Over the decades, short-selling stocks and sectors has become something of an art form, and few have raised the public profile of the “short” as much as Michael Burry, founder of Scion Asset Management in Saratoga, California.
That’s ironic considering that Burry has historically kept a low profile, occasionally surfacing on X or issuing cogent but short commentaries on stocks and funds he’s added at Scion.
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His rise in popular culture is another story.
With his former hedge fund, Scion Capital, Burry’s big bet against the U.S. mortgage bond market in 2007 and 2008 yielded $100 million for himself and $700 million for his clients. All told, Scion’s returns from November 2000 to June 2008 totaled 489.3%, according to a Sure Dividend report. Compare that to the S&P 500, which returned just under 3% over the same time frame.
Burry’s generalized investment strategy is to zig as the market (and legions of investors) zags amid volatility. Scion made a fortune short-selling dot-com era stocks that Burry viewed as overvalued with scant revenues and no profits. Largely, he was right. In 2001 alone, the Scion fund returned 55% in a year that the S&P 500 slid by nearly 12%.
By 2006, Burry had turned his attention to the U.S. housing market, once again using short trades to bet against subprime mortgages. Using credit default swaps (basically insurance against mortgage default risk) to target mortgage-backed securities, Burry wound up cleaning up when mortgage-backed securities plummeted in value and the housing market crashed.
That bet, made famous by the 2010 Michael Lewis book, “The Big Short: Inside the Doomsday Machine,” and the ensuing 2015 movie “The Big Short,” in which Burry was memorably portrayed by actor Christian Bale, is the stuff of Wall Street legend.
Now, with 2024 opening for business, what short positions has Burry taken in the past year? Let’s take a look at some of the hedge fund manager’s latest stock market moves:
Shorting the Stock Market
In August 2023, Burry held short positions against both the exchange-traded fund Invesco QQQ Trust (ticker: QQQ) and the SPDR S&P ETF (SPY), according to Securities and Exchange Commission filings. More specifically, Scion purchased about $1.6 billion in put options (about $739 million against QQQ and $887 million against SPY). The options play was a bet that the U.S. stock market would go into retreat in late 2023.
Burry often uses put options for his short-trading strategies, which allow the purchaser to sell a specific quantity of an asset (in this case, an ETF) at a fixed price before the option expires.
He had been hinting at the strategy for months. In a January 2023 X post, Burry laid out his take on the U.S. economy for the year, which he predicted would sour and turn recessionary, citing high inflation and lower consumer confidence in the economy.
“Inflation peaked, but it is not the last peak of this cycle,” Burry noted in the post. “We are likely to see (the consumer price index) lower, possibly negative, in 2H 2023, and the U.S. in recession by any definition. Fed will cut and the government will stimulate. And we will have another inflation spike. It’s not hard.”
Yet, the exact opposite occurred, as U.S. gross domestic product rose at an upwardly revised annual rate of 5.2% in the third quarter of 2023, while the consumer price index rose 3.1% on a year-to-year basis in November.
That’s hardly the stuff that recessions are made of. Scion wound up closing its short position in late September at an apparent loss as the S&P 500 wound up rising 26% in 2023, up from a loss of 18% in 2022.
Shorting the Semiconductor Market
Scion Asset Management’s most recent Form 13F filed with the SEC on Nov. 14 reveals nearly $99 million in assets and 13 holdings, with a big short bet taking a sizable bite out of the fund.
In the third quarter of 2023, Burry opted to hedge against the global semiconductor market, which saw returns skyrocket for most of 2023 once post-pandemic economies recovered and supply chain disruptions abated.
According to Scion’s 13F, Burry shorted BlackRock Inc.’s (BLK) semiconductor fund, iShares Semiconductor ETF (SOXX), buying 100,000 put options worth $47.4 million in notational value (the total theoretical value of a financial security’s position).
Although this was likely a bet that semiconductor stocks were overvalued and sector share prices would come down, chip stocks and funds proved resilient in late 2023. Take SOXX, for example, which had a total return of 67% in 2023 following a disastrous 2022. Or consider Nvidia Corp. (NVDA) and Advanced Micro Devices Inc. (AMD), which returned 239% and 128%, respectively, in 2023.
While Burry hasn’t provided any background on the SOXX short play, one could surmise that he is focused on the 10 large-cap semiconductor stocks that compose about 60% of the fund, not necessarily the entire semiconductor sector. It’s also worth mentioning that Burry has a history of shorting high-flying technology stocks and funds. He’s wagered against Cathie Wood’s flagship ARK Innovation ETF (ARKK) and Elon Musk’s Tesla Inc. (TSLA) in past years.
But with BlackRock’s ETF soaring in 2023, and in positive territory since Scion’s last 13F was released, Burry’s short stake against SOXX looks wobbly at the opening of 2024.
Shorting Booking Holdings
In another, much more moderate 2023 Q3 leverage trade, Burry shorted 2,500 shares, or $7.7 million worth, of Booking Holdings Inc. (BKNG), a digital travel services platform better known as Priceline (the company changed its formal name to Booking Holdings in 2018). Scion also purchased 1,500 shares of BKNG stock.
Things are looking up for the stock and for the travel sector. Booking Holdings, a robust competitor to travel giants like Expedia Group Inc. (EXPE) and Airbnb Inc. (ABNB), saw its shares gain 76% in 2023 as travel consumers hit the open road and the friendly skies in a post-pandemic travel spending spree.
Again, 13F rules don’t obligate Scion to share the reasoning behind its portfolio moves, and the famously closed-mouthed Burry hasn’t explained it.
But with U.S. unemployment low (it stood at 3.7% in December) and household balance sheets in solid form entering 2023, it’s difficult to imagine that travel consumers will snap their wallets shut soon, as the U.S. economy seems to have avoided a recession.
In that regard, Burry’s BKNG short may be a short-term hedge against any downbeat economic or travel-sector news in early 2024 that could impact reservations. But with Burry not discussing it publicly, nobody outside of the Scion bubble knows for sure.
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Michael Burry’s Short Positions Leading Up to 2024 originally appeared on usnews.com
