Michael Burry

Burry inspired memos

• Downside first <> margin of safety
• Vertical integration and difficulty around integrating tech parts (unpredictable)
• burry has been betting against interventions
  • viz., he’s been betting for free market force
    • and in that context, short sell (or any equivalent forms of short) can make sense
• He took Buffett seriously then found MBS then CDS
  • Take social justice seriously (then fisherman) then finance then Burry
• the concept of competitors are not functioning—or more precisely, less visible—when every companies’ stock price is uprevisit
  • in contrast to gold standard economy, where such shares are easily visible
    • <> what gets measured gets managed
    • <> know what to measure
• What doesn’t have stock options, and doesn’t buyback arbitrarily, but with free cash flow?
  • HYPE?
• From the last third section of tokenization piece burry tweeted about
  • Iron-law of market: one will take all, then investing every network will payoff?
  • State-chain?
• don’t fight physics <> reality is one, be one with it
• on consensus
  • ==LLMs = 「民意」==
  • Truth ≠ 「民意」
  • Consensus = 「民意」
    • <> other consensus memos and notes <> majority
• hyperscalers ignoring the laws of physics + Bitcoiners ignoring the basics of computation
  • <> punt the future, that future arrives
• Burry’s psychology of investing piece inspired:
  • more data, faster social proof, faster cultural reproduction <> transmission speed <> meme <> iteration (maybe it’s for the better, but it also means you have to be agile, and recalibrate constantly) <> brandolini’s law <> Mr. Market is more volatile now with more information
  • Liking <> nerds <> majority
  • Mental shortcuts <> complexity shortcuts
  • More info more shortcuts <> constraint <> own media 
  • Money force memes face reality, “memes” only accelerate this more 

SUBSTACK

The Psychology of Investing in the Information Age

• Excitedly “cramming” all at once will only mean long-term memory is not attained for the content one’s prefrontal cortex so urgently consumed. Worse, that same prefrontal cortex becomes overloaded with information that cannot be properly processed. This produces cognitive fatigue, affecting the rest of your day in negative ways. Yes, cramming for one thing makes one dumber for other things.
  • <> 2-1a0c1d1 Focus on the few variables
• Measured study and deep thought and deep sleep all help one’s hippocampus neatly categorize and file the information in your cerebral cortex for long-term retrieval and use.
  • <> RUL3 - Ask at night how what you’ve learned that day fits into your web of ideas, and search for overlaps and contradictions. Most people do not do this.
• The individual investor should consider how much he/she really understands about the business behind the investment.
• As if having more information available to us has made us less analytical, less thoughtful, and yet more opinionated.
  • The more doesn’t necessarily mean better <> 2-1a0c1d2 Less is often more
• Many recall the pre-Internet age and suggest people are less knowledgeable than before the boom.
  • Don’t outsource too much?revisit
    • 2-1c1a1 Companies will outsource everything that isn’t their value proposition. To build successful B2B company, simply be the outsource. <> 5-1b1b2b Don’t try to be the best. Be the only.
    • 2-1c2b Forced vertical integration made Tesla intimately familiar with the complex supply chain required to build a car. Good counter-argument to outsourcing everything.
    • 4-1a4b8c When you outsource your thinking, you can reap the benefits of multitasking without any downsides.
      • Only if you do the work at meta-level (i.e., if you outsource everything, no one really needs you)revisit

BARRON’S

Eternal Values (19991011)

• Among the places to look: stocks that have been trampled down, trading at deep discounts based on various criteria; industries under severe stress; small-capitalization stocks, which rarely have been cheaper relative to their bigger brethren

VALUESTOCKS.NET

Buffett Revisited (19990428)

• What makes a Buffett-like stock?
  • A long record of strong returns to shareholders?
    • Nope
  • Several different business characteristics
    1. Management
    2. Market power
    3. Great business economics
    4. Predictability
    5. Price
  • Check Robert Hagstrom’s worksTODO
    • The Warren Buffett Portfolio
    • The Warren Buffett Way
  • Historical share price performance in absolutely no way adds additional value to the current business
    • It’s about now and future <> 13-1a3a2e7 Values (and also prices—to the extent that value scales can be ascertained only through them) are not concerned with the past
  • To the extent a glorious history exaggerates shareholder expectations, it may even detract from value
  • Buffett’s most salient lesson to the investment world is to think, and to know one’s investments intimately
    • Think for yourself <> 9-1b You can’t really transfer your knowledge to others, because each knowledge has to be created individually
  • Benefit from Buffett’s leadership and skill, but do not simply mimic. For that would be forsaking the spirit of his strategy altogether.

