Scion Asset Management

[dabuff]

Nice thoughts.

 

Remember, cloning without thinking (halo effect) can kill - think ZINC, CHK, PKX.

[Poor Charlie]

The filing is as of 12/31/15, so that's before the big 30% drop in BAC.

 

Its possible that its leftover from investments made in 2012

 

Scion Asset Management began around Q4 2013. 

 

 

 

I think anyone who has read Burry will find that portfolio as stated very disturbing.  How can he be long BAC and C now?  There is something else going on here.

 

I have nothing to back this up but I doubt Burry is generating anything close to the returns he did at Scion Capital.  This is not an indictment of his investing abilities, it's more a reflection of the market environment post financial crisis.  He tends to invest in very distressed equities and resource companies (a la fairfax) which have not done as well as they did pre-crisis. 

 

More generally, it’s interesting to observe all the sub-prime 'heroes' post-crisis.  A surprising number have performed poorly over a multi-year period (Bass/Paulson/Whitney/Eisman/Whitebox/etc).  As far as I know only Cornwall Capital have maintained their impressive returns.   

 

I still think there are very few investors of Burry’s caliber.  He's one of only a handful of managers I would invest with.

 

Do you mind sharing Cornwall's returns ? Thank you in advance

Cheers

GK

 

52% gross / 40% net

Where do you find information on cornwall post crisis/do they file?

 

There was a very good interview with Jamie Mai where he mentioned his returns over the last 9 year period (since they started taking outside capital).  I read the book (Market Wizards series) around early 2014 so the returns would not include the last few years. 

[Graham Osborn]

The filing is as of 12/31/15, so that's before the big 30% drop in BAC.

 

Its possible that its leftover from investments made in 2012

 

Scion Asset Management began around Q4 2013. 

 

 

 

I think anyone who has read Burry will find that portfolio as stated very disturbing.  How can he be long BAC and C now?  There is something else going on here.

 

I have nothing to back this up but I doubt Burry is generating anything close to the returns he did at Scion Capital.  This is not an indictment of his investing abilities, it's more a reflection of the market environment post financial crisis.  He tends to invest in very distressed equities and resource companies (a la fairfax) which have not done as well as they did pre-crisis. 

 

More generally, it’s interesting to observe all the sub-prime 'heroes' post-crisis.  A surprising number have performed poorly over a multi-year period (Bass/Paulson/Whitney/Eisman/Whitebox/etc).  As far as I know only Cornwall Capital have maintained their impressive returns.   

 

I still think there are very few investors of Burry’s caliber.  He's one of only a handful of managers I would invest with.

 

I don't know much, but what I do know at least suggests that Burry is generating returns comparable to the Scion years, if less lumpy.  Examples:

 

1. Almond farms - look at farmland prices especially in Cali and the price of almonds relative to other commodities

2. Tech startups - VC since the crisis was one of the ultimate secular bets, and just one unicorn would put you in a very good place

3. Real estate and banking - I read somewhere that he turned around and bought these right after the implosion.  A buy and hold strategy would have played out well

 

If you are imaginative enough and willing to sacrifice liquidity returns can be generated under any market conditions.  He's a bit like a Soros or macro guy in that respect - he'll trade a market up and then trade it down again.  He has no allegiances.  The most interesting questions for me are:

 

1. What does the Asia-Pacific fund hold?

2. Has he reentered the CDS market?

 

The outsize profits generated by CDS holders in the last crisis have produced a wider appreciation and suspicion of CDS holders (even those who hold the bonds outright).  Interesting about the Novo Banco sovereign CDS which were effectively cancelled.  I wonder whether how he feels about domestic vs sovereign CDS, what he thinks about shorting CMBS in energy-exposed REITs.  I wonder many things, but given where the market has led me of late I would say there is a 99% probability he holds CDS of some type - if he has found a way to buy without the seller knowing its counterparty :)

[Poor Charlie]

 

I don't know much, but what I do know at least suggests that Burry is generating returns comparable to the Scion years, if less lumpy.  Examples:

 

1. Almond farms - look at farmland prices especially in Cali and the price of almonds relative to other commodities

2. Tech startups - VC since the crisis was one of the ultimate secular bets, and just one unicorn would put you in a very good place

3. Real estate and banking - I read somewhere that he turned around and bought these right after the implosion.  A buy and hold strategy would have played out well

 

 

I don’t really want to discuss the non-public investments he’s made on a forum like this.  A google search will give you a good idea of his personal investments, both good and bad.  I didn’t mean to criticize Burry’s investing abilities in any way.  As I mentioned he’s one of only a few managers I would give money which, in my mind, is the ultimate endorsement.  He’s also something of an inspiration to me. 

