Famous “Big Short” Investor, Michael Burry, on Monday, November 15, 2021 revealed in a recent regulatory filing his newest holdings. In Michael Burry’s portfolio 2021 analysis, we will go into more detail about what positions Burry has in his fund’s portfolio and how this has changed compared to the previous positions held.
Q3 2021 (New 13F fillings came out in which Michael Burry sold most of his Q2 2021 holdings during Q3 2021)
Keynotes – Burry’s Portfolio Positions Q3 2021
- Michael Burry sold most of his Q2 holdings during Q3 2021.
- He added three new holdings: Lockheed, Scynexis and Now.
- CVS Health isn’t reduced, while he reduced Geo Group and Corecivic.
- Consumer staples make more than 40% of Burry’s portfolio.
Burry reduced his stock portfolio in the third quarter, selling more than 20 holdings to only six as of September 30, 2021.
Burry’s Scion Asset Management bought new shares in aerospace and defense giant Lockheed Martin, oil-drilling equipment specialist Now, and a biotech company Scynexis. It also reduced its Geo Group holding by 54% and CoreCivic bet by 68% and its. Only position that was left intact was a small stake in CVS Health. Below, you will find more about each company that Michael Burry holds in his portfolio as of September 30, 2021.
About the Company
Headquartered in Bethesda, Maryland, Lockheed Martin is a global security and aerospace company that employs approximately 114,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services.
They look like an advanced scientific company, main operations are separated into 4 business areas.
Burry bought the company in Q3 2021, a period in which the company fell 9,24%. Therefore, dr. Burry bought shares of Lockheed anywhere between $ 380,22 and $ 345,10.
The gross profit margin shows continuous growth during the last four years. Revenue has an average annual growth rate of 8,6% per year, while gross profit average annual growth rate is double, 16%. In addition to increasing revenues, the company is becoming more profitable every year except for pandemic 2020 year when material expenses increased, resulting in smaller gross profit margin.
Net income and EBIT are also showing excellent growth in absolute and relative terms. CAGR (compounded annual growth rate) of net income and EBIT is 50,6% and 14,2% respectively. Amazing. The company will keep $13,4 in net after-tax earnings for every $100 of revenue.
The main competitors of Lockheed Martin are Boeing, United Technologies Corporation, General Electric. Revenues of the biggest competitors are declining, while from Lockheed Martin they are constantly growing.
If we look from the perspective of the EBIT margin that marks our profit before taxes and interest, the new company Michael Burry bought is far ahead of its competition. The closest is General Electric, which in 2020 had a 10,6% EBIT margin.
Interestingly, the share price of the company fell, while having great financials. The company maintained good financial results and maintained margins in Q3 2021. Therefore, perhaps Burry saw an opportunity in what the public doesn’t see.
Keynotes – Burry’s Portfolio Positions Q2 2021
- Burry places bet against Cathie Wood’s ARK.
- Scion makes more bearish bets on Tesla, bullish bets on Facebook and Alphabet.
- Scion confidently increases his previous bets in other positions.
It’s no secret that Michael Burry has been betting big on inflation lately. It is obvious from tweets he posted this year, interviews he made and positions he has in his fund’s portfolio. He expects a big turnaround on the stock market in the near future.
Investor, who rose to fame after exploiting the 2008 financial crisis to his benefit by betting against mortgage securities, showed his new bets in the recent 13F filing. The filings are a requirement for professional investors and are due 45 days after the end of the quarter.
Michael Burry Sets Bet Against Cathie Wood’s ARK
In Michael Burry’s portfolio 2021 analysis, the first thing to catch an eye is that Scion Asset Management bought 2,355 bearish (put) contracts against the ARK Innovation ETF (ARKK) during the second quarter and held them through the end of the period. Investors profit from bearish bets (or puts) when the underlying securities fall in price. Unfortunately, we don’t yet know if dr. Burry activated this option and made a profit from it or he still holds it.
The day after the release of the fillings, Cathie Wood hit back at Michael Burry on social media.
Wood still sticks to her theory and firmly believes in further bull market growth. Cathie is one of the few investors going against the grain when it comes to inflation. While most participants of the market are highly concerned about inflation, the founder of ARK Invest expects deflation amid a breakdown in commodity prices and innovation trends taking off.
If you look at the top 10 holdings of the ARK innovation fund, you can see what she believes in.
|Shopify (class A)||4.00%|
|Twilio (class A)||4.00%|
|Coinbase (class A)||4.00%|
The fund itself aims for multi-cap exposure to innovation across sectors. The electric carmaker is the No. 1 holding in ARK Innovation, accounting for 10% of the entire ETF. Cathie is known as a long-time Tesla bull. Therefore, it is not so strange that dr. Burry shorted ARK, given that he strongly believes Tesla’s shares will fall in the near future.
