Michael Burry Stays in China
Legendary Investor Series
“Everything I do in investment is just very different.”
— Michael Burry
Legendary investor Michael Burry is an interesting person. Highly intelligent and contrarian, he made billions by correctly predicting the 2007 housing crash.
Burry is, to my knowledge, the only legendary investor about whom there was even a movie made, in which Michael Burry was played by the famous actor Christian Bale (who played Batman in the Batman trilogy).
Talking about Michael Burry, when you take a risky move with your own money and third-party investor money, and your bet takes years to play out, as was the case with Michael Burry before the housing crash, it is important to see the world back then without the benefit of hindsight.
I don’t care how strong your research and your beliefs are; waiting for years for your bet to work out is incredibly hard. Your investors doubt you, your friends doubt you, and you may even doubt yourself in weak moments. And yet, here you are, day after day, week after week, month after month, sticking to your guns. Finally, after being under mental assault for two years, it pays off. What a relief.
It tells you something about an investor who behaves like that, when there are so many portfolio managers who would rather go with the "safety" of the crowd. They may lose too, but if you lose together with everyone else, you won't get blamed. By comparison, it is lonely, but can be incredibly profitable, to be a contrarian investor.
Coming back to the movie, the movie portrays the whole backstory to Michael Burry’s billion-dollar housing crash bet. In a nutshell, in 2005, hedge fund manager Michael Burry realized that the US housing market was very likely to crash based on high-risk subprime loans. Burry purchased credit default swaps in excess of $1 billion from US investment banks, allowing him to go short on mortgage-backed securities for profit.
A great bet, but it required a substantial monthly premium to be paid to the investment banks. As time passed without the housing market collapsing, the substantial monthly premiums made some of his third-party investors very unhappy, accusing Burry of wasting their investments, and one of his investors even sued Burry. Eventually, the housing market collapsed, increasing the fund’s value by roughly 500% with an overall profit of almost $3 billion.
If you want to learn something about a person’s character, watch what they do and not what they say. By that metric, Burry is a high-conviction, contrarian legendary investor.
Coming back to his portfolio, he increased investments in China as of September 30, 2024, as reported in the article “Michael Burry Goes to China” (click here to read it).
This paid off handsomely for him. Anyone who copied his Chinese approach did well.
In his latest quarterly report, as of December 31, 2024, he made some very interesting changes to his portfolio.
I will be discussing all of these in the following 4 sections:
A Detailed Look at the Portfolio Changes From Last Quarter
Chinese Investments - What Changed?
US/Canadian Investments - What Changed?
Key Insights for Your Own Investments
Let's take a closer look.
1. A Detailed Look at the Portfolio Changes From Last Quarter
Burry is now invested in three countries: the US, Canada, and China. Most of it (52.9%) is invested in China, 46.8% is invested in the US, and 0.3% is invested in Canada. That is a change from last quarter, September 30, 2024, when his investments were 65.5% in China and 34.5% in the US.
While the Chinese investments went down in percentage terms, the exact structure of the Chinese investments reflects greater comfort about the Chinese investments—thus the title “Michael Burry Stays In China.” More about this and the US/Canadian part of his portfolio can be found below.
The table below shows Burry’s latest reported portfolio as of December 31, 2024 compared to the previously reported portfolio as of September 30, 2024. The fourth quarter of 2024 was a busy quarter for Michael Burry.
Michael Burry’s Portfolio – December 31, 2024 vs. September 30, 2024
Data source: https://www.sec.gov/Archives/edgar/data/1649339/000187920225000012/xslForm13F_X02/infotable.xml
2. Chinese Investments - What Changed?
China is an interesting investment destination. It is known to many investors, including many legendary investors like Jim Rogers, yet still unknown to some. Here is why:
As an investor, it is natural to prefer to invest in one’s country.