 

What I meant to say was I doubt his new fund (Scion Asset Management) has generated the kind of relative returns his old fund (Scion Capital) did. 

 

I say this for two reasons:

 

-Over the roughly 8 years he ran Scion Capital (ending in Q3 2008) Burry made 6X (gross) when the indexes were down.  This is a record better than BPL, maybe even Appaloosa.  Will be very tough to match.

 

-Returns came largely from investments in very distressed equities.  As you know, he coined the term ‘ick investing’ to describe stocks people don’t want to own at any price.  This investment style tends to produce large winners and losers.  Pre-crisis it produced more winners than losers.  Post-crisis things have changed.  I know of very few deeply distressed contrarian ideas that have worked, but I can think of plenty of land mines (I’ve stepped on a few myself).  I’m not saying contrarian distressed ideas haven’t worked, just saying it has been a tougher game.

 

 

Once again, this is not a criticism of Burry.  I feel like telling some of you Burry hasn’t crushed the S&P is like telling a kid there’s no Santa.  Everybody has a tough time now and then, even the very best.

 

[Parsad]

I feel like telling some of you Burry hasn’t crushed the S&P is like telling a kid there’s no Santa.

 

WHAT DO YOU MEAN THERE'S NO SANTA!  F**K YOU!  :)

[Poor Charlie]

The outsize profits generated by CDS holders in the last crisis have produced a wider appreciation and suspicion of CDS holders (even those who hold the bonds outright).  Interesting about the Novo Banco sovereign CDS which were effectively cancelled.  I wonder whether how he feels about domestic vs sovereign CDS, what he thinks about shorting CMBS in energy-exposed REITs.  I wonder many things, but given where the market has led me of late I would say there is a 99% probability he holds CDS of some type - if he has found a way to buy without the seller knowing its counterparty :)

 

I’m long only and don’t get into this stuff but I do believe there’s opportunity here. 

 

For instance:

 

What about CDS on negative yielding sovereign debt derivatives?  From what I understand about synthetic CDOs the yield comes from (a) the CDS premiums and (b) the yield on the high quality collateral backing the CDO.  Burry paid the CDS premiums until the reference mortgages defaulted and was then paid from the underlying collateral.  Why can’t you create synthetic CDO sovereign debt equivalents?  Someone looking to buy say German Bunds buys the synthetic instead.  He deposits cash, the cash gets parked in something like treasuries (or a basket of sovereign bonds with the same maturity, credit risk, and a positive yield) and you (the short) pay premiums (and maybe post extra collateral) to assume the fx risk.  If things go bad you get paid out the same way Burry did.  Can’t imagine this (or a similar variant) would cost more than the sub-prime trade. 

 

[Jurgis]

I feel like telling some of you Burry hasn’t crushed the S&P is like telling a kid there’s no Santa.

 

WHAT DO YOU MEAN THERE'S NO SANTA!  F**K YOU!  :)

 

Relax Sanjeev. There is Santa. And his name is Buffett. Or Watsa. I think.  ;D

[ni-co]

For the interested, here are Burry's old VIC ideas: http://valueinvestorsclub.com/member/michael99/1219

[philippoc93]

This is interesting to know - I've recently become quite a fan of Burry's contrarian and deep value style.

 

I have started to study his old research reports and forum posts from back in his early days (1996 - early 00's before Scion and at the beginning at Scion in 01/02). He was an avid contributor to Silicon Investor and all his old posts can be still be seen here starting from when he was just 24 and still a junior surgeon - http://www.siliconinvestor.com/profile.aspx?userid=690845

 

One of his old research reports on Wellsford Real Properties  -http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/306#description

 

I have a number of other research reports and other material on him if anyone is interested. Just send me a PM as I can't seem to find the links but have the documents saved.

