Michael Burry’s Strategic Moves Signal Market Insights

Michael Burry, known from the movie The Big Short, has once again caught attention in the investment world. Originally a neurology resident at Stanford, Burry gained fame for posting insightful stock ideas online, which led him to leave medicine to found Scion Capital. He became widely recognized for betting against the housing market before the Great Recession, netting hundreds of millions for his investors. Currently at the helm of Scion Asset Management, Burry recently sold nearly all his stocks in the first quarter, raising questions about his market outlook.

Burry’s Market Timing During Tariff Tensions

Typically managing a focused portfolio of around a dozen stocks, Burry made a significant move by selling the majority of his holdings in the first quarter. Previously, he was bullish on Chinese equities, holding major shares in companies such as Alibaba, Baidu, JD.Com, and PDD Holdings. Following the sale of these stocks, he also purchased put options on them, indicating a bearish outlook. This strategy is similar to a bet on declining stock prices. In addition, Burry acquired put options for Nvidia.

Image source: Getty Images.

It’s important to note that the 13F filing with the Securities and Exchange Commission reveals only Scion’s positions at the close of trading on March 31. The exact timing and prices of Burry’s sales during the quarter remain unclear.

Burry may have anticipated rising trade tensions between the U.S. and China and proactively positioned himself to mitigate potential market sell-offs due to tariffs. This foresight appears validated as the market experienced significant declines in early April following President Trump’s announcements, which led to a nearly 20% drop from February’s highs. Nvidia’s stock also saw a decline, trading 30% lower in 2023 amid escalating trade issues and U.S. export restrictions on semiconductor chips.

Despite these challenges, Nvidia has since recovered after a temporary pause on further tariff increases between the U.S. and China.

NVDA data by YCharts.

Interestingly, Burry’s only remaining long position is in Estée Lauder, which has lost over 50% of its value in the past year (as of May 16). Scion increased its stake in Estée Lauder in the first quarter. Historically, Burry has favored deep-value stocks, exemplified by his significant investment in GameStop just before its meteoric rise driven by retail trading enthusiasm.

Assessing Burry’s Long-Term Strategy

The future direction of Burry’s investment strategy remains uncertain until Scion’s 13F for the current quarter is released in July. He might be taking a short-term bearish stance due to the anticipated trade war’s impact. This approach aligns with prior behavior; for example, in the second quarter of 2022, Scion sold most of its stocks except for one right after the Federal Reserve initiated a rigorous interest rate hiking campaign. By the third quarter, however, the firm began to accumulate stocks again.

If Burry did indeed sell all his stocks in the first quarter and subsequently bought the dip, it would showcase his astute market timing following Trump’s tariff pause announcement. Yet, he could also be adopting a longer-term bearish perspective based on economic data, which signals a potential decline in consumer spending and overall economic health.

In summary, Burry’s market positioning for the remainder of the year remains to be seen. Nevertheless, it appears he may have successfully executed another strategic “big short” trade.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Baidu and Nvidia. The Motley Fool recommends Alibaba Group and JD.com. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.