More Put Options on Tesla
UPDATE October 17, 2021 – Michael Burry says he is no longer short Tesla stock: “No, it was a trade,” Burry told CNBC when asked if he was still short Tesla. “The options bets were extremely asymmetric, and the media was off by orders of magnitude.” Yes, that is huge news. However, we will see soon in the next Q3 2021 portfolio the new positions he took.
Analysis of Tesla put option in Q2 2021
Michael Burry’s portfolio in 2021 in Q2 shows an increased Tesla put position.
He shortened Tesla (TSLA) by 275,400 shares, and now has a total of 1,075,500 bearish shares of Tesla worth $ 731 million. Impressive bet. Representing 35% of his total portfolio.
As of June 30, Burry owned 1,075,500 put contracts, valued at 731,017,000. With unknown strike price or expiry, according to the most recent filing. Tesla had a phenomenal year in 2020, but in 2021, there was the instability of the stock, so it fell by 4,29% YTD.
He gave an explanation of his short position towards Tesla in a tweet in December 2020. This tweet is now deleted.
Dr. Burry advised Musk to sell shares to raise capital and he also called the Tesla stock ridiculously volatile.
Burry had also posted a table with financial details of all the leading auto manufacturers in the world alongside Tesla, to justify his hypothesis.
What Michael Burry is trying to say is that the 32 largest auto manufactures had $2,3 trillion in sales, $100 billion in EBIT and $807 billion in market capitalization. While Tesla had $25 billion in sales, -$69 billion in EBIT and -$438 billion in market capitalization. Simply put, you can buy Tesla shares or you can buy the whole market for a 2x TSLA price and thus generate revenues and EBIT 90 times higher.
However, this table is referring to the 2019 results, and it would be nice to see fresh data and what the situation is now.
The table below shows similar fresh data. The table lists the 32 largest car manufacturers by market capitalization as of August 22, 2021. While revenue and EBIT refer to 2020.
The updated dr. Burry point contains slightly less good results. The 32 largest auto manufactures had $1,9 trillion in sales, $85 billion in EBIT and $1,5 trillion in market capitalization. While Tesla had $31 billion in sales, 1,99billion in EBIT and -$807 billion in market capitalization. In this case, tesla improved the results, while 32 leading car manufacturers reduced it. However, Dr. Burry can prove how much Tesla is overvalued in this case as well. And again, you can choose to buy Tesla shares or 32 global auto industries for 60 times higher revenue and 40 times higher EBIT.
Let us remember that 2020 was a pretty nasty year for the auto industry. It is estimated that 78 million vehicles were produced in 2020, a decrease of about 15% compared to the previous year.
Despite this, Tesla had growth throughout the period, and we see that it also improved its revenue and EBIT to $31.54 Billion and $1,99 Billion in 2020. many analysts estimate that revenue will grow to $45 billion in 2021 and about $65 billion in 2022. Consequently, EBIT is estimated to rise to $5.2 billion in 2021 and $7 billion in 2022. Quite impressive predictions that of course reflect on the present value of the stock.
But will Tesla be able to achieve such growth in the future? As more automakers are starting to produce battery-electric vehicles of their own, fewer will need to purchase environmental regulatory credits from Tesla. They have done this in order to become compliant with environmental regulations. Numerous of Tesla’s rivals are also appearing, and are increasingly producing electric vehicles.
Increased Stake in Facebook
Moving on to the next big bet in Michael Burry’s portfolio 2021. As you probably know, dr. Burry’s fund has increased its stake in Facebook, Inc. (FB) by 71% over the period, and now owns 941,000 shares in the company worth over $327 million. This made Facebook the number two holding of the fund.
Facebook (FB) is a stock that many view as one of the best value picks among all mega tech stocks. Burry’s recent use of call options to bet on Facebook has appeared to work out very well well. FB YTD return is more than 30%.
This means Burry is super bullish on Facebook. The thing is when other investors expect the long-term growth of a given company, they choose to go “long” via buying shares in said company. However, if you are extremely bullish on the short to medium growth potential of a given stock, buying call options can be even more profitable. It’s because call options provide investors with greater upside potential. Also greater downside risk. Burry expects Tesla to grow even more in the next period and places a big bet of $327 million on it.
This is not the first time Burry bet on Facebook. In Q2 2020, he placed a massive call bet when FB stock was at low levels. He was right then, he was right in Q1 2021. We’ll see if he’s right now when he has increased his stakes in Q2 2021. Unfortunately, we can only speculate whether Dr. Burry still holds his options or has used them in this period. We will know more when the next filling comes.
Facebook is considered to be one of the best growth stocks among its peer group. Profit margins are incredible. The company currently produces gross margins of more than 80% and has never fallen below that rate since 2014. Investors are amazed at Facebook’s ability to monetize its platforms. Everything points to the fact that Facebook will continue to grow and achieve large margins in the near future. To Michael Burry, Facebook is a relatively safe bet, given the margin of safety provided by the high growth rate.