 

 

 

 

[Nelson]

I'm confused... at the end of The Big Short, it said he's focused on investing in water. I'm not seeing any water stocks.

[ni-co]

I'm confused... at the end of The Big Short, it said he's focused on investing in water. I'm not seeing any water stocks.

 

http://lynncinnamon.com/2016/01/the-big-short-how-michael-burry-invests-in-water/

[valueinvesting101]

I remember reading that Burry was investing in almonds. California produces like 80% of the world's almonds. With water shortage in California, Almond prices would go up.

 

Almond sounds like commodity which will be mostly consume by rich so there will be no/less outrage if he profits a lot of money from almond.

 

I read this few years back and didn't think that would be good bet but almond prices have increased over last few years and with drought in California, his thesis seems to be playing out.

[eclecticvalue]

I'm confused... at the end of The Big Short, it said he's focused on investing in water. I'm not seeing any water stocks.

 

Try finding a water ETF.

[undervalued]

I'm confused... at the end of The Big Short, it said he's focused on investing in water. I'm not seeing any water stocks.

 

Try finding a water ETF.

 

lol no. Try reading the article that ni-co post.

[Graham Osborn]

What I meant to say was I doubt his new fund (Scion Asset Management) has generated the kind of relative returns his old fund (Scion Capital) did. 

 

I say this for two reasons:

 

-Over the roughly 8 years he ran Scion Capital (ending in Q3 2008) Burry made 6X (gross) when the indexes were down.  This is a record better than BPL, maybe even Appaloosa.  Will be very tough to match.

 

-Returns came largely from investments in very distressed equities.  As you know, he coined the term ‘ick investing’ to describe stocks people don’t want to own at any price.  This investment style tends to produce large winners and losers.  Pre-crisis it produced more winners than losers.  Post-crisis things have changed.  I know of very few deeply distressed contrarian ideas that have worked, but I can think of plenty of land mines (I’ve stepped on a few myself).  I’m not saying contrarian distressed ideas haven’t worked, just saying it has been a tougher game.

 

Once again, this is not a criticism of Burry.  I feel like telling some of you Burry hasn’t crushed the S&P is like telling a kid there’s no Santa.  Everybody has a tough time now and then, even the very best.

 

I think it's dangerous to try and extrapolate a manager's past strategy to the future (in this case the post-SC years) to the future.  Burry was fundamentally opposed to derivatives prior to subprime.  He's still a young guy relative the the AUM-weighted mean of managers, meaning his strategy will continue to vary more than the average manager.  I think it's oversimplistic to view just one fund he runs as an indicator of his overall strategy for allocating his net worth.  If one assumed a hypothetical equal weighting for each of the buckets mentioned above, a 20-25% annualized return since 2008 would not surprise me at all.  Since he's a "lumpy" low-leverage manager, is return on any given year could be significantly better or worse than the S&P.

 

Nothing would make me happier than seeing Burry do something dumb.  And frankly, some of the picks in that 13F (eg CYH and TLRD) seem pretty dumb to me secularly.  I disagree with tons of stuff he's done.  But like Soros he's willing to admit he's wrong on a dime, which protects him from the kind of errors most folks make.

[Guest]

What I meant to say was I doubt his new fund (Scion Asset Management) has generated the kind of relative returns his old fund (Scion Capital) did. 

 

I say this for two reasons:

 

-Over the roughly 8 years he ran Scion Capital (ending in Q3 2008) Burry made 6X (gross) when the indexes were down.  This is a record better than BPL, maybe even Appaloosa.  Will be very tough to match.

 

-Returns came largely from investments in very distressed equities.  As you know, he coined the term ‘ick investing’ to describe stocks people don’t want to own at any price.  This investment style tends to produce large winners and losers.  Pre-crisis it produced more winners than losers.  Post-crisis things have changed.  I know of very few deeply distressed contrarian ideas that have worked, but I can think of plenty of land mines (I’ve stepped on a few myself).  I’m not saying contrarian distressed ideas haven’t worked, just saying it has been a tougher game.

