Why Did Michael Burry Sell All His Stocks and Shares?

Why Did Michael Burry Sell All His Stocks and Shares?

When Michael Burry steps out of the stock market, people wonder why.

 

The legendary hedge fund manager Michael Burry became famous for predicting the 2008 financial crisis, as depicted in the movie The Big Short, which was based on true events.

 

In the second quarter of 2022, he sold almost all holdings in his hedge fund Scion Asset Management. He has sold all shares in Facebook (Meta), Google, Nexstar, Booking Holdings, Sportsman’s Warehouse, Bristol-Meyers Squibb, Cigna, Ovintiv and Stellantis.

 

Only a small holding of The GEO Group remained – but before you run out and buy up shares in this REIT, you should consider whether that isn’t just because he didn’t manage to sell that holding before the cutoff date for the quarter.

 

Michael Burry is a shy man who tends to stay away from the media, but he has a Twitter account where he makes his views pretty clear – and a few minutes later deletes them.

 

In this blog post, I will go through his (now deleted) Twitter posts to see why he might have exited the market.

 

You can always look them up yourself. You can find his Twitter account here, and another account that collects his tweets here.

 

 Here are the three main points, as I see it:

 

1. This Is (Still) the Mother of All Bubbles and It’ll Crash

 

Michael Burry’s tweets are often a bit vague and ambiguous, but there is no doubt that he is warning of an upcoming crash. He says the decline we’ve seen so far is just the beginning of something wilder.

 

What exactly is he saying? Here are some of his tweets so you can judge for yourself.

 

“If you’re asking what I think about the market, I told you many times over the last year.” (Sept. 26, 2022)

 

“No, we have not hit rock bottom yet. Watch for failures, then look for the bottom. 2 SPAC ETFs failing is not near enough.” (Sept. 7, 2022)

 

“Crypto Crash. Check.

Meme Crash. Check.

SPAC crash. Check.

Inflation. Check.

2000. Check.

2008. Check.

2022. Check.”

(Sept. 6, 2022)

 

“And yet, I keep getting asked “wen crash?” (Aug. 31, 2022) – written with a screenshot of a graph showing how much the shares have fallen.

 

“Contrary to the internet and the Twittersphere, there have been bear market rallies that eclipsed 50% retracement and led to a lower low. April 1930. November 1938. June 1946. And since 1950, November 1968.” (Aug. 15, 2022)

 

“Nasdaq a bull market because it is up 20% off its low? Who makes this stuff up? After 2000, Nasdaq did that 7 times as it fell 78% to its 2002 low.” (Aug. 11, 2022)

 

People say I didn’t warn last time. I did, but no one listened. So I warn this time. And still, no one listens. But I will have proof I warned.

 (Feb. 21, 2021)

 

“People always ask me what is going on in the markets. It is simple. Greatest Speculative Bubble of All Time in All Things. By two orders of magnitude. (June 15, 2021)

 

2. Inflation Is Bad – And It Will Get Worse

Inflation is bad, and the poor suffer the most when prices on basic necessities rise.

 

Michael Burry points out that inflation comes and goes like waves as it moves towards a higher level. He does not believe that the US central bank (the Fed) is really committed to fighting inflation.

 

Here are some of his most important quotes:

 

“Why inflation is the worst kind of regressive tax. The cost of food at home has never risen this far this fast before.” (Sept. 13, 2022, with a screenshot of statistics)

 

“Inflation appears in spikes. When the spike is resolving, it won’t be because of Biden or Powell. It will be because that is the essence, the nature of inflation. It resolves, fools people, and then comes back. When it comes back neither the POTUS nor the Fed will take credit.” (Sept. 6, 2022 – with a screenshot of historical data for how inflation has moved.)

 

“Realize inflation has always been peaky. And it has never been just one peak. So it resolves to a brief deflation (40-50) or disinflation (70s), and comes back, an inflationary cycle generally spans years, and inflationary eras have spanned decades. Human nature.” (Aug. 26, 2022)

 

3. Cryptos Will Most Likely Be Banned

 

When Bitcoin crossed 60,000 USD in value, he started tweeting about shorting the crypto.

