Michael Burry Calls Extreme Overvaluation and Reduces His Exposure

All right, 13-F season continues, folks, and we're moving right along to Michael Burry, who quite honestly is here, there, and everywhere at the moment.

So, in this video, we're going to talk about the two big moves he's pulled with his own portfolio that are currently making headlines at the moment. We're also going to discuss his current sentiment right now with everything he's been saying on Twitter recently. So, there's a lot to unpack here, so hopefully, there's a really good video with that said, let's get started.

[Music] And just very quickly before we get into this, I want to do a quick, just a brief explainer on how Michael Burry invests. So, as you guys know, he rose to fame after predicting the '08 housing bubble.

As he is depicted in "The Big Short," he is one of those investors that really gets into the weeds of an issue to form his opinions and make his bets. He's definitely a value-minded investor, so he's still all about buying great companies that discount their intrinsic value. But he also doesn't mind making, say, you know, macroeconomic bets. So, he doesn't mind using options to try and amplify returns. He's happy going short.

So, you know, while we talk about Warren Buffett and how he just makes the occasional long-term equity investment, you know, Burry is much, much more active, and he doesn't shy away from different investment vehicles to try and maximize the potential return of his, you know, various market phases.

Looking at his track record, a lot of his positions are even, you know, short to medium term, which is way different to that of, say, Warren Buffett or Charlie Munger, for example. Have a look at his 13-F history. What we're looking at here is a quarter-by-quarter summary of Burry's largest holdings.

Now, have a look at Charlie Munger's 13-F history. You know, what do you notice? Michael Burry's is all over the place, constantly changing. So, while these two investors have the same broad value investing philosophy, Burry is way more active and much more focused on the short to medium term.

So, I wanted to explain that first because, you know, if you just looked at Burry's 13-F straight off the bat, you wouldn't know what to make of it. So here are all the changes to Burry's 13-F this quarter, which shows the changes to his U.S. stock portfolio.

You know, he bought just three stocks, he substantially reduced in two, and he sold out of eight. Now, seeing that, your first thought might be that, you know, Michael Burry's getting out of the U.S. market, but that's not true, despite what the headlines might be saying at the moment.

Firstly, look at last quarter's 13-F. He sold out of 14 positions. Okay? The quarter before that, he sold out of 13 positions. The quarter before that, he sold out of nine. So, he's not running for cover. This is actually a fairly standard trend for his 13-Fs.

What is true, however, is that in the U.S., you know, he is finding less and less that he actually wants to buy. Q4 2020, he bought 11 stocks. Q1 2021, he bought 16. Q2, he bought 11. Now, in Q3, he's bought just three.

So, in my opinion, it's not a case of Burry running for the hills or anything; it's more that he just isn't finding a lot of stuff to buy right now in the United States. However, you know, with that said, he is generally doing more selling than buying at the moment.

Because if we flick over to Ticker.com, which shows the most complete version of his total portfolio, including international stocks as well, you can see there has been a fair bit of selling recently. But, you know, it's nothing to go over the top about because, look, he's still comfortable holding 19 stocks in his portfolio, right?

And honestly, this portfolio aligns with exactly what he's been saying recently. He said recently that the U.S. is experiencing a huge speculative bubble in all things. He's saying there's more overvaluation than there was in the 1990s, so he doesn't want to hold many U.S. stocks right now.

However, a year or two ago, he was discussing how cheap businesses were in places like Japan, and as you can see, he holds six Japanese stocks. So, the guy's portfolio does reflect what he's been saying over the past few years.

Well, at least his equity portfolio does. Because, of course, we've been seeing over the past few quarters that Burry has been placing options bets on a few big issues, and interestingly, he has now ditched those bets in Q3.

So, the first big bit of news from this 13-F from Michael Burry is that he ditched his Tesla short positions. So, in Q2, he held puts against one million seventy-five thousand five hundred Tesla shares. So, he was betting that Tesla stock was way too hot and was going to come down in the not-too-distant future. But he's now abandoned that bet altogether.

He currently holds no put options against Tesla, and honestly, thank goodness for his sake because this is what happened to Tesla stock since he came out and said that he was done betting against them. So, overall, I don't think this bet went particularly well for Michael Burry, but, you know, it certainly could have been a lot worse.