 

Once again, this is not a criticism of Burry.  I feel like telling some of you Burry hasn’t crushed the S&P is like telling a kid there’s no Santa.  Everybody has a tough time now and then, even the very best.

 

 

Nothing would make me happier than seeing Burry do something dumb. 

 

care to share your performance numbers?

[Graham Osborn]

I remember reading that Burry was investing in almonds. California produces like 80% of the world's almonds. With water shortage in California, Almond prices would go up.

 

Almond sounds like commodity which will be mostly consume by rich so there will be no/less outrage if he profits a lot of money from almond.

 

I read this few years back and didn't think that would be good bet but almond prices have increased over last few years and with drought in California, his thesis seems to be playing out.

 

He wasn't speculating on almond prices but rather the land the trees were growing on.  Almonds require a lot of water apparently.  Farmland prices have gone ballistic since the crash.  There's probably a way to play that as a retail investor, but you're too late now.  If you try to coattail someone like Burry, you most likely find yourself buying when he's selling.

[Graham Osborn]

care to share your performance numbers?

 

My return last year was about 12.5%.  This year is a mess since I bought a bunch of illiquid options right before the huge rally so I'll take the liberty of not posting my return until year end ;) That's what I have for my own account, which I'm afraid will be worse than worthless to you..

 

I'm nowhere near the PM Burry now is/ was although I am learning as I go.  I take strong opinions with a full awareness that my view may be totally different in 6 months.  And because I think a pick is dumb doesn't mean it is dumb for him.  As I've said before, I believe that the optimal portfolio differs for every investor.  As far as returns and risk profile, I also believe these differ for every investor, although comparing returns over a prolonged period is a good way to compare the desirability of different managers.

 

You are well justified in weighting a manager's views by either their annualized return or net worth.  I do the same.  Otoh, by the time most managers reach a stage of financial proof their moves are liable to be more difficult to track and hence less useful to coattail.  So as a practical matter I do consider the views of less experienced/ proven managers.  In those cases I look for internal consistency of ideas/ strategy.  Remember there are a lot of great analysts out there who suck as PMs.  I am working on that transition, and not under the most welcoming of market conditions :)

 

 

 

 

[Poor Charlie]

I think it's dangerous to try and extrapolate a manager's past strategy to the future (in this case the post-SC years) to the future.

 

Dangerous?  Didn't know making an educated guess as to what Burry's IRR was should come with a warning label.  And strategy?  I don't think Burry (or any other good manager) is going to make huge changes to his 'strategy' year-to-year.  A look at Burry's investments, past and present, speaks to this. 

 

I think it's oversimplistic to view just one fund he runs as an indicator of his overall strategy for allocating his net worth.  If one assumed a hypothetical equal weighting for each of the buckets mentioned above, a 20-25% annualized return since 2008 would not surprise me at all. 

 

I agree.  Makes no sense at all to base someone's investment performance on #s from a fund that is (a) managed in a fiduciary capacity, (b) audited, and © includes enough capital to merit filing with the SEC.  Next time I'll go off his fantasy E-Trade account.

 

 

 

Kidding aside, it's not like he's going to run a hugely different 'strategy' in his PA.  And to think he's crushed his personal investments when his fund investments have not done well is naive.  As I mentioned earlier, I don't want to get into his personal investments but I'll share a few that are publicly available. 

 

Consider the following: 

 

http://www.sec.gov/Archives/edgar/data/1086142/000095012309059102/f53413b4e424b4.htm

 

That's a 2009 prospectus for Duoyuan Printing.  DP was a Chinese RTO that (as with many other Chinese RTOs) turned out to be a fraud.  You'll notice on page 145/146 Burry was involved with the issue. 

 

Also consider:

 

http://www.institutionalinvestor.com/gmtl/3183653/Asset-Management-Hedge-Funds-and-Alternatives/Article/2800911/Following-The-Hedge-Fund-Money.html#.VwWhV5wrJ9M

 

Chalksteam's performance has been poor for almost a decade now. 