 

He simply asked, “how to short bitcoin?”, after which he deleted his entire Twitter account.

 

I imagine he’s been met with a bit of a Twitter storm from his about one million followers.

 

Other things he has written about crypto:

 

“I don’t hate Bitcoin. However, in my view, the long term future is tenuous for decentralized crypto in a world of legally violent, heartless centralized governments with lifeblood interests in monopolies on currencies. In the short run anything is possible- why I am not short Bitcoin.” (Feb. 20, 2021)

  

His point is that governments can outlaw all cryptocurrency. You can’t argue against that. That is the power that governments have.

 

He has also tweeted that the regulatory authorities don’t get crypto at all – kind of like they didn’t understand what happened before the financial crisis: “You know how much auditors understood about CDS back in the day? Well, that’s how much they understand about crypto.” (Sept. 12, 2022) 

 

What Else Does He Say?

Michael Burry has an opinion about almost anything. Here are a few of his non-market related opinions:

     We do not do enough for the environment

     Lockdowns during the pandemic had too-high social costs

     There is a lot of racism involved in university admissions

     Trump is a liar (“Still fake. Always fake.”)

 

How Can You Use This?

Michael Burry is a really good man for reading data – possibly because he has Asperger’s and sees the world through a different lens (and through a glass eye).

He can be a bit extreme in his statements. Either he is wrong this time – or maybe he is just a few steps ahead of the development like he was last time? I tend to lean towards the latter.

 

During the financial crisis, he was many years ahead with his predictions.

 

This time around, he has been warning of a giant crash for about five years (very insistently for a year). But people are delirious with the quick crypto and meme gains and many stopped listening to him, just like in the story of the boy who cried wolf.

 

Michael Burry is a Warren Buffett fan and a value investor. He looks at data, and

thinks in a very logical way.

 

If you want to understand how he sees the world, you can read my introduction to value investing in my e-book Free Yourself here.

Value Investing is really about avoiding getting caught up in the frenzy, exuberance and false narratives of a bubble. It’s about looking at the data – that both companies and society hand us – and thinking straight, without drama and greed.

 

In my e-book Free Yourself, you can learn much more about reading company reports and figuring out how much you should pay for stock. You can download it here.

Five Reasons Not to Trust Analysts’ Recommendations

Five Reasons Not to Trust Analysts’ Recommendations

“Is there a recommendation to buy stocks in the company?”

“What do the analysts say about it?”

These are the kinds of questions I often hear people ask when they are considering investing in a company.

Most people have blind faith in stock analysts as experts and prefer to check their assessment of a company before doing anything on their own. They have the same faith in the analysts as they have in physicians when dealing with their children’s health.

But stock analysts are not experts in the same way as lawyers or pediatricians.

A stock analyst’s work is linked to a commercial purpose in the bank.

My advice to you is to avoid reading stock analyses from the big financial houses because there are some built-in flaws in the system that make it hard to trust them.

You should instead train your do-it-yourself muscle in conducting your own research and making decisions before you buy shares.

One way you can learn how is by using my 1-page checklist here.

Let’s get to the point. What’s the problem with stock analysts’ recommendations?

There are five…

1. The Bank Makes Money From Fees and Commissions

The analysts are employed by the banks. The banks, of course, make money from the fees you pay every time you buy or sell shares. Or, if you use a stockbroker, from the commission they get.

That means that there is a financial interest in getting you to trade more actively than you would otherwise do. You could say that the research and the recommendations work as appetizers to make you become more active in the market.

The recommendations work like stoplights in traffic – green, yellow… or as they call it, buy, hold, sell – so you feel that you need to keep an eye out and be active.

The analysts and traders in the banks live like fish in symbiosis in a small aquarium. The stockbrokers will try to whet your appetite for a trade by sending you their colleagues’ stock analyses.

2. The Analysts Are Dependent on the Companies They Cover

The companies decide who they want to invite to dinners, meetings, and to special events like their capital market days, which are occasionally held in luxurious surroundings.