SAN FRANCISCO CHRONICLE

Top Websites for Investment Tips (20000221)

• As of February 8, most of the stocks had been in the portfolio less than three months
  • Fact check with 2000 annual letterTODO
• When I looked, he had shorted Amazon.com
• 14 days later, the NASDAQ Composite Index put in an epic top it would not revisit for another 15 years

MSN MONEY ARTICLE

Strategy

• I try to buy shares of unpopular companies when they look like road kill, and sell them when they’ve been polished up a bit
• Management of my portfolio as a whole is just as important to me as stock  picking, and if I can do both well, I know I’ll be successful
  • <> 1-1a4c2 The whole is greater than the sum of its parts
  • <> 3-1a4a1 The whole must be evoked in explaining the parts

Weapon of Choice: Research

• All my stock picking is 100% based on the concept of a margin of safety
  • <> 2-1b2g ‘Margin of safety’ - Be redundant and resourceful
• The net is that I want to protect my downside to prevent permanent loss of capital
  • <> 2-1b2b2 ‘Multiplying by zero’ - Be risk-prone but avoid ruin at all cost
  • <> 9-2a3b0 Imagine what happens when it goes wrong—think first of the downside instead of the upside
• I care little about the level of the general market and put few restrictions on potential investments—if I can find value in it, it becomes a candidate for the portfolio
  • <> 2-1a0c1d1 Focus on the few variables
  • <> 2-1a7a5 Build day by day unless anything fundamental (‘the core’) changed. Superficial-uncontrollable criteria (e.g., share price) matter less.
• In general the market delights in throwing babies out with the bathwater—I find out-of-favor industries a particularly fertile ground for best-of-breed shares at steep discounts
  • <> 3-1c3c4.3 “Be fearful when others are greedy and be greedy only when others are fearful”
  • Recently he noted elsewhere about pharma sector as one such out-of-favor industries (e.g., his Substack Note on MOH from 20251218)revisit
• MSN Money Central’s Stock Screener is a great tool for uncovering such bargainsrevisit
• How do I determine the discount?
  • I usually focus on FCF (free cash flow) and enterprise value (market cap less cash plus debt)
    • You add debt because enterprise value is about how much it would cost if one were to buy the companyrevisit
  • I will screen by looking at the enterprise value / EBITA ratio, thought the ratio I am willing to accept tends to vary with the industry and its position in the economic cyclemethod
  • 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.method
    • <> Is it essentially the same with how Warren Buffett treats Goodwill?revisit
  • I tend to ignore price-earnings (PE) ratios
    • <> What does Warren Buffett say about PE ratios?revisit
  • Return on equity (ROE) is deceptive and dangerous
    • <> What does Warren Buffett say about ROE?revisit
  • I prefer minimal debt, and am careful to adjust book value to a realistic number

Beyond Stock Picking

• I like to hold 12 to 18 stocks diversified among various depressed industries, and tend to be fully invested
• 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
• As for when to buy, I mix some barebones technical analysis into my strategy—I prefer to buy within 10% to 15% of a 52-week low that has shown itself to offer some price support. And if a stock—other than the rare birds discussed above—breaks to a new low, in most cases I cut the loss.method
• While I do not acknowledge market efficiency, I do not believe the market is perfectly inefficient either
  • <> 13-1a3a2d6 There is no perfect money

Journal: July 28, 2000—a first round

Why I’m open to tech

• Buffett has indeed been quoted claiming that most technology does not fall within his circle of competence. But to my knowledge he does not claim that there is anything inherently wrong with investing in technology. Rather, there is something about his process of evaluation that prevents technology companies from falling into his particular circle.revisit
• One lesson that I have derived from Buffett is to overstate the importance of the long-term cash-generating power of the business above all other characteristics
  • <> 2-1a0c1d1 Focus on the few variables
• Another lesson is that companies generating exceptional and predictable returns on capital can exceed traditional value-range price-to-earnings ratios quite significantly and still be valuesmethod
• With few exceptions, technology companies are no more complex than real estate investment trusts, banks, or insurance companies, to name more traditional value investments. This is not to say that there is no complexity, but rather just that most investments are complex. It takes thought and time to understand them.
  • <> 3-1a The reality doesn’t have categories, there are only problems to be solved. Be problem-project-oriented. ‘Academic subjects’ are mere social constructs.develop

It’s all about price and value

• Every public company regardless of size or category is available to me as a potential investment. Price and value are the central criteria. You will see that over the next six months.

Journal: August 1, 2000

• Buy 800 shares of Senior Housing Properties (SNH) at the market.