But, of course, this begs the question: well, does this mean his sentiment has changed on Tesla? The answer to that is definitely no. I think he was just realizing that the hype behind Tesla is very strong and it keeps the stock surging. And, you know, it's a dangerous game to bet against that.

There's a famous quote in the stock market which is, you know, the markets can stay irrational longer than you can stay solvent, and I think that's very much applicable to this case. But no doubt he definitely still thinks Tesla is extremely overvalued. However, for now, he just can't stomach actually betting against them in this market.

You know, for example, recently on Twitter, you know, his take on the whole Elon Musk thing was that Elon was probably just trying to realize the gains from the current stock price. He also tweeted that there was a potential of Tesla falling 80 to 90.

So, make no mistake, he's still of the opinion that the stock is wildly overvalued. He's still definitely bearish on the stock price in the short to medium term, but personally, he's just decided to just leave the stock alone and not actually make a bet that has to come true by a certain date.

Because that's the thing about betting with options: you don't just need to be right; you need to be right across a specific time frame. You need to bet, firstly, that something will happen, and you're also betting that it will happen by a specific date. You know, if it happens one day later, you still lose. So, it's a very tough game to play, and that personally, that's why I don't partake in any kind of options trading.

But, uh, anyway, that's the first big news story out of Burry's 13-F. And then the second is that he also ditched his options bets on the U.S. 20-year Treasury bonds. So, originally, he bought put options betting against the long-term Treasuries, which is essentially a bet on inflation.

So, he was really betting that inflation would rise hard enough that the Fed would have to raise rates, which would make the bonds fall. As you can see in Q1, he had a few various bets against the bonds, even using a three times leveraged inverse ETF to bet against them.

So, then in Q2, he consolidated those various bets, just holding puts against TLT, which is the iShares 20-year Treasury bond ETF. But now, in Q3, he's gotten rid of that bet as well. Again, with this one, it's a thesis he still definitely believes in, but probably just not one that he's comfortable betting on anymore.

And to be honest, this time is probably because of his opinion on the Fed's management of the inflation that we're seeing. For those that don't know, the Federal Reserve controls interest rates, which is the lever that helps control inflation, but it's also the lever that affects bond prices.

Now, the Fed says their inflation target is two percent annually, but over the past little while, inflation has run a lot hotter than two percent. Actually, just the other week, October figures showed a 6.2 annual inflation rate. So, this might indicate that the Fed should potentially raise interest rates to stop inflation from rising any further, which would bring the bond prices down.

But what we've seen of late is the Federal Reserve essentially cherry-picking numbers that make inflation seem less severe than it is. They've actually done that quite a bit recently, so in Michael Burry's eyes, the Fed's pulling a swifty here.

And that's why he's personally had to pull out of his bet because he thinks there's a bit of deception going on from the Fed. It's making him less confident that the Fed will raise rates despite the inflation, and that would mean that the bond prices stay high, aka he wouldn't cash in by holding put options.

So, in his eyes, he can't keep betting that the Fed will act to control inflation when they're demonstrating that they're actually trying to dismiss or downplay it. It's a weird situation because his thesis is actually correct; like he made a bet on inflation. He was very vocal about it on Twitter, and we saw inflation.

But unfortunately for him, for the bonds to fall, Burry needs the Fed to raise rates, and if they aren't going to do that, even if they should, then he can't keep betting on that happening. It's kind of like the rating agencies that were rating the mortgage-backed securities, you know, triple-A back in 2006-2007, even though they knew that they were just full of garbage.

So anyway, that's kind of the story with Michael Burry's 13-F for this quarter. You know, despite those two big stories, there's definitely no change in his sentiment. I guess there's just a change in his willingness to actually bet on those sentiments.

So, overall, guys, hopefully, you enjoyed the video. I hope this kind of explained it well. I definitely know looking at Michael Burry's 13-F can be quite confusing if you just try and take it at face value because it just chops and changes so much.

But I hope you can see those underlying themes are still definitely there. So, hope you enjoyed the video, guys. Leave a like on it if you did find it useful or if you enjoyed it. Subscribe to the channel if you haven't done so already.

If you want to know how I go about my investing, check out profitable links that are down in the description below. You can check out New Money Clips, which is my second channel as well, if you're interested. But, guys, apart from that, that'll just about do us for today, and I'll see you guys in the next video.