I attended a capital market day at a Four Seasons in California for one of the Danish hearing aid companies. The hotel room, the dinner and the party that took place were so extravagant that I still talk about it today.

The companies can choose to cut an analyst off from all that if they don’t like the analysis.

If an analyst is cut off from the company’s communications and invitations, it’s difficult to cover that company in the future.

This makes it almost impossible to make harsh sell-recommendations or any analyses that really expose the company’s weaknesses.

Therefore, the banks’ analysts tend to make more buy than sell recommendations.

3. The Analysts Move Like a Hoard

You often see that recommendations are similar to each other. There will be a dominant trend and a bit of a domino effect where they rub off on each other.

This is because it’s difficult to go against the pack.

If you get it wrong, you are very exposed if you were the only one who held that point of view. You can get fired for that.

If the whole pack is wrong, it’s easier to hide and shrug it off.

4. An Analyst Covers One Industry

 An analyst is specialized. They usually only cover one sector or industry, and that makes it hard for them to have a bird’s eye view on matters.

For example, an analyst might cover pharmaceuticals or the financial sector. The one covering pharmaceuticals will know very little about banks, and vice versa.

This means that an analyst’s recommendation is based on a very narrow perspective.

The analyst does not have an overall view of whether it is a good time at all to invest in bank shares – or whether there are better opportunities in another corner of the market.

5. Analysts Only Cover the Largest Companies

There is a whole undercurrent of companies that are completely ignored by both analysts and the media.

The bank must be able to generate enough revenue from the trade that it makes sense to have an analyst employed to cover the company.

This means that many wonderful companies are ignored and overlooked simply because they are not among the biggest on the stock market.

So What Should You Do?

You have to master the ability to do your own research. You do this by knowing what to look for. 

In my e-book Free Yourself, I teach you the process I use to review a company before I invest.

You can learn to do the same.

Begin with the e-book, and if you want more information, you can join a free webinar, and later on, my intensive value investor course.

Keep an eye on the e-mails to get notified about future webinars and courses.

Download my e-book Free Yourself  here. When you do that, you have the option to get emails from me about future opportunities.

Whether Stocks Will Fall or Soar and What You Should Do About It

Whether Stocks Will Fall or Soar and What You Should Do About It

This year has been a difficult time for many stock market investors.

Shares dived the first six months of the year, and few of them have escaped the plunge.

In fact, the major U.S. stock index S&P 500 has had its worst first six months in half a century, according to an article in the WSJ.

Since then some stocks have made a bit of a rebound, but the nervousness still lingers.

The question a lot of people are asking right now is:

What now? Is the market going to drop again? Or is it going to continue up?

The other question behind this question is: shall I buy or sell now?

Warren Buffett addressed this very clearly at his company Berkshire Hathaway’s annual meeting in May 2022:

“We don’t have the faintest idea what the market is going to do on Monday.”

Well, the major indices did drop by quite a lot that following Monday after the Berkshire Hathaway meeting.

Warren Buffett has been phenomenal at “timing” his investments. How is that possible? Especially when he says he doesn’t know how to time?

Well, he doesn’t time. He does something much simpler.

He invests without taking into account the macroeconomic trends and stock market forecasts. He focuses exclusively on the company in front of him.

I call it investing with blinders on. Like the horse on the road, you can’t let yourself get scared by a passing truck or noise from an airplane overhead.

You need to focus on the road and take one good step after another. That’s your job.

Here are three steps you can take to be a good investor in any market – bull or bear.

1. Focus on the Company and Its Products

First and foremost, you need to find good companies that you think will sell more in ten years.

As Warren Buffett says, you should only buy shares in the company if you’d be willing to buy the entire company and wait ten years without selling any stocks. This makes you think twice, doesn’t it.

Of course, that doesn’t mean you have to have billions in your trading account to buy the whole thing. It just means that you need to be ready to evaluate the company as a whole and equip yourself with patience.

If it’s a good company, that will show over time on the stock price – even though there may be short-term drops.