Why Senior Housing Properties looks so sexy

Benefits of the Brookdale sale

Watch reimbursements

• The risk for permanent loss of capital for longer-term holders appears extremely low

Journal: August 2, 2000

• Buy 150 shares of Paccar (PCAR) at the market.

Paccar is built for profit

• Where there is misunderstanding, there is often value
• The competitive advantage for Paccar is that the truck production is not vertically integrated. Paccar largely designs the trucks, and then assembles them from vendor-supplied parts. As Western Digital found out, this model does not work too well in an industry of rapid technological advancement.
  • <> NVIDIA with TSMC likely addressed the issuerevisit

Let’s look at debt

Examining cash flow

Journal: August 3, 2000—a growth company discussed

• Buy 200 shares of Caterpillar (CAT) at the open.
• Buy 400 shares of Healtheon/WebMD (HLTH) at the open.

This cool Cat is one hot stock

Healtheon/WebMD

Journal: August 4, 2000revisit

• Buy 800 shares of Clayton Homes (CMH) at the open.

CMH: Best of an unpopular breed

• An excellent candidate for best-of-breed investing in an out-of-favor industry
  …

Journal: August 7, 2000

• Buy 350 shares of Carnival (CCL) at the market.

You’ve got more time than you think

• Although you may trade frequently, the wind should be at your back. If all else fails, a long-term hold should pull you through. And the only consistent, prevailing wind in the investment world is that of the present value of future cash flows.
  • <> 13-1a3a1i The market’s encouragement of successful forecasters fosters a relation of final equilibrium between present capital value and actual future rentsrevisit
• I don’t run a mutual fund—I need control over what sort of investor becomes a client
• Increasing firm assets is of little direct benefit to an individual client
  • <> 13-4d4e All the consumer has to do is to think about himself—in contrast, the entrepreneur (e.g., producer, investor, operator) is primarily about othersrevisit
    • The wordage of capital consumption cannot be more adequate hererevisit
• The competitive advantage therefore rests with those investors who can go where inefficiency reigns and risk is uncoupled from reward
• Health care will continue to improve, and many people should live a lot longer than they or their financial planners think. As a result, it hardly seems imprudent for people older than me to consider the longer, safer road to investment success.
  • 2-1b2 Play in different time horizon. That is, in the long-run. <> 5-1b4a Amara’s law - we expect too much in the short-run, but too little in the long-runrevisit

Cruising with Carnival

• CCL
  • …

Carnival still best of breed

…

Journal: August 8, 2000

• Buy 1,000 shares of Huttig Building Products (HBP) at the market.

Off to a slow start

• As it is, I’m editing my 2,500+ word analyses down to 1,000 words to fit in this medium

Building a portfolio with Huttig

• HBP
  • I’m buying an ugly stock in an unglamorous business
  • Spun off from Crane (CR) last year, is a leading distributor of building products such as doors, windows and trim
  • I first obtained this stock during the spinoff, as I was a Crane shareholder

Synergistic savings

…

Odds and ends

…

Journal: August 9, 2000

• Buy 200 shares of Axent Technologies (AXNT) at the market

My ‘buy’ rules

• With the market rallying since just prior to the start of the Strategy Lab, I must admit that many of the stocks I wanted to write about have already appreciated some. This is problematic because even if I like a stock fundamentally, I am rarely willing to buy more than 15% above technical support.method
• I also generally use broken support as an exit point. “Sell on new lows” might be another way to put it. If I buy a stock 50% above support, then I must watch a gargantuan loss develop before I eat it. At 15%, I’m looking at only a 13% loss before support is broken.method
  • 100 ÷ 115 → 13% loss
• Combining these guidelines allows me to put the odds a bit more on my side. I look at it as an extra kick to help out my fundamental analysis. This is not how most value investors operate, but it is something that has contributed to my success.

A worthy exception

• AXNT
  • Will be acquired by Symantec
  • Axent now trades way up off its lows, with no immediate support
    • But Symantec is bouncing along at about 8 months of support in the high $40s, and I’m listening to the arbitrageurs
  • With about five months until the close of the deal, a 2.3% spread gives an annualized return on par with Treasury bills
  • The tiny spread also indicates that the new post-acquisition Symantec will be worth at least the current share price of Symantec
  • Assuming today’s prices, the market capitalization of the new Symantec will approach $4.05billion.This,for$1 billion in revenues growing 27% for at least several years. Accretion to cash flow should begin by the end of fiscal 2001. Intuitively, there’s value here, but let’s explore it some more.

