Michael Burry's CRAZY Win on Gamestop (Courtesy of Wall Street Bets)

Can't stop, won't stop, Gamestop! The following video is an interesting tale of how this guy rode this wave thanks to these guys and somehow got annoyed by it.

[Music]

Well, it's highly likely that in the last couple of weeks, Michael Burry has made an absolute fortune. If you don't know Michael Burry, he is this guy from "The Big Short," and he essentially made his fortune by shorting the U.S. housing market in 2008. So, Michael Burry bought a pretty substantial amount of GameStop in Q3 2019. At the time, it was his largest position, and since that time, it has basically stayed as the largest position in his portfolio.

Now, GameStop is predominantly a physical retail video game retailer over in the United States, and it trades under the ticker GME. As of Michael Burry's most recent 13F filing, which was from Q3 2020, Scion Asset Management currently holds 1.7 million shares in GameStop. Now, unfortunately, we don't have any newer data than that. Q4 2020 13F filings are due in about two and a half weeks. But anyway, going back to the story, Michael Burry buys into GameStop in Q3 2019. It's his biggest bet in his portfolio, and even from that point up until the most recent 13F filing, he's done pretty well on the stock.

But look at what's happened to GameStop in the past few weeks. On the 12th of January, the stock was at $19.95. Then, on the 13th of January, it jumped 57.39% to $31.40. Then the next day, it was up another 27%. Then, over the next four trading days, it gained roughly 7%. But the party wound right back up. That was not the end of it. On January the 21st, the stock was at $43, then the next trading day $65, then the next trading day $76, and then the big one yesterday, the stock rose 92%, from $76 to $148. And now, even after hours, it's up another 41%.

So chances are, when you're watching this, GameStop has had another ridiculous day. Now, have a listen to this. Scion Capital owned 1.7 million shares of GameStop at the end of September. That's from the last 13F filing. Assuming Burry hasn't altered the size of the holding, it has ballooned in value from about $17 million U.S. to $250 million as of Tuesday's close. That's almost a 1400% gain in only four months.

This is insane because Michael Burry made about $800 million from shorting the housing market in 2008, and that took years for his plan to come to fruition. He ended up making $100 million for himself and about $700 million for his investors, but it took so long. Now, in the space of like four months, he's potentially made $233 million—boom! Just like that.

Now, I do have to say, remember that this is just a potential, right? Because unfortunately, we don't get real-time updates of what these guys are doing with their stock market investing. As we said before, we're going off of the most recent 13F filing that we have. There is the potential that Michael Burry might have cashed out his position at any point along this curve, but there is also the potential he's held on. So, this is assuming that he has just held on and gone along for the ride.

Now, you would have thought he'd be really happy with this and laughing all the way to the bank, but strangely enough, he was actually pretty annoyed. In fact, after the trading day of Tuesday, he fired off a couple of tweets, which he then soon deleted a couple of minutes later. This is what he said: "If I put GME on your radar and you did well, I'm genuinely happy for you. However, what's going on now? There should be legal and regulatory repercussions. This is unnatural, insane, and dangerous.” He added, tagging the Securities and Exchange Commission's enforcement arm.

So, he's not actually too thrilled with what's going on. But that begs the question: well, what is the situation with GameStop? What the hell is actually going on? Well, it all comes back to a little subreddit called Wall Street Bets. This is basically a subreddit filled with mostly stock market gamblers, but it is actually pretty fun to kind of follow along and have a look at what some people actually do—the big bets that some people make with options and so on in the stock market.

But anyway, with GameStop, GameStop is a business that's kind of been in a slow decline, and that's led a lot of people—and like a lot of hedge funds—to short the stock. What short selling is is it's essentially where you borrow someone else's shares and you sell them immediately. Okay? And then you hope that the share price goes down, because eventually you have to buy back the shares to then return the shares back to their owner.

So, it's a weird and wacky process where you're making money from the stock price going down. You're selling the shares first at the high price. Okay? So you're making your money first. But, of course, you're borrowing the shares. When you borrow something, you have to give it back. So that's the inescapable thing about short selling is that eventually you have to buy back the shares and return them to their owner.

Now, the problem with short selling is, well, what if you borrow the shares, sell them, and then the stock price starts going up? It goes up a little bit more, and it goes up a little bit more, and it keeps going up. And all of a sudden, yes, it's an unrealized loss, but you can see as the share price goes up, you're just losing more and more money. So, there's a lot of risk. There's potentially unlimited risk because you can just keep losing more and more and more money.

Now, eventually, when the losses add up and you just can't keep going, you have to cover your short position. So you have to say, "Enough's enough. I'm going to buy back these shares, return them to their owner, and be done with it." But the problem with that is that in that process, you are buying shares. That's how you close a short position; you buy shares.

Now, if a lot of short sellers are all covering at once, then all of a sudden, there's more and more and more buying, which contributes to the buying pressure, which drives the stock price up. So, a situation you can get is sometimes a heavily shorted stock, if the share price starts going up, then that causes some short sellers to cover. They buy the shares to return to the owners. That increases the buying pressure, and the shares go higher.