This, of course, depends on you not buying at inflated bubble prices. More about that in point 3.

2. Take the Company Through a Checklist

How do you know if the company has a better future in ten years?

You will need to take the company through a checklist.

I’ve made my own checklist, which you can download in summary form here.

The most important thing is that you assess whether you understand the product, whether you trust the management, whether the company’s finances are sound – growth, profits, sound cash flow and low debt – and whether they have competitive advantages that make customers stick to their products.

You can read more about how to take the company through such a checklist in my e-book Free Yourself here

3. Buy Shares When Cheap

Even the best company can prove to be a bad investment if you buy shares when the company is overvalued on the market.

For example, if you had bought Microsoft during the dotcom bubble in 2000, you would’ve had to wait 16 years before the stock was worth the same amount again.

How do you calculate what a company is worth?

There are several methods. My favorite is Warren Buffett’s owner earnings, which you can also learn more about in my e-book Free Yourself.

What I Do

By the way, in the picture above, I am on my way from Portugal to Denmark, where I opened my investment company, Grünbaum Value Invest, at the end of June.

Many observers have complimented me on “being good at timing the market”.

As you probably guessed by now, I’m not timing the market.

I’m only looking at whether there are opportunities in the market that I’m ready to act on.

And yes, great companies are now trading at reasonable stock prices. It’s a good time to get in, if you ask me. But you have to watch your steps carefully.

Learn how to identify great opportunities in my e-book Free Yourself right here

Five Hacks for Getting Productive After a Vacation

Five Hacks for Getting Productive After a Vacation

We all know the feeling.

You’re back from a long vacation, and now you barely remember how the coffee machine works.

While you’ve been away, tasks have piled up while your pace is slower than before.

How do you get into it again?

Where should you start, and how?

This week’s blog post gives you my five best hacks to skip the holiday paralysis and kickstart your productivity.

1. Have a Solid Task Brainstorming Session

The first step is to get it all out of your head and down on paper.

You need to make a long list of things that need to be done. Brainstorm and write freely without judging the items on the list.

I usually write it out on a loose piece of paper from the printer, which I tape or glue into the first page of an A4-size notebook.

That page is your master list that you can edit and go back to.

I cross items off the list and add new items daily.

When it gets too messy to look at, I make a new one and tape it onto the first page again.

On my list, there are both things like “pay bill” or “buy more canned cat food” and things like “write blog posts” or “get a business bank account,” in an unprioritized order.

Here, of course, the most important thing is the bank account, while the cat can live quite a long time on dry food.

But don’t worry for now about different categories and priorities.

The most important thing is to get it all down.

Your to-dos will create noise in your head if you don’t get them down on paper.

2. Prioritize, Simplify, and Outsource

Next, go through the list and prioritize.

You can write 1-5 on the left, where 1 is the most important and 5 is almost unimportant. I actually prefer a simple system from 1-3 (my brain likes three choices): high priority, medium priority, and low priority.

Remember that urgency and priority are not the same thing. Just because something is urgent doesn’t mean it’s important.

It’s urgent to buy toilet paper if you’re out of stock, but in the big picture it’s not as important as getting a handle on important building blocks in your career or business.

Be careful not focus on putting fires out by constantly tackling the urgent tasks – it can quickly dominate your day.

If you can automate these kinds of tasks, maybe with an assistant or automatic online order once a week, that’s great.

Dealing with the little now-now-now matters makes you less efficient with handling the important things in life.

It’s essential to be completely on top of which tasks should be allocated your best “brain” time (which is early in the day when your brain is most fresh).

One of the most important things about the long list is to cross off the little things quickly.

3. Preplan the Week on Saturday Mornings

Do your schedule and planning well in advance. You should ideally make a weekly plan on Saturday morning during your best “brain” time.

By Monday morning, you should already know exactly what to tackle… otherwise you risk spending too much time staring at the wall, feeling paralyzed, not knowing what to do.

When planning your week, remember to also ask yourself, “What can I do this week that will make next week easier?”