The real deal

• AXNT
  • The deal gives Symantec’s Chief Executive Officer John Thompson a potent arsenal in his quest to make Symantec a one-stop e-security shop
  • Symantec’s free cash flow runs higher than its net income, as does Axent’s. Both are accumulating cash on the balance sheet; combined, the companies have nearly $650millionincashandnodebt.Accountingforloweroverallgrossmarginsthankstoincreasedservicerevenueandtakingmanagemen{t}^{\prime }sguidanceforoperatingexpenses,wecanexpectabout$200 million in free cash flow for the year ending March 31, 2001.
    • Hence, today’s stock prices imply an enterprise trading at about 17 times free cash flow … Symantec appears to trade at nearly a 50% discount from where its growing intrinsic value now sits
      • How is this derived?revisit
  • I am choosing to buy Symantec through Axent. I have confidence the deal will go through, and hence I’d like to claim the spread.

Journal: August 10, 2000

• Buy 500 shares of Huttig Building Products (HBP) at a limit of 4 1/2.
• Buy 100 shares of Healtheon/WebMD (HLTH) at a limit of 12 5/16.
• 50 shares of Axent Technologies (AXNT) at a limit of $25.

Let’s play ball!

• What do you do when given a chance to see your favorite baseball team extend their division lead in their brand new park? You give yourself a vacation day, enter a few limit orders and hope both they and your team hit. In this case, I’m going to enter a few limit buys on stocks I’ve already discussed. Go Giants!

Journal: August 11, 2000

• Buy 500 shares of Huttig Building Products (HBP) at a limit of 4 5/8.
• Buy 100 shares of Healtheon/WebMD (HLTH) at a limit of 11 5/8.
• 50 shares of Axent Technologies (AXNT) at a limit of 24.

Loading up on favorites

• Today’s trades are a near repeat of yesterday
• Let’s review the events of the week
  • Did you see whom Active Power (ACPW), the week’s high-flying IPO in the power generation sector, touted as a technology partner? Caterpillar (CAT).
    • Good news will take care of itself <> 9-2a3b0 Imagine what happens when it goes wrong—think first of the downside instead of the upside

No bombs on the earnings front

• Healtheon/WebMD
  • Reported a great quarter—the bottom line is losses are shrinking as revenues grow
• Clayton Homes
  • Reported numbers in line with estimates, giving the company its second-best results ever as its competitors report losses
• Senior Housing Properties
  • Also reported earnings, which should turn out to be the worst-case quarter for the company, as the bankrupt lessees are no longer making minimal payments
  • Starting at the beginning of the current quarter, Senior Housing began realizing direct operating cash flows from the properties vacated by the bankrupt lessees. What the latest results do show is that funds from operations clearly cover the dividend.
• Three earnings reports from companies under stress and no total bombs. I’ll take that.
• I’ll have new picks on Monday.

Journal: August 14, 2000—another growth company discussed

• Buy 200 shares of Pixar Animation Studios (PIXR) at a limit of 33 3/4.

To infinity and beyond with Pixar

• PIXR
  • Pixar’s next feature film will not be released until November 2001
    • For Wall Street, this is a timeliness issue
  • Not for me. As I discussed back in my Aug. 3 entry, even for a growth company, only a tiny fraction of the intrinsic value of a company results from the next three years. Heck only a fraction of today’s intrinsic value depends on the next 10 years. The key is longevity—will Pixar be around and making money 10 years from now … and beyond? Certainly.
    • <> 2-1b2 Play in different time horizon. That is, in the long-run.
      • How does this translate to valuating free market money?TODO

Animated cash flows

• PIXR
  • Generating cash at such a rate that it is building its new Emeryville digs out of cash flow—with no financing—and still laying down cash on the balance sheet.
  • Jobs is a fan of cash flow and cash strength because he thinks it helps him negotiate with Disney. “Hey, if you don’t want a piece, we’ll just finance it ourselves…” Whatever the reason, I like cash too.revisit
    • <> 13-8a2.1 Money is the present good par excellence
  • To believe in Pixar as an investment, one has to believe in the evergreen nature of its creations. Pixar’s full product life cycle, managed correctly, can be extremely long. And as Pixar releases more films, more life cycles are put into play, overlapping and creating smoother and larger earnings streams.
    • <> 5-1b1b1a1 Things can become easier the more complexity you have (Network effects = Power-law)
      • <> 2-1b3a ‘Circle of competence’ & ‘Niches’ - Build a moat. Thrive in where you can.
      • <> RUL3 - Create something, or become someone, that is hard to duplicate (‘Barriers to entry’)revisit
  • Pixar is guiding us to earnings of $1.30thisyear,butitislikelyw{e}^{\prime }llseeearningsexceeding$1.35. History tells us Pixar’s free cash flow runs quite a bit higher than its net income. That’s how cash on the balance sheet jumps $17 million in one quarter despite net income less than half that. As an enterprise less its cash, the price of Pixar is currently trading at about 21 times accounting earnings, but only about 14 times free cash flow.
    • Because the free cash flow runs quite a bit higher than its net income
    • How are these numbers derived?revisit

Concessions from Disney?

