-“I’ll then look harder to determine a more specific price and value for the company. When I do this I take into account off-balance sheet items and true free cash flow. I tend to ignore price-earnings ratios. Return on equity is deceptive and dangerous. I prefer minimal debt, and am careful to adjust book value to a realistic number.”
-Minimal debt, a low P/B ratio (adjusted to reflect realistic asset values), strong free cash flow and low EV/EBITDA ratio were the four traits Michael Burry looked for in an investment.
-Secondly, Michael Burry looked for what he called ‘rare birds’, or asset plays in other words.
-Thirdly, Burry looked for value in the type of company favored by Buffett. (Those with a sustainable competitive advantage as demonstrated by longstanding and stable high returns on invested capital, although only at a reasonable price.)
Avant! had $100 million in cash in the bank, was still generating $100 million year of free cash flow — and had a market value of only $250 million!
Michael Burry started digging; He was able to see that even if the executives went to jail (as they did) and the fines were paid (as they were), Avant would be worth a lot more than the market assumed…Burry bought his first shares of Avant! in June 2001 at $12 per share…Mike Burry kept on buying it — all the way down to $2 a share…Four months later Avant! got taken over for $22 a share. ‘That was a classic Mike Burry trades,’ says one of his investors. ‘It goes up by ten times but first it goes down by half.'”
“As for when to buy, I mix some barebones technical analysis into my strategy…Nothing fancy. But I prefer to buy within 10% to 15% of a 52-week low that has shown itself to offer some price support. That’s the contrarian part of me. And if a stock — other than the rare birds discussed above — breaks to a new low, in most cases I cut the loss…”
Avant! had $100 million in cash in the bank, was still generating $100 million year of free cash flow — and had a market value of only $250 million!
Michael Burry started digging; He was able to see that even if the executives went to jail (as they did) and the fines were paid (as they were), Avant would be worth a lot more than the market assumed…Burry bought his first shares of Avant! in June 2001 at $12 per share…Mike Burry kept on buying it — all the way down to $2 a share…Four months later Avant! got taken over for $22 a share. ‘That was a classic Mike Burry trades,’ says one of his investors. ‘It goes up by ten times but first it goes down by half.'”
“As for when to buy, I mix some barebones technical analysis into my strategy…Nothing fancy. But I prefer to buy within 10% to 15% of a 52-week low that has shown itself to offer some price support. That’s the contrarian part of me. And if a stock — other than the rare birds discussed above — breaks to a new low, in most cases I cut the loss…”
Michael Burry’s portfolio management was developed through trial and error:
“I like to hold 12 to 18 stocks diversified among various depressed industries, and tend to be fully invested. This number seems to provide enough room for my best ideas while smoothing out volatility, not that I feel volatility in any way is related to risk. But you see, I have this heartburn problem and don’t need the extra stress…I know my portfolio turnover will generally exceed 50% annually… I am not afraid to sell when a stock has a quick 40% to 50% a pop.”
Source: http://csinvesting.org/wp-content/uploads/2013/07/Michael-Burry-Case-Studies.pdf
“I like to hold 12 to 18 stocks diversified among various depressed industries, and tend to be fully invested. This number seems to provide enough room for my best ideas while smoothing out volatility, not that I feel volatility in any way is related to risk. But you see, I have this heartburn problem and don’t need the extra stress…I know my portfolio turnover will generally exceed 50% annually… I am not afraid to sell when a stock has a quick 40% to 50% a pop.”
Source: http://csinvesting.org/wp-content/uploads/2013/07/Michael-Burry-Case-Studies.pdf