That then puts more pressure on all the other short sellers that held on. Some of them cover, that pushes the stock price higher, and then the whole process keeps cycling, and more and more short sellers have to cover. And then that is when, if it gets out of control, that's when you get this: a short squeeze.

And who's behind it? These guys! As per this Business Insider article, scores of retail investors, including some members of Reddit forum Wall Street Bets, have targeted heavily shorted stocks in recent weeks. They drove GameStop's stock price up as much as 145% on Monday, Bed Bath & Beyond up 58%, Blackberry up 48%, and AMC up 39%.

So, what they do is collectively they try and buy into these heavily shorted stocks to try and get the stock price just to tick up enough to start that short squeeze. And then they just don't sell. Then, to compound that, there's also the potential for what's called a gamma squeeze, because a lot of these investors on Wall Street Bets have been buying call options on GME stock.

And then what a gamma squeeze is is essentially the market maker is hedging their exposure because they've sold a lot of these call options, and the easiest way to reduce their risk in that situation is just to simply buy the underlying stock—so, buying GameStop stock. And then what that does is, of course, it adds another layer of buying pressure onto GameStop stock.

That's really hard to say. So, very confusing. But overall, that's how it started. But, of course, now this story has gone through all of the U.S. media, and now everybody's talking about it. So, a lot of the stuff that's happening right now, while there's still a lot of short selling playing out and all that sort of thing, a lot of stuff now is just people hearing about it and just trying to get involved in the craziness.

But I just find this a really interesting kind of tale of David versus Goliath. It's like retail investors, Wall Street Bets, versus hedge funds. One of the main players in the hedge fund space, the short side of this whole equation, has been Melvin Capital Management. They formed a 55 million short position, and then it just blew up in their face. So much so that they've now got two billionaires, called Steve Cohen and Ken Griffin, which are currently bailing them out because they've already lost 30% this year alone.

But I think the funniest side of things is not even just looking at the shorts that are getting destroyed; it's looking at some of the people on Wall Street Bets that are literally just becoming like overnight millionaires. I mean, there's this guy that's now up to $11 million, with a gain yesterday of over $3 million. Um, or there's this guy that paid back his $23,000 student loan from his gains. There's this dude that has $50,000 in, and he made $208,000 in one day. I mean, even Elon Musk has now poured some fuel on this fire. After the end of trading yesterday, he just tweeted "Gamestonk!" with a link to the Wall Street Bets site, which has obviously got so many posts about GameStop.

And after-hours trading is already up 41%, which is just insane. But overall, I hope this situation, I hope it kind of goes without saying, you know, the value investors—the people that, you know, like to do their research on different businesses and buy in based on cash flows and intrinsic value. I hope it goes without saying that these situations, as an investor, you should definitely avoid.

I mean, yes, you see the daily rise of like 90-something percent, and you're like, "Oh my gosh, what if I had done this? What if I'd got in? I'd be a millionaire," or whatever. But over, obviously, over a long period of time, it's just an incredibly risky strategy for an investor to do this sort of stuff, especially when now you've had a meteoric rise in the share price, gone way further than it really should have, and you've still got it quite heavily shorted. It's just a really, uh, it's just, it's just a very volatile situation.

So, typically speaking, I mean, for those that are thinking about GameStop, maybe you've just stumbled into this video because you have been caught up in the hype and you're thinking about buying GameStop purely on the fact that it's going up a lot at the moment. The one question I would say you should ask yourself is: what are the shares of GameStop worth? Put a dollar figure on it. If you can confidently answer that question with reasoning, then fair enough, do whatever you want. If you can't answer what the shares of GameStop as a business are worth based on their cash flows and their growth trends, then it's definitely one that you should step away from. Protect yourself.

[Laughter]

But overall, guys, that is the story of GameStop, and it's also the story of Michael Burry's largest position potentially making him like $233 million in four months.

Now, as I said before, we don't know if that's 100% what's happened because he might have cashed out earlier, but it's still very interesting. Michael Burry strikes again with the help of Wall Street Bets.

So anyway, guys, I hope you enjoyed the video. Leave a like on it if you enjoyed it or if you found it useful. Comment down below, like what do you think of this battle between the hedge funds and Wall Street Bets and the short squeeze and all that sort of stuff? Let me know what you think down in the comment section below. Did you get into GameStop? Maybe you were just someone that held it as an investment, and then this happened, and now you're just like a millionaire? So, let me know, let me know all that stuff down in the comment section below.

Leave a like on the video, subscribe to the channel. Still, a vast majority of you guys out there that watch my videos aren't subscribed. It blows my mind, so just hit the subscribe button. Stick around; we've got lots more stock market content coming out over the next couple of months. So subscribe!

Thanks very much for watching. Check out Profitful! Links are in the description if you're interested about how I go about my investing, my full investing strategy. You can walk through passive investing or active investing depending on what suits you. Check that out in the links down in the description below.

But that'll do me today. Thanks for watching! I'll see you guys next time.

[Music]

[Applause]

[Music]

[Applause]

[Music]

[Applause]

Foreign.