• PIXR
  • Currently Pixar only gets 50% of the gross revenues of its product after Disney deducts the costs of its distribution and marketing
  • Pixar will be in a position to restructure a new agreement with tremendous implications for Pixar’s bottom line
  • An additional concession of 20% of profits after distribution costs should result in roughly a 40% boost to Pixar’s operating income from a given film. Knowing this, we can estimate that in 2005, we should see a big boost to Pixar’s income and at the minimum rejuvenation of its growth rate. Pixar’s cash earnings over the next 10 years alone could approximate $30-$40/share in present value.
  • Of course, this is very rough because we do not know what the new Disney contract will bring. But I like it when my margin of safety does not require a calculator.
    • <> 1-1c6a3.0 The decision should be obvious

Journal: August 15, 2000

• Buy 400 shares of Deswell Industries (DSWL) at a limit of 13.75

Deswell Industries—solid gold

• DSWL
  • A contract manufacturer of metal and plastic products as well as electronics
    …

Journal: March 2, 2001—a second round

• I’m a hedge fund manager by trade and a value investor by heart

Agility will be key

• Bucking convention in the market is absolutely necessary for long-term success with stocks
• I will not succumb to the contest mentality in my journal entries here
• As I noted at the start of the last round, I am rarely more than six months early on a stock. I do not consciously seek out catalysts, but rather find that simple, intelligent search and discovery often leads me to stocks that have unexpected catalysts on the near-term horizon.
  • <> 2-1a0c1d1 Focus on the few variables
  • <> Li Lu’s emphasis on how research and trades are reflexiverevisit
• Sheer, unconscionable value is in fact enough, and that the most potent catalysts are almost never expected
• My philosophy is a variation on the idea that, as in life, sometimes things can look so down that any news will be interpreted as good newsrevisit
  • <> 5-2a Check your growth rate of expectations vs circumstances. The former is hard to measure. But remember - you get what you measure.
• Unlike last round, where I took time to write a long essay on each new idea—and hence took nearly a month to fully invest the portfolio, I will move quickly to start new positions when the timing is right and fill in more details on a given position with subsequent journal entries.

Journal: March 9, 2001

Journal: March 16, 2001

Journal: March 28, 2001

Journal: March 29, 2001

• Place order to sell position in London Pacific Group (LDP) at the market.
• Place order to sell position in Spherion (SFN) at the market.
• Place order to buy 500 shares of GTSI Corp. (GTSI) at 4 7/8 limit, good until canceled.

Real stocks, real profit, real value

• I do not believe we are near a bottom yet because in the cold light of a bear market these types of things—such as dilutive options compensation and hiding mistakes with charge-offs—matter. The greater fool theory no longer rules.
  • <> His recent compensation piece (20251201)
• Now, maybe, finally, we have a time for rational stock picking. If the market begins the first multi-decade sideways run of the new century (there were two such runs last century—both times after extreme valuation bubbles), then the surest way to profit will be to buy stocks of incontrovertible value.
• Stocks of profitable companies that can be bought for their level of earnings per share five to 10 years out meet this criterionmethod
  • I.e., PE ratios between 5 to 10?revisit
• GTSI Corp—check his 20010328 memoTODO
  • One of the cheapest stocks in my universe, with the best story
    • Over $650millioninsalesanda$35 million market cap
    • No debt
    • Net net value (net working capital less all liabilities) is north of $6method
    • They will earn over a buck a share this year
      • Viz., Burry PE ratios of 6?revisit

Undoing some mistakes

• Investment managers are bound to be wrong many, many times in their lives. This is a business of managing emotion as much as managing money, and taking one’s lumps is the surest path to a more erudite view.revisit
• DiamondCluster (DTPI) and London Pacific Group (LDP) were very big timing mistakes
• The fact of the matter is I should always wait for my rules to kick in—and that includes waiting for falling knives to lay motionless on the floor before trying to pick them up. I violated these rules, and now I’ve lost two fingers to a couple of very sharp blades.
• I am selling London Pacific Group at the market open because of something I call the “5 to 3” effect. Illiquid stocks falling beneath 5 often fall much further because of margin calls that kick in in the 3-5 price range. Forced selling in illiquid stocks is a recipe for price risk, so I have found it prudent to get out of stocks as they cross below 5. It is a very rare case that I pay attention to absolute share prices, but this is one of them.method
• DiamondCluster is about to lose significant European business—at current prices, however, this pessimism is largely discounted
  • The value five years or so out should be greater than it is now, and the company has become an attractive acquisition target with a load of cash on the balance sheet
  • The earnings power in good times is roughly about 33% of the current share price net of cash, with no debt and a resilient business modelrevisit

An event play, sans the event

Journal: April 2, 2001

Journal: April 12, 2001

• Sell entire position in DiamondCluster International (DTPI) at the open.
• Sell entire position in Criimi Mae (CMM) at the open.
• Sell short 75 shares of Kohl’s (KSS) at the market.

