Michael Burry's $574,000,000 Missed GameStop Opportunity

Oh my lord, ah, today we are talking about literally every investor's worst nightmare, because you guys know Michael Burry, the guy from The Big Short. I've been talking about him quite a bit recently on the channel. He has just experienced this nightmare: every investor's worst nightmare. So let's talk about it.

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So here's the story: GameStop is this physical video game retailer in the United States. The general consensus from most people is that their business model, their business, is slowly dying out—slowly but surely it's going down the drain, because as the video game industry moves to pretty much digital only, like we’re not going to be buying physical video game discs anymore, in say five to ten years from now. Even if people want to go and say buy an Xbox or a PlayStation, chances are they’re just going to do it on these big online retailers like Amazon.

Now, GameStop doesn't have a super strong online presence. So, long story short, a lot of people think that GameStop is just slowly going to die out. In fact, their stock has pretty much, over the last say seven, eight years, been in constant decline. Back in 2013, the stock was as high as 57 per share and as low as 2.85 cents in April of 2020.

Now, Michael Burry, who is very happy to be the contrarian, he sees this stock fall from grace and he says, you know what? I don’t actually think it’s all doom and gloom just yet for GameStop. You know, we know that the new generation of consoles still support disk drives: the PS5 and the Xbox Series X. So, you know, for at least the next five or so years, it’s highly likely that all of the major titles are still going to be released in a physical copy that you can go and buy from the store. So he thinks there’s some life still left in them.

He sees the stock getting absolutely hammered and he buys in. The stock just seems too cheap for potentially a business that’s still got some legs. So Burry, in Q3 of 2019, decides to buy, and he buys three million shares of GameStop. At the time it would have been between the $3.50 and $5.50 range. Then, in Q4 2019, he sells 650,000 shares because the stock hovers up in the $5.50 to $6.50 range. So immediately, he’s made a little bit of money.

But then, in the next quarter, Q1 of 2020, the stock tanks, goes from about $6.30 down to $3.40. So Burry gets straight back in and immediately basically buys back those 650,000 shares that he sold in the prior quarter. That turns out to be a smart move because in Q2, the stock rebounds up to nearly $6, and then in Q3, the stock really starts rising—skyrockets up to $10.56. So he sells 1 million and 46,600 shares, so 38% of his position, but he’s still got a lot of skin in the game, right? He still owns 1.7 million shares in GameStop.

Now here’s the thing: these quarterly updates that we get from these big investors around the world, we only get them 45 days after that quarter ends. So this information for Q3 of 2020 we got on the 14th of November 2020, which also means that the information for Q4 2020 wasn’t going to be public information until literally right now, like in the last day or two.

Now, look at what has happened to GameStop in the time since we got that last update released publicly: it’s been as high as $305 per share. Now why is that? Well, I’m sure the vast majority of you guys already know the story, but very quickly, if you’re not up to speed with it, GameStop, because of that negative consensus, was a stock that was heavily shorted by large financial institutions. They were betting that the stock price was going to go down and they were really betting that it was going to go down. In fact, at one point, 140% of the outstanding shares were held in a short position.

Now, interestingly, the redditors over on Wall Street Bets saw this and thought, you know, if we band together and buy GameStop stock, we could potentially trigger a short squeeze, and that is exactly what they did. They bought shares in GameStop, they bought call options in GameStop, and they actually managed to trigger a short squeeze, where the shorts have to cover their short position. In doing so, they take a massive loss, but it also drives the stock price higher. And that’s how you get this amazing hockey stick-looking graph where GameStop seriously just skyrockets straight up.

Now, Michael Burry didn’t have anything to do with this; it’s kind of just a coincidence that this meme—this war between the hedge funds and these retail investors—just happened to rage on his largest holding. He was really just an innocent bystander in the whole situation. But from that time that we got that Q3 2020 update, he held 1.7 million shares, and the stock ran up, as I said, to $347 per share.

So if he timed this absolutely bizarre situation to absolute perfection, then he could have turned his 1.7 million shares—which were worth $17.4 million at the end of Q3 2020—he could have turned them into $592 million. Now that’s at best, and in reality that would really not have happened because it’s highly likely that as the stock price even would have started trending up to, you know, the $80, $100 region, he would have started to get out of that position.

