Michael Burry Announces Next Big Investment: GameStop
Dr. Michael Burry pulled of the trade of the century by shorting the U.S. housing market a decade ago.
He made hundreds of millions of dollars.
The dozen or so people who found out about and copied Burry’s trade also made a killing.
Burry’s trade was so good that he was portrayed by Batman himself — Christian Bale — in the Academy Award nominated movie The Big Short.
Now, finally, Burry is back with his next big trade.
And this time it’s a trade that we can all get in on…
The Most Epic Short Squeeze in Stock Market History
Do not for a moment think that Burry’s housing market trade was a fluke.
He was no one-trick pony.
Burry ran his hedge fund, Scion Capital, from the turn of the century through Q1 2008 when he closed it.
Over that time, the S&P 500 went up a grand total of 5.2%.
Scion Capital, meanwhile, went up a staggering 696%.
Burry generated year after year of huge returns.
Since 2008, Burry has stayed out of the public eye running his own money.
Burry just revealed that he owns 3.3% of the shares of GameStop Corp. (GME).1
Much more importantly…
He also revealed a plan to send GameStop’s share price through the roof.
GameStop is one of the most heavily “shorted” stocks in the market. Meaning that investors are actively betting that shares will fall.
Currently, an unbelievable 60% of GameStop’s shares have been sold short.
Burry sees an opportunity to exploit that massive short interest.
In a letter that he just sent to GameStop’s Board of Directors, Burry laid out a plan to create the most epic short squeeze in stock market history.
In Burry’s own words from his letter:
“GameStop could pull off perhaps the most consequential and shareholder-friendly buyback in stock market history with elegance and stealth.”
Given what we now about Dr. Burry, I would not want to be short shares of GameStop today.
I would, however, very much like to be long.
Dr. Burry’s Plan is a Win-Win Situation
If the idea of Michael Burry orchestrating the short squeeze of the century doesn’t excite you — I suggest that you immediately watch The Big Short.
This man is a genius.
However, his plan for GameStop to take short sellers on a one-way trip to Painesville is surprisingly simple.
GameStop is currently sitting on $480 million of cash.
Burry believes that the company should use $240 million of that cash to immediately start repurchasing shares hand over fist.
With its high short interest, GameStop’s daily trading volume is unusually high.
This high volume would allow for the company to repurchase a huge number of shares quickly.
Repurchasing $240 million worth of stock would not involve a trivial amount of GameStop shares.
It would make a massive reduction in the outstanding share count — almost 80% of GameStop’s shares would be retired.
If the short sellers see that GameStop is following Burry’s advice and aggressively buying back stock, the shorts are going to flee from the trade.
To cover their short positions, they’ll need to buy GameStop shares.
With 60% of the float sold short that means an incredible wave of buying.
When that happens, GameStop’s shares are going to skyrocket in a breathtaking fashion.
This would be an incredible win for shareholders. Or as Burry called it, the most “shareholder-friendly buyback in stock market history.”
The beautiful thing for us is that unlike Burry’s big housing market trade…
We can get in on the ground floor with him on this one.
Then we can buckle up and get ready for the ride.
Here’s to looking through the windshield,
Financial Analyst, The Daily Edge