Preparing for more bad news

• A significant worsening in the commercial real estate market could undo the former (CMM)
• On the latter (DTPI), I am just taking advantage of a mindless bear-market rally in tech. Also, I expect that DiamondCluster stock will not hold up well in the face of as-yet unannounced news of significant weakening in Europe.
  • For DTPI, see also 20010329 journal
• KSS
  • Same-store sales growth is cited widely as far and above the best in the industry. OK. But this growth overstates true organic growth. Sales per square foot has been tracking in the very low single digits. The company is turning to debt to finance the expansion, and Kohl’s has been priced much too high for a while now.
  • Also, Kohl’s has the same options-compensation problem that I have discussed previously with regard to technology stocks. Last year, nearly $270 million in options compensation was handed to employees, which largely dilutes much of last year’s income.

Journal: April 13, 2001

Journal: April 17, 2001

• Don’t be distracted. Cisco is in far worse shape than even the dismal forecast it presents.

Journal: April 18, 2001

• Hold all positions. Intel is much more difficult to tear apart than Cisco Systems, but I’ll try.

Journal: April 25, 2001

Journal: April 27, 2001

Journal: May 9, 2001

Journal: May 23, 2001

Journal: May 30, 2001

Journal: June 13, 2001

• Place order to sell 500 shares of American Physicians Capital (ACAP) at a limit of 20.40.
• Place order to buy 900 shares of Cascade Corp. (CAE) at 9.00 limit.
• Increase the limit buy price on Wellsford Real Properties (WRP) to 16.45; change order to 600 shares.

A nickel between me and break-even

• WRP
  • Wellsford just bought back 24% of its shares at a huge discount to intrinsic value. Hence, intrinsic value per share just jumped at least $3 per share. The shares moved up to reflect this accretive action by management, but now they’re soft again. It’s not often that I’ll raise my initial buy price on a stock (usually, I let missed opportunities be), but in this case 18.50 now is cheaper than 16.45 was back before the buyback
• ACAP
  • I took advantage of a no-brainer price when I took such a large position, but at this price I’ll scale it back to a still large but more average-sized position. I continue to be quite bullish on American Physicians, with the biggest risk being a dumb acquisition by management.

Back to basics

• Will MoneyCentral give me a third chance?
• As I did last round, I’ll try to recover by going back to basics
• CAE
  • This illiquid stock, which was transferred from the hands of long-term owners to arbitrageurs during the bidding process, was unceremoniously dumped by those arbitrageurs when the deal fell apartmethod
  • With a trio of bidders willing to pay over $16 a share just a few months ago, there is a margin of safety here

Journal: June 20, 2001

• Sell the entire position in IBP Inc. (IBP) at the market

Taking the easy trade

…

Journal: June 22, 2001

• Sell the entire Grubb & Ellis (GBE) position at a 6.25 limit, good until cancelled.

How to get even

• The goal of breakeven is often much more aggressive than one’s initial investment assumption. In an attempt to get back to breakeven, most investors simply ratchet up the risks they take. Of course this usually just ratchets up the losses – and increases the required return back to even. Talk about a death spiral.
  • <> 2-1b2b ‘Second-order thinking’ - Solve the root cause of a problem (prevention) and not symptoms. Be smart-lazy.
• As investors, we must continually guard against the missteps that might lead to losses—and react rationally if we find ourselves down. Acting like a fool after the fact will only compound the error.

Portfolio updates

• SNH
  • …
• HBP
  • …
• ACAP
  • …
• GBE
  • …
• GTSI
  • …
• With my previous sale of IBP, I have only five positions left
• I am being patient for the end-of-quarter selling that often occurs in downtrodden names as institutions rush to window dress their portfoliosmethod

Journal: June 29, 2001

• Sell all share of American Physicians Capital (ACAP) at 22 limit, good until cancelled.
• Sell all shares of Grubb & Ellis (GBE) at 6 limit, good until cancelled.
• Sell all shares of GTSI (GTSI) at 6.25 limit, good until cancelled.
• Sell all shares of Senior Housing (SNH) at the market.

