Granted, he hasn’t been right on the money with all his recent predictions. Still, when Scion Asset Management founder and renowned investor of The Big Short fame – Dr Michael Burry – makes a move, it’s always worth paying attention, especially when the move is as drastic as exiting from a dozen bullish positions and loading up on Geo Group Inc (NYSE: GEO).
For context, over the weekend, Burry indicated the tides may once again turn on the latest tech stock rally before referencing three key events which contributed to the NASDAQ’s 75% decline between early 2000 and late 2002 in a since-deleted tweet.
“Can’t shake that silly pre-Enron, pre-9/11, pre-WorldCom feeling.”
Dr Michael Burry, Scion Asset Managment
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As of the closing of the second quarter, Burry’s hedge fund has ditched everything from Alphabet Inc to Facebook parent Meta Platforms Inc while only adding shares in the private-prison operator that is Geo Group Inc (Scion Asset Management’s only long play as of June 30th, according to a regulatory filing).
Shares of Geo Group Inc climbed an impressive 12% earlier this week – the company’s largest single-day rally since June 2021 – with both Michael Burry and Scion Asset Managment’s position now worth approximately US$3.9 million (AU$5.55 million).
All this doom and gloom isn’t exactly out of character for Michael Burry, either, who has carved out a reputation for himself as something of a perma-bear. Posting under the handle @cassandra – a reference to the priestess in Greek mythology cursed to share true prophecies but never to be believed – he periodically resurfaces to offer his often pessimistic two cents.
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You may recall back in April, the man came out of (digital) hiding to sound the alarm with yet another tweet-and-delete warning. It was to the good doctor’s belief that US stocks are heavily overvalued and primed for a cliff dive.
“Nigh perched with a multiple problem,” the man famously portrayed by Christian Bale captioned a chart illustrating the price-to-sales ratio of the S&P 500 equal-weight index.
For the majority of the 90s and early 2000s, the aforementioned ratio operated below 1.0. Across the last decade alone, it has nearly doubled to above 1.9.
As explained by Business Insider, Michael Burry (presumably) wanted to highlight how the index was trading at almost twice the revenue of its constituents, indicating the valuation multiples on the US stocks representing the country’s largest publicly-listed companies have “stretched to unsustainable heights.”
“[Burry] likely used the price-to-sales ratio because it’s more speculative than price-to-earnings, or price-to-book value,” writes Theron Mohamed.
“It compares a company’s market capitalisation to its revenues, instead of its profits or net assets.”
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And while Tesla stock didn’t plummet by 90% in a single year – despite Burry’s best efforts – he did manage to anticipate the “mother of all crashes” for both cryptocurrency and meme stocks.
“All hype/speculation is doing is drawing in retail [investors] before the mother of all crashes,” Michael Burry tweeted about modern-day investing’s worst-kept secret back in April.
“When crypto falls from trillion, or meme stocks fall from tens of billions, #MainStreet losses will approach the size of countries.”
“The problem with #crypto, as in most things, is the leverage. If you don’t know how much leverage is in crypto, you don’t know anything about crypto.”
Let’s see how this play with Geo Group Inc pans out.