If you ask this question every week when planning the week, it will have a big effect over time. It’s about outsourcing tasks and finding easier solutions so that you can focus on what’s really important.

When planning the week, remember to scan the field for landmines. You need to consider what could go wrong that could prevent you from completing the tasks so you can make backup plans. What do you do if the flight is canceled? Or if a child gets sick?

4. Make a List of Tomorrow’s Tasks

Every evening, I write down three important tasks that I must complete next day, come hell or high water.

I write the three things down the night before so that I am completely aware of what I want to prioritize when I wake up the next morning.

There is something magical about the number three. Studies have shown that most people pass up free samples of jam in the supermarket if there are more than three flavors to choose from, because it seems overwhelming to them.

There is a reason why the hero in fairy tales always has to go through three trials. Four trials and you lose both the hero and the reader.

However, I have heard of a slightly more sophisticated system that I am considering implementing. It’s called the 1:4:5 rule.

The idea here is that you should limit yourself to 10 tasks per day. One large task, 4 medium and five small tasks.

Whether you choose 3 or 1:4:5, remember to write your tasks down the evening before. Being prepared is crucial.

5. Evaluate and Adjust

When the week is over, review it and consider what you would do differently if you could have a do-over.

In this way, you can improve your own ability to work effectively with the most important things.

Was there anything that distracted you last week? Did something interrupt you? Were there unforeseen “landmines”?

How can you get rid of what went wrong last week so it doesn’t show up again?

If social media is distracting you, can you delete the app from your phone?

If messaging with a loved one is pulling you out of your productive zone, can you make an agreement only to text during work hours if really necessary?

Are there any urgent, but not important tasks at work that you need to learn to say no to?

If there is something in the home that distracts you, can you sit somewhere else?

Try to look at your distractions in detail and find out how you can improve.

Become a Better Investor, Too

What does this have to do with investing in stocks. 

As an investor, it’s also important that you get things done: research, follow up, invest.

Many people get paralyzed when it comes to investing.

I often hear people say things like:

“I believe in value investing, and I really like your method. But I can’t seem to get it done.”

If that’s you, review these five points with investments in mind:

Write down what you need to do to invest.

Prioritize what is important to get done.

Get your tasks scheduled.

Write down 3 things you have to do tomorrow with your investments.

Evaluate how it went and why you maybe weren’t super efficient.

Sometimes a small decision can have a gigantic effect. Nine years ago, when my eldest son was still a baby, I discovered that Netflix was dominating my evenings to the point where I was getting sloppy with our nighttime routine because I wanted to watch my shows.

How could Netflix be more important than showing love to a small child? It seemed completely wrong to me, so I decided to cancel my subscription, and guess what? I’ve never gone back to it.

Yes, I’ll miss out on Squid Game and Tiger King, but I can use that time to do things that are of a greater importance to me. Like quality time with loved ones, reading and studying, and – yes – investing.

Not getting things done is probably one of the biggest barriers that prevents most people from becoming good investors.

The first thing you need to do is download my e-book Free Yourself, where you can learn a lot more about investing. You can download it here.

 

 

The Top 20 Online Sites For Stock Market Investors

The Top 20 Online Sites For Stock Market Investors

There are a lot of tools available for you as an investor, but it’s easy to get lost on the internet.

This list will help you cut to the chase and find the best sites quicker. 

Here are the 20 best online tools and websites for value investors: 

1. The Company’s Own Investor Relations Site

The first source of information should be the original source, and by that I mean the annual report, quarterly statements, and other information from the company itself.

There should be a link to the subsite for investor relations on the home page.

If you still can’t find it, just google the company’s name + investor relations. 

2. Google 

You should google the company to see what comes up.

There could be awful – but truthful – reports from short sellers (people betting on the stock falling), big insider selling, or some lawsuit that hasn’t been settled yet.

Always, always google the company you are researching. 

3. News Media  

Take a look at the headlines on the major news sites every day.

I check:

Make it a part of your daily routine to check the websites. You don’t have to read a lot of articles from start to finish – this is about getting the big picture. 