Trading on the spike

• My job is take advantage of market inefficiency.
• The end of quarter presents greater than usual pockets of inefficiency. These quirks in the market can be used to great advantage, especially by individual investors.method
• One quirk is the Russell 2000 rebalancing, which often causes a lot of stocks going in and out of the index to act very funny. The ones entering the index have a better-than-even chance of jumping in the last minutes of the quarter as indexers rush to add these positions.method
• ACAP
  • …
• GBE
  • …
• GTSI
  • …
• It is far from certain that such spikes will occur. But if they do, I need to be able to react in real time even though I’m entering these orders more than a day early. Hence, I’m entering the orders in advance of any knowledge of a spike. Again, the reason I’m willing to sell into such spikes, if they occur, is that spikes are spikes. What goes up on a temporary imbalance comes down when the imbalance resolves.method
• Individual investors should never underestimate the advantages they have over institutions. Individual investors are often invisible to the market and don’t move stocks when moving in and out of positions. That’s a very large advantage.
• SNH
  • …

Journal: July 13, 2001

• Place an order to buy 2000 shares of La Quinta Properties (LQI) at 4.55, good until canceled.
• Place an order to sell 500 shares of American Physicians Capital (ACAP) at 20, good until canceled.

There’s value in lodging

• The hedge fund I manage took in significant new investment on July 1
• HBP
  • …
• LQI
  • …
    …

Journal: August 10, 2001

Journal: Oct. 18, 2001—a second round concluded

• No last-day heroics here.

It’s been a rocky round

• Most indices are down double digits during the period, but many formerly popular stocks fell much harder than that, to the detriment of many, many individual investors and fund managers.
• My worst mistake, on an absolute basis, was buying Mesaba Holdings (MAIR) an airline company, during August and holding it during September. Clearly circumstances since Sept. 11 are anything but normal.
• Finally, I’ll reiterate that I run Scion Capital, which is a California-registered investment adviser advising $17.5millionininvestors’capital.Ingeneral,theminimumnetworthforpotentialinvestorsis$1.5 million. You’ve seen my basic style of contrarian value investing here, although I cannot say that I view my round as terribly well-executed. I look forward to hearing from you.

Journal: Dec. 3, 2001—round 7?

• Don’t worry about indexes. Worry about your stocks.

Brace for yet another new paradigm

…

Journal: Dec. 14, 2001

• Don’t worry about missing a rally. Worry about losing your money.

Why I’m all cash – for now

…

Journal: Dec. 28, 2001

Journal: Feb. 8, 2002

Journal: Feb. 15, 2002

Journal: Feb. 18, 2002

Journal: Feb. 21, 2002

Journal: Feb. 25, 2002

Journal: March 12, 2002

Journal: April 25, 2002

Journal: June 17, 2002

Journal: June 28, 2002

Journal: July 15, 2002

• Place an order to sell position in Kindred Healthcare (KIND) at the open.
• Place an order to short 400 shares of Federal Agricultural Mortgage Corp. (AGM) at the open.

Are you vulnerable to skyrocketing insurance costs?

• KIND
  • Insurance costs across many industries have skyrocketed, and Kindred appears vulnerable on this front. Essentially, the catalyst that I expected appears to be playing out. That is, on the legislative front, Kindred is getting some good news.
  • But the business is still vulnerable to the type of insurance problem that has been hitting many lower margin businesses across the nation. This effectively negates any positive effects on the legislative front.
  • Recently, Five Star (FVE) stock plummeted after announcing big losses because of insurance costs. It would pay to examine your portfolio for potential victims of the nationwide insurance price hikes.

Journal: Aug. 7, 2002

• Place an order to buy 2,000 shares of E * Trade (ET) at 3.10 limit.
• Place an order to buy 1,000 shares of Liberty Media (L) at 7 limit.
• Place an order to buy 300 shares of Reuters (RTRSY) at 23.50 limit.
• Place an order to cover short in Magma Design Automation (LAVA) at 10 or lower.

Just tinkering

• I will bolster a few current positions—all of these positions are trading significantly less than half long-term value, as might be calculated using any of a number of valuation methodologies
• I will cover LAVA short at 10 or lower. I originally shorted it at roughly 30 with a target cover price of about 9. I’ve ramped up the short as the stock has fallen, and it is now in the 9’s. That’s good enough.

Journal: Sept. 5, 2002

• Place order to buy 3,000 shares of Gemstar-TV Guide (GMSTE) at 3.90 or lower.
• Place order to buy 2,000 shares of National Service Industries (NSI) at 6.70 or lower.

