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Michael Burry replayed his GameStop bet in a Substack post on Monday.
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The Big Short investor writes that a “terrible business” became the “belle of the ball” in 2021.
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Burry sold shares before the meme stock boom because he was “blindsided” by the risk and saw little return.
Speaking of regrets, Michael Burry has a few.
The investor known as “The Big Short,” who bet on GameStop before it became a trending topic, explained in a Substack post Monday night why he sold the stock ahead of its surge.
Burry, a recent hedge fund manager turned internet writer, first invested in GameStop in the summer of 2018. He wrote that the video game retailer’s stock is undervalued in his opinion, and he sees a range of catalysts that could push the stock higher.
These include console updates in 2020, the possibility of an acquisition, the potential sale of the Spring Mobile business, and strong cash flow and large cash reserves that provide room for “very large and consequential buybacks,” Bury wrote.
He exited the position in the second quarter of 2019 after the stock failed to move. But he reinvested in July 2019, buying the stock “with both hands,” making it one of his larger holdings, in part because high short interest provided a new catalyst, he wrote.
Do you have an investment regret like Michael Burry did when he missed out on GameStop? Share with our reporters: tmohamed@businessinsider.com
“I went to a GameStop store to make sure I wasn’t crazy,” Burry wrote. “It doesn’t work. Even the things that aren’t on sale look like they should be on sale.”
Burry wrote to GameStop’s board of directors to push for changes at the company. He shared that his public events attracted emails from Keith “Roaring Kitty” Gill, a retail investor who became the cult voice of the GameStop meme, and Chewy co-founder Ryan Cohen, who later became GameStop’s CEO.
Burry said the second time he bought GameStop stock, the split-adjusted average price was 83 cents, less than 1/26 of the current share price of $22.
He purchased nearly 5% of the shares and held them for more than 16 months. “Most of the time I lend stocks at very favorable rates (high double digits), which is profitable and an important part of the deal,” he wrote.
Burry cashed out in late November 2020, selling his shares for an average price of $3.38 per share, more than four times what he paid.
Weeks later, retail investors on forums like r/WallStreetBets launched a historic squeeze on GameStop short sellers, sending the stock to an intraday high of over $120 on January 28, 2021.
“At its peak, my years of investing could turn $12 million into $1 billion, but that’s not going to happen,” Burry wrote, noting that he had sold out long before that.
Burry is best known for predicting and profiting from the housing crash that preceded the 2008 financial crisis, a story told in the book and movie “The Big Short.” He reflected on whether he should have taken a different tack.
“I could have analyzed the situation better,” he said. “I knew everything about GameStop and I thought I understood the volume, short interest and other dynamics. However, I was blinded by the execution risk I saw.”
He also lost confidence in a sharp rebound in the stock market. “Again, I’m human,” he wrote, adding that the massive buybacks, board changes and Spring Mobile sale were “home run/slam dunk successes with concrete results but zero impact on price or short interest.”
GameStop shares soared after Cohen disclosed his stake, and Burry seized the opportunity to end his bet.
“I didn’t know what to expect,” he wrote. “I didn’t know a growling kitten existed.”
“I had no idea that widespread gamma squeeze would be the only legal corner of the market,” he added.
About 50 days after his exit, Bury wrote, the “shamefully lame business” became “the belle of the ball.” “The whole world can’t take its eyes off her. And neither can I.”
Burry said he had mixed feelings about the meme stock mania of early 2021: “It was spectacular. It was hilarious. But it was also tragic.”
But he thinks it “won’t be as interesting” by mid-2021, when the value of non-fungible tokens (NFTs) will soar along with “watches, shoes, pretty much everything.”
Burry said he was worried retail investors would be “destroyed by this meme event” and warned them to be careful. He said this because “if there is one thing I wish I could have done, it is to effectively warn or talk about what happened between 2005 and 2007,” he wrote.
The deep value investor, who moonlighted as an investment blogger while in medical school, also teased an upcoming article that will provide “a detailed analysis of GameStop as an investment.”
“As a piece of melting ice and with a somewhat selective capital structure, GameStop is in much the same position as I was close to in 2018, except it’s only 16% short, all the numbers are 10x bigger, and for better or worse, Ryan is running it,” he wrote.
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