So it’s extremely unlikely that that perfect situation where it’s perfectly timed would have actually come true. But it seemed as though, any which way you look at it, Michael Burry still would have made absolutely squillions, because in 10 trading days, the stock ramped up by 1,642%. I mean, it’s hard not to make a stack load of cash when a stock that is your biggest holding in your portfolio does that on you in 10 days.

And this is where, unfortunately, our story becomes very, very sad, especially for Michael Burry, because he has missed out on the whole thing. Because as of the Q4 2020 13F filing for Scion Asset Management that was released to the public literally like two days ago—so this is brand new information to us—unfortunately, he sold 100% of his GameStop position in Q4 of 2020. He sold the whole lot—his largest position in his portfolio—he sold all of it before this massive run-up even began.

Now imagine how you’d feel! He must feel absolutely horrible, because just imagine if you had like ten thousand dollars in a stock, it goes up like fifty percent or a hundred percent, and you decide to sell. I mean, that’s still a win! But imagine after you sell, and you take your profits, then the stock launches up 1,500% further. You can’t help but feel just terrible, like you’ve just missed out on the most brilliant opportunity of your entire life. Oh, and I mean this, that would just be—oh! He’s dealing with literally millions. His position was $17.4 million, and it could have been worth $592 million.

Oh, I feel so sorry for Michael Burry; it’s such a missed opportunity. I guess, like, technically, there is the potential that maybe he’s brought back into GameStop in Q1 of 2021. I mean, he does do a lot of moving and shaking with his portfolio. I mean, even if we just have a look at the 13F filing from Michael Burry for Scion Asset Management, Q1 to Q4 2020, he owned—he’s got 20 stocks in that portfolio, and in that quarter he sold out of nine positions and he added nine new positions. So he doesn’t mind; he’s not afraid to move around.

However, in all honesty, I really don’t believe that he would have bought back into GameStop, because you think about it this way: if he felt comfortable selling all of the shares at maybe roughly $20 per share, is he gonna buy back in when it hits $30, $40, $50, $60, $70, $80 per share? I mean, the stock didn’t do anything but go up after he sold it. So, I don’t think he would have felt comfortable buying back in when the stock was just going on a meteoric rise.

So, unfortunately, I feel as though he really has just missed out on this enormous run-up, which kind of makes sense in hindsight, because I was a little bit confused when the run-up first started happening. Because, you know, as Michael Burry, who had this as his number one stock in his portfolio, I would have thought he would have just kind of shut up and let it happen and enjoy the benefits of this war between retail investors and the hedge funds. But he actually spoke out publicly about how he was really not happy with what was going on.

I mean, he said on Twitter, you know, “If I put GME on your radar and you did well, I’m genuinely happy for you. However, what is going on now, there should be legal and regulatory repercussions! This is unnatural, insane, and dangerous.” As I just said, you know, for someone that at the time we thought was just making millions and millions and millions of dollars every single day off of the events that were transpiring, you would have thought he would just stay out of it—just zip his mouth and just stay out of it and enjoy the benefits—but there you go. Now it makes sense why he spoke out and why he was speaking out negatively against the whole situation.

But overall, I mean, man, it’s just such a missed opportunity for Michael Burry. However, really, if this happened to you, this exact situation, really, you shouldn’t be too unhappy, because remember, at the end of the day, he’s probably at least tripled his money in the space of like 12 months, which is still a phenomenal investment. I mean, when he bought his original 3 million shares in Q3 2019, the stock was between $3.50 and $5.50, and he’s likely sold all of that, or most of that stock, between $5.50 and $21 on the upper end. So, likely he’s probably scored about a tripling of his money, which is still very, very impressive.

But overall, I know if I was in his position, it would be hard for me to feel good even about tripling my money in 12 months, because I would just look at where the stock price went and just go, “Oh no.” But anyway, guys, that is the unfortunate nightmare of Michael Burry selling out of his position and then the stock going up literally like sixteen hundred percent.

Um, anyway, I hope you enjoyed the video. Leave a like on it, and I wanna hear from you guys. Leave me a comment down below: Did you get in on the GameStop saga? Did you make money? Did you lose money? Let me know if you guys got in on it, what happened, how did you go?

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But that will do me for today, guys. Thank you very much for watching, and I’ll see you guys in the next video.

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