There’s good value in Gemstar and NSI

• Whichever way the stock market is going, both overvalued and undervalued stocks abound.
• GMSTE
  • The current stock price amounts to a mid-single digit multiple on free cash flow generation, and there is no net debt.
  • Under pressure as Gemstar has failed to file its 10Q on time and as a result is subject to delisting. Many portfolio managers cannot hold bulletin board stocks, and therefore the stock has been under pressure.
• NSI
  • It is in the midst of a cyclical trough, thanks to the problems affecting the travel industry. When the cycle turns, it is likely we will find National Service earning in excess of $2ashare.Thecurrentpriceof$6.50 or so is therefore much too cheap.

ANNUAL AND QUARTERLY LETTERS

2000 Annual Letter (20010108)—concomitant with 1st round of Strategy Lab

…

2001 1Q Letter (20010403)—concomitant with 2nd round of Strategy Lab

…

2001 2Q Letter (20010703)—concomitant with 2nd round of Strategy Lab

…

2001 3Q Letter (20011002)—concomitant with 2nd round of Strategy Lab

…

2001 Annual Letter (20020106)—concomitant with 2nd round of Strategy Lab

There was “significant new investment” on July 1 (as per 20010713 journal)
There should be Avanti related comments (as per 20251216 Substack piece on GameStop)
…

2003 2Q Letter

2004 1Q Letter

2004 3Q Letter

2005 1Q Letter

2005 3Q Letter

2006 1Q Letter

2006 3Q Letter (20061005)

…

2007 3Q Letter

2008 1Q Letter

…

LECTURE, SPEECH, PODCAST

Vanderbilt Chancellor’s Lecture (20110405)

• The government’s borrowing of money for the purpose of injecting cash into society, bailing out banks, brokers, and consumers, is a short‐sighted, easy decision for a population that has not yet learned that short‐sighted and easy strategies are the route to long‐term ruin.
  • <> 2-1a5a Evolution doesn’t care about lifetime of each individual gene-meme carrier (its sample is beyond your own experience and any human lifetime)
  • <> 4-1a4b2b1 ‘One-of-those’ over one-off - Learn from history (not just from your ‘own’ experience)
  • <> RUL3 - Run upstairs. Choose the difficult terrain like guerillas.

UCLA Department of Economics Commencement Speech (20120620)

• As a result, over the course of your lives, you will experience withering but stealthy attacks on your quality of life, as government attempts to manage its faltering finances. You will see declines in the quality of health care, the quality of education, the quality of public safety, and the quality of our currency.
• Of course, when you encounter the opposite—the short-term risk exchanged for long-term benefit— consider hitting that button again and again and again.
  • <> 2-1b2 Play in different time horizon. That is, in the long-run.

Podcast with Michael Lewis (20251203)

• (01:57–02:22) Lewis notes Burry wasn’t just early in seeing the subprime crisis; ==the problem was finding a way to short subprime in a way that didn’t rely on perfect timing==.
• (08:32–09:06) What made it unique: he was allowed to buy relatively cheap insurance (CDS) on extremely illiquid subprime bonds, without owning those bonds, and the market massively underestimated the possibility of collapse.
  • The setup won’t likely reappear because now people are familiar with CDS markets and the likes
    • Be the first <> 5-1b1b2b Don’t try to be the best. Be the only.
• (18:31–18:55) Burry’s Palantir trade: it’s a bet the stock “goes way, way down” over a two-year horizon. Lewis asks what he sees that the market doesn’t.
• (20:25–20:45) A “billionaires-to-revenue” ratio greater than 1, which he’d never seen—he sees this as a cute but telling sign: enormous insider wealth vs. modest revenue and questionable real profitability.
  • Echoes his compensation thesis elsewhererevisit
    • Michael Burry meets Li Lu here, since the latter’s emphasis on share echoes directly the former’s critique of how stock compensation shifts wealth from shareholders to employeesrevisit
• (20:45–21:16) He argues that stock-based compensation essentially eats all “income” — the company issues massive equity to compensate staff and then spends cash to buy back stock to offset dilution. GAAP treatment understates the true economic cost.
  • <> 5-2a0 Know what to measure
  • <> 5-2a1 You get what you measure
  • <> 5-2a2 What gets measured gets managed
• (28:35–29:02) He suggests most consumers don’t want to pay for LLMs and may never have to because competition will commoditize them. The real money, he thinks, is in developer-facing or enterprise tools, not mass-subscription models for the general public.
  • <> Commodity business memos (e.g., see Warren Buffett on commoditized businesses)
• (33:06–33:31) He does own gold and has held it since around 2005, implying that’s his preferred hedge/store-of-value rather than crypto.
  • What about gold-backed coin?
    • Didn’t CEO of Circle (of USDC) mention this?revisit