 

Does this make Burry a poor investor?  Not at all!  The point I'm trying to make (tried to make in my original post) is that his returns are not outperforming to the extent they were when he was managing Scion Capital. 

 

 

[Pelagic]

I remember reading that Burry was investing in almonds. California produces like 80% of the world's almonds. With water shortage in California, Almond prices would go up.

 

Almond sounds like commodity which will be mostly consume by rich so there will be no/less outrage if he profits a lot of money from almond.

 

I read this few years back and didn't think that would be good bet but almond prices have increased over last few years and with drought in California, his thesis seems to be playing out.

 

He wasn't speculating on almond prices but rather the land the trees were growing on.  Almonds require a lot of water apparently.  Farmland prices have gone ballistic since the crash.  There's probably a way to play that as a retail investor, but you're too late now.  If you try to coattail someone like Burry, you most likely find yourself buying when he's selling.

 

Not just coat tailing Burry. Saudi Arabia and other "water poor" countries are buying US farmland and shipping the crops home.

 

http://finance.yahoo.com/news/saudi-arabia-buying-farmland-us-164056673.html

 

Saudi Arabia grows alfalfa hay in both states for shipment back to its domestic dairy herds. In another real-life example of the world's interconnected economy, the Saudis increasingly look to produce animal feed overseas in order to save water in their own territory, most of which is desert.

 

It's an interesting problem to think about because water issues are typically local due the difficulty involved in transporting water. But in this case alfalfa, hay and almonds as mentioned are all taking water out of the region they're grown in. Are farmland values accurately pricing in the value of their water consumption or are they simply trading for the present value of the crops they can grow?

 

I have to imagine there's somewhere else in the world with cheaper land and more water that can grow almonds, alfalfa and hay than California and the Southwest.

[Poor Charlie]

I'm confused... at the end of The Big Short, it said he's focused on investing in water. I'm not seeing any water stocks.

 

Try finding a water ETF.

 

lol no. Try reading the article that ni-co post.

 

The water thing, IMO, has been blown way out of proportion.  Farmland in general has, up to last year, done well.  I would be very surprised if there was a material difference in appreciation of Cali farmland w/ water onsite vs plain old high yield Midwestern farmland. 

 

BTW, if you want a cheap way to invest in California water there are a few public companies to do it through.  JG Boswell would be the most direct. 

[oddballstocks]

I'm aware of what the numbers are, I won't share them.  But it's fascinating to see the direction of this thread vs reality.  There is an extremely large divergence.  I think it speaks to that point that many times speculating is just that, it's speculation, nothing else.

 

I wonder how much conjecture and narrative has been created and believed on this board and those "in the know" have read it and shook their heads thinking "they really missed it."

 

[Poor Charlie]

I'm aware of what the numbers are, I won't share them.  But it's fascinating to see the direction of this thread vs reality.  There is an extremely large divergence.  I think it speaks to that point that many times speculating is just that, it's speculation, nothing else.

 

I wonder how much conjecture and narrative has been created and believed on this board and those "in the know" have read it and shook their heads thinking "they really missed it."

 

I take it from your comment that I'm off the mark and Scion has done very well.  In that case I stand corrected.  Thanks Nate.

[oddballstocks]

I'm aware of what the numbers are, I won't share them.  But it's fascinating to see the direction of this thread vs reality.  There is an extremely large divergence.  I think it speaks to that point that many times speculating is just that, it's speculation, nothing else.

 

I wonder how much conjecture and narrative has been created and believed on this board and those "in the know" have read it and shook their heads thinking "they really missed it."

 

I take it from your comment that I'm off the mark and Scion has done very well.  In that case I stand corrected.  Thanks Nate.

 

Just the opposite.

[Graham Osborn]

Does this make Burry a poor investor?  Not at all!  The point I'm trying to make (tried to make in my original post) is that his returns are not outperforming to the extent they were when he was managing Scion Capital.

 

Lol.  Poor Charlie, I read your posts with an odd mix of indignation and respect.  The info you provide is of interest, so keep it coming..