Michael Burry Bets Against the Sytem
Scion Asset Management owns 1,943,000 put options in iShares 20+ Year Treasury Bond ETF (TLT) that are worth over $280 million. This position falls to third place in Michael Burry’s portfolio 2021. Scion increased its stakes compared to last quarter by buying another 676,600 bearish options. That is an additional $108 million, and now the total value is more than $280 million. However, It’s unknown whether Scion has shifted its positions since June or not.
The bearish options would make money if Treasury yields go up and consequently, the TLT exchange-traded fund falls in price.
“I am not making a best against bonds, I am making bet against the system.”Michael Burry
Burry is confident that the economic reopening and economic stimulus in months during pandemics would accelerate inflation. This situation could make the Fed raise interest rates anytime soon. Many analysts believe that the interest rate could rise to 1.6% up to 2% by the end of the year.
Bullish on Alphabet
According to the latest filings with the United States Securities and Exchange Commission, Scion Asset Management owns 91,900 call options in Alphabet Inc. (GOOG) that are worth over $230 million. Compared to filing at the end of the first quarter of 2021, Burry has increased its stake in the company by 15% in the second three months of the year. Google takes the fourth item by value in Burry’s portfolio.
Although the strike price and expiry date of the options purchased are unknown, the position signals that dr. Burry sees value in the search and online advertising giant. Google currently trades at a price-earnings ratio of 30.03x.
Investors like Alphabet’s profit margins, fast sales growth and enormous free cash flow. The reason for this is Google’s dominance of digital advertising. It remains the default search engine for many internet users. Also, it is the key infrastructure provider for the vast majority of online advertising, And it stands between the marketers looking to reach new customers and the websites looking to maximize their revenue by putting ads in front of visitors.
Michael Burry’s Portfolio 2021 Key Notes
Michael Burry surprised us this time with his bet against Cathy’s ARK. Although, when we look at the total amount of options purchased in comparison with the total portfolio it is not so significant ~ about 1,5%. Additionally, given that Tesla is the main position of the ARK, it is not strange Burry bought some bearish options, given that for several quarters he has been betting on a drop in the price of Tesla.
Other positions are not so different from the previous quarterly report 13F. What is noticeable is that Burry bought additional options for the main positions and thus strengthened his positions. By doing so, he showed us how confident he is in his expectations of the market and showed confidence in his decisions.
Analyzing its four main positions, Tesla, Facebook, TLT, Alphabet, the strategy is noticeable as he expects an increase in interest rates and inflation.
Although we do not know exactly whether he has used any of his options, we can guess his strategy and what he was aiming at as of 30 June 2021.
It will be interesting to see how things turn out in the next 13F filing and monitor the market prices of these stocks, as well as inflation rates and interest rates to see if Burry was right in his predictions or not.
Michael Burry’s Recommended Reading List
It is no secret that Michael Burry studied the investor legend Warren Buffett and read various books related to value investing.
Here is the list of his favorite books with my reviews of them:
I honestly think this is the best investment book ever written. And I am not the only one. Warren Buffet thinks that also. And it is first on the recommended reading list of Michael Burry.
If you want to be a good investor, this book is a must. Don’t have the money to buy it? Borrow it at your nearest library.
“The intelligent investor is a realist who sells to optimists and buys from pessimists.”Benjamin Graham, The Intelligent Investor
You will find all sorts of quotes, and some of them will make you think and rethink. The book is not easy to read, people study it for months or even years, but when you finally understand it, a new world will open up to you – the world of investing.
Philip Fisher was a growth investor. He believed that investors should concentrate their efforts on uncovering young companies with outstanding growth prospects. That approach, he gladly lays out in this book. Very good book for all kinds of investors.
“The wise investor can profit if he can think independently of the crowd and reach the rich answer when the majority of financial opinion is leaning the other ways.”Philip Fisher
The book covers everything about stocks and bonds. It explains the basics of financial statement analysis, cash flow generation, stock price valuation, and more. Some important terms such as investment terms are explained clearly.
The coverage of the topic is encyclopedic and can fill in gaps even for experienced investors. I highly recommend this book as others on the list.
Buffettology is a book that Mary Buffett, former daughter-in-law of Warren wrote together with David Clark, who studies Warren Buffet’s investment techniques to create Buffettology, a special investment guide that explains the winning strategies of the master.
The book is easy to read, well organized and logical. Thanks to clarifications from Marry Buffet which breaks sophisticated investment concepts into bite-sized chunks, and then makes those chunks easily digestible.
All books on this list are amazing. This recommended reading list from Michael Burry is really something. It explains why Michael Burry is such a good investor and many people follow in his footsteps.
“If you read these books thoroughly and in that order and never touch another book, you’ll have all you need to know.“Michael Burry, 1997
There is also a separate post for those who are curious about all books that Michael Burry recommends and reads.
Disclaimer: Everything read in this article is my opinion. Use it for educational & informational purposes only. This post consists of referral links. As an Amazon Associate I earn from qualifying purchases.