“The Big Short” was a great movie with an even greater star-studded cast. The movie and the book ‘The Big Short: Inside the Doomsday Machine’, on which it’s based is about individuals who predicted the bursting of the housing bubble in 2008.
Out of all the colorful characters in the movie, the most interesting of them all has to be Dr. Michael Burry played by Christian Bale. The actor went to great lengths to portray real life Michael on screen, even going as far as wearing the same clothes. The book, as well as the movie is incredible, thanks to the inclusion of Michael Burry.
Who is Doctor Michael Burry?
Dr. Burry started looking into subprime mortgages in the year 2005 and was soon convinced that the bubble would burst. He took the decision to short the market and convinced Goldman Sacs to provide him with credit default swaps on specific subprime mortgage bonds that he had picked.
He went all in against the market. A decision that took people years to understand but which also made Dr. Burry a fortune overnight. He became very famous as a result as well.
As interesting as his correct bet against the subprime mortgage industry, Dr. Murphy’s track record prior to that is even more impressive. He started the hedge fund Scion Capital in the year 2000 and reaped in lots of profits for his investors. According to some reports, from 2000 to 2008 Dr. Murphy helped his investors get stellar returns of 489.34%!
This was during an era when the popularity and basic principles of value investing, was at its lowest. Dr. Murphy got his start by posting his ideas on a few forums and websites. This helped him get his initial set of clients for Scion Capital and later, Scion Asset Management.
Now, you probably would need a boat load of money to before Scion Asset Management takes on your account. Thankfully, Michael Burry often shares his knowledge and information to anyone who is willing to listen free of charge as well.
Dr. Burry liquidated Scion Capital in the year 2008, so that he could pay more attention to his personal finances. But it wasn’t too long before he was back. In the year 2013 he started the asset management firm known as Scion Asset Management. Both the firms are named after his favorite book The Scions of Shannara.
Details on Scion Asset Management
Scion Asset Management currently has Zaeed Kalsheker as its COO, who was also part of Scion Capital. By the end of the year 2013, the firm was managing capital worth more than $ 100 million. Which also happens to be the threshold required for a firm to disclose its long holdings in public. Dr. Burry follows the text book concepts which were first espoused by Ben Graham and followed by Warren Buffet. These wise pieces of advice are:
- Always to invest with a margin of safety
- Perform fundamental analysis
- Keep an eye for undervalued and great stocks in industries that aren’t very favorable
- Manage your portfolio very carefully
It might sound bit ironic that several years after the market crash, Dr. Murphy has invested a sizeable chunk of funds in financial services. In fact there was a time, it was the highest weighted sector in the portfolio of Scion Asset Management at 32.4%. This was followed up by technology related stocks and healthcare related stocks at 28.9% and 23.7% respectively.
During the financial crisis, Dr. Burry felt that financial institutions didn’t provide enough value to be invested in. The same has changed in the first quarter of this year, as some stocks of some banks came in the inexpensive category. Keep in mind that the P/B ratios of Bank of America and Citigroup, are of 0.6 and 0.61 respectively, and Scion Asset Management bought these stocks.
As per the filings provided by Scion Asset Management to the Securities and Exchange Commission of the United States of America: For the year 2016 they had 14 stocks in their portfolio. These were:
- ACE Ltd
- Apple Inc
- Bank Amer Corp
- Bank New York Mellon Corp
- Citigroup Inc
- CNX Coal Res LP
- Community Health Sys Inc New
- First Solar Inc
- HCA Holdings Inc
- International Business Machs
- Mens Wearhouse Inc
- Nexpoint Residential TR Inc
- PNC Finl Svcs Group Inc
- Theravance Biopharma Inc
The total investments done on these stocks fared a little under $ 80 million. Scion Asset Management in the second quarter decided to get rid of Apple Inc’s stocks from its portfolio. Dr. Burry replaced the placeholder of Apple Inc’s stocks with Alphabet Inc’s stocks, the parent company of Google.
According to the SEC filings, Dr. Burry sold 75000 shares of Apple Inc and went long on 15000 shares of Alphabet Inc. That wasn’t the only change though. Scion Asset Management dropped few other shares from their hedge fund such as Solar Inc’s 100000 stocks and also stocks of Gentherm Inc and Tailored Brands Inc.
Scion Asset Management feels strongly about Neophotonics Corp and that is the reason they have added about 300000 shares of the firm to their fund. Some of the largest purchases done by Scion Asset Management are follows:
- Ace Ltd
The hedge fund owns about 50000 shares of ACE Ltd, which reflects about 7.89% of their portfolio.
Dr. Burry’s firm holds 100000 stocks of the banking giant Citigroup or roughly 7% of total portfolio value.
- Bank of America
Scion Asset Management has 6.82% of its portfolio filled up by 300000 shares of Bank of America.
Dr. Burry is an incredibly talented investor and he has proven that several times over the past decade. We are all well aware of his predictions regarding the subprime mortgage crisis. Therefore, we should take heed that he feels that there is another financial crisis looming around the corner. Not only that, he feels that steps taken by financial institutions and current legislation is just not enough to save them. Nevertheless, his firm Scion Asset Management continues to provide amazing returns for its investors.
Did you like the Big Short? Let us know what you think of Michael Burry – is he a genius or just lucky?