Michael Burry, famously known for his role in The Big Short, employs a contrarian investment approach with distinct stock-picking and portfolio management strategies.
What are contrarian investor Michael Burry’s (re Big Short) stock picking & portfolio management strategies?
Key messages include:
- Buy undervalued, overlooked companies. Buy shares of unpopular companies when they look like road kill, and sell them when they’ve been polished up a bit. Burry focuses on purchasing shares of companies that are deeply unpopular or struggling, often comparing them to “roadkill.” He seeks to capitalize on the turnaround potential, selling once these companies show signs of recovery (“buy when there’s blood on the street”).
- Emphasize margin of safety. Stock picking is 100% based on the concept of a margin of safety (ie downside protection). His investment philosophy is grounded in downside protection. Burry’s stock selection revolves around finding opportunities where the margin of safety is clear and substantial.
- Explore an unconstrained pool of opportunities. Fish from an unconstrained pond of opportunities. Burry doesn’t limit himself to specific sectors or industries. Instead, he casts a wide net, seeking value wherever it may arise.
- Diversified holdings. Typically, Burry holds a concentrated portfolio of 12 to 18 stocks, strategically diversified across distressed industries, and is usually fully invested.
- Timing through ‘Bowl’ chart patterns. For identifying potential turnarounds, Burry looks for “bowl” formations on charts, a strategy inspired by Richard Crow. However, he is quick to cut losses if a position doesn’t perform as expected
