their cost of production rises too, as a result of low demand and low profits.
Burry is quite well aware of how input costs deteriorate the stocks during the inflationary period. Therefore, his holdings of $164.8 million in 11 stocks include investments in four different sectors, i.e. travel, healthcare, tech and value.
Two of the stocks Burry currently owns belong to the travel sector. He believes that these companies will benefit from the oil price hike. For instance, he has invested in Booking Holdings, which is an online booking company, and the major source of earnings is commission on bookings. Since the oil prices have been on the rise, so we have seen a sharp rise in the price of tickets which leads to the increased commission of Booking Holdings. Burry also has holdings in a company Ovintiv which owns Encana, which specialises in gas extraction. As the gas price rises, the profits of Ovintiv will rise too, and eventually, Burry will earn huge returns.
The second set of stocks which Burry holds is tech stocks which are free from input costs. For instance, Google and Meta are internet-based companies, and these companies do not require any material costs. Similarly, Burry has holdings in the healthcare sector which possess a strong “Pricing Power”. Pricing power is basically the ability of the business to increase the price without having any negative impact on the demand. Burry has holdings in Cigna and Bristol Myers, which have a number of patents that give these companies a substantial market share. Finally, Burry owns some value stocks which are trading below their real value. Since the stocks are already trading at lower levels, therefore, these stocks are not expected to fall further.
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