4. Reuters 

Reuters.com contains a stock site that can be really useful to get an overview of a company’s development. 

You can use the search function to find the company.

On the “profile” page of the company, you can see things like how many shares there are. You’ll need that for several calculations when you want to figure out what price you would want to pay per share. 

5. Bloomberg

Bloomberg.com is similar to Reuters – they both sell data to the financial sector. 

Bloomberg has a more aggressive paywall on their website though, but you can still use it to look up the numbers of shares outstanding.

6. Insider Monkey 

InsiderMonkey.com is useful for checking if insiders are dumping the stock.

You don’t want to touch something that the insiders are doing a fire sale of.

History has shown us that insiders often try to unload the stock they own before it’s obvious to the public that a company is going bankrupt. 

7. Gurufocus  

Gurufocus.com shows you what the big value investors invest in. 

You can see the portfolio and their latest trades. Just be aware that the investors only have to report their US investments every quarter, so the information is never going to be completely updated. 

8. Dataroma 

Dataroma.com is a more simple version of a value investor tracker.

It includes different investors from Gurufocus, so it’s a nice addition – Li Lu is on Dataroma, but not on Gurufocus. Who wants to miss out on what Li Lu is doing? Charlie Munger trained him, and some people speculate whether he has a future role to play in Berkshire Hathaway.  

Whalewisdom       

Whalewisdom also tracks the big value investors. I like their heatmap.

10. Seeking Alpha 

On Seekingalpha.com you can find a lot of investors’ analysis and stock ideas.

They have a morning briefing podcast called Wall Street Breakfast. You can find Seeking Alpha’s podcasts here.

11. Investopedia

Investopedia.com is for investors what Wikipedia is for normal people.

If you find something in an annual report that you don’t understand, try looking it up on Investopedia before you panic.

12. The Motley Fool  

The Motley Fool, also called Fool.com, is run by two brothers, and it helps you invest through blog posts, podcasts, videos and so on.

It’s possible to receive stock recommendations if you sign up for the paid version.

13. Morningstar 

I use Morningstar.com for researching ETF and other funds. It’s an easy way to look up their performance and costs.

You can also enter and track your portfolio on Morningstar. 

14. Yahoo Finance 

 You can use Yahoo Finance for a lot of stuff, like setting up a stock screener, entering your portfolio, creating a stock alarm, and many other things.

15. Trading View 

 Tradingview.com is great for charting.

It’s got plenty of other functions like a stock screener. If you’re into Bitcoin and other cryptos, you can chart them here too.  

16. Finviz 

On Finviz.com you can chart, build portfolio and stock screeners, get an overview of the news, backtest your latest trading idea, and much more.

17. Market Screener 

Marketscreener.com lets you chart, build a portfolio, a screener – and many of the other features that the two previous financial sites also offer.

You’ll have to test them and see which one suits you the best.

18. Simply Wall Street 

Simply Wall Street is a value investor site that evaluates investments for you.

I get a little confused about the warning signs that they show, so I prefer to do my own analysis, but I see no reason why you can’t get inspired by Simply Wall Street – as long as you go to the original source (the company’s report) and do your own analysis as well. 

19. SEC Edgar 

 The Securities and Exchange Commission’s website Sec.gov contains a lot of information… if you have the patience for the not-so-user-friendly system.

The funds trades are there – which means you can find all the big investors investments and trades.

Be careful though – you might click on something that fills your screen with code language or html.

The SEC communicates in a semi-cryptic language – here are some of the most important form codes to remember:

  • 13F : Funds reports of their investments
  • 10-k : Annual report
  • 10-q : Quarterly statement
  • 4 : Changes in insiders’ ownership

20. Money and Freedom 

 You’re here, aren’t you? It’s worthwhile following this blog for the weekly posts and lists. 

You’ll automatically be signed up for the weekly investment tips if you download the e-book. Which brings me to…

Don’t forget to read my free e-book that explains my whole investing process – including my favorite way to calculate what a company is worth. You can get it here.