Dr. Michael Burry has received a great deal of well-deserved attention recently as a result of Michael Lewis’s The Big Short and the Vanity Fair article Betting on the Blind Side. Yesterday a reader provided a link to Burry’s techstocks.com “Value Investing” thread (now Silicon Investor) and today another reader has supplied a link to Burry’s Scion Capital investor letters. The site also sets out a time-line of Burry’s commentary on the financial crisis illustrating that, though it was not prevented, it was “eminently predictable and preventable”.
Burry is a superb writer. Here is a brief extract from the first quarter 2001 letter:
When I stand on my special-issue “Intelligent Investor” ladder and peer out over the frenzied crowd, I see very few others doing the same. Many stocks remain overvalued, and speculative excess – both on the upside and on the downside – is embedded in the frenzy around stocks of all stripes. And yes, I am talking about March 2001, not March 2000.
In essence, the stock market represents three separate categories of business. They are, adjusted for inflation, those with shrinking intrinsic value, those with approximately stable intrinsic value, and those with steadily growing intrinsic value. The preference, always, would be to buy a long-term franchise at a substantial discount from growing intrinsic value.
However, if one has been playing the buy-and-hold game with quality securities, one has been exposed to a substantial amount of market risk because the valuations placed on these securities have implied overly rosy scenarios prone to popular revision in times of more realistic expectation. This is one of those times, but it is my feeling that the revisions have not been severe enough, the expectations not yet realistic enough. Hence, the world’s best companies largely remain overpriced in the marketplace.
The bulk of the opportunities remain in undervalued, smaller, more illiquid situations that often represent average or slightly above-average businesses – these stocks, having largely missed out on the speculative ride up, have nevertheless frequently been pushed down to absurd levels owing to their illiquidity during a general market panic. I will not label this Fund a “small cap” fund, for this may not be where the best opportunities are next month or next year. For now, though, the Fund is biased toward smaller capitalization stocks. As for the future, I can only say the Fund will always be biased to where the value is. If recent trends continue, it would not be surprising to find the stocks of several larger capitalization stocks with significant long-term franchises meet value criteria and hence become eligible for potential addition to the Fund.
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