There is a certain comfort level to it; there may also be some patriotic feelings associated with it; and then there is a certain understandable blindness to developments that would show that other countries may present better investment opportunities or may even do certain things better than your own country.
However, as dispassionate investors, if maximizing your return is your objective, it is critical to look at the world as it is and not as we want it to be.
If you are already familiar with China, please read on.
Otherwise, I would encourage you to read the article “China: Legends Are Investing - Are You?” by clicking here.
Having said that, let’s take a deeper look at Michael Burry’s Chinese investment changes.
Michael Burry’s Chinese Investments – December 31, 2024 vs. September 30, 2024
At the end of the prior reported quarter (September 30, 2024), Michael Burry had 3 Chinese investments (Alibaba, Baidu, and JD) and protective puts for all 3 of them.
As of the end of the last reported quarter (December 31, 2024), Michael Burry had the same 3 Chinese investments (Alibaba, Baidu, and JD), although he trimmed down Alibaba and JD, sold his 3 protective puts, and added a 4th Chinese investment (PDD Holdings).
He probably trimmed Alibaba and JD as both investments did really well during Q4 of 2024 to take some profits off the table. Anyone who copied his investments as of September 30, 2024, as reported in “Michael Burry Goes to China” (click here to read it), should have done equally well.
Let’s go through it line by line for all 5 elements (puts, and Alibaba, Baidu, JD and PDD investments) to discuss the recent changes.
Protective Puts for Alibaba, Baidu, and JD
In my article “Michael Burry Goes to China,” covering his portfolio as of September 30, 2024, I said the following about his puts for his three Chinese investments (Alibaba, Baidu, and JD) at the time:
“Michael Burry didn't give a reason, but the speculation is that it has mostly to do with geopolitical risk. As geopolitical tensions rise, the U.S. government has been sanctioning more and more companies, including Chinese companies.”
Now, as of December 31, 2024, Burry has sold his put options. This is significant. I am speculating, and this is just my speculation, that this has to do with the change in Presidents. The prior administration was fond of sanctions, and it looked like China was the next target. The current administration does not seem to be as fond of sanctions, as it believes that sanctions undermine the US dollar and seems fonder of tariffs. I am not trying to make a political point for either political party. I am merely pointing out that different foreign policy decisions by the president impact investors’ foreign investments differently.
Alibaba, Baidu, JD, and PDD Holdings
An easy way to look at Alibaba, Baidu, JD, and PDD Holdings is to look at them, at a high level and directionally, as the Chinese versions of eBay, Google, Amazon, and Groupon.
Alibaba is the eBay of China, with a P/E ratio of 21.28 compared to eBay’s P/E ratio of 17.48.
Baidu is the Google of China, with a P/E ratio of 10.11 compared to Google’s P/E ratio of 22.58.
JD.com is the Amazon of China, with a P/E ratio of 13.26 compared to Amazon’s P/E ratio of 39.24.
PDD Holdings is the Groupon of China, with a P/E ratio of 12.52 compared to Groupon’s P/E ratio of 17.94.
Alibaba, Baidu, and JD have their head office in China. PDD Holdings moved its head office from China to Ireland in 2023 to boost its international presence and reduce any potential sanctions risk.
Data source: https://stockanalysis.com/
What stands out is that the Chinese tech companies, with the exception of Alibaba, have much lower P/E ratios than their US equivalents. Given the population of China of about 1.4 billion people vs. the US population of roughly 335 million people, some of these Chinese companies are massive. Two of the four Chinese companies are large enough to make it into the famous Global Fortune 500 list, which lists the 500 largest companies worldwide. JD is the 47th largest company in the world and Alibaba is the 70th largest company in the world.
3. US/Canadian Investments - What Changed?
While Michael Burry essentially just fine-tuned his Chinese investments, he almost completely restructured his investments in the US and Canada.
Michael Burry’s US/Canadian Investments – December 31, 2024 vs. September 30, 2024
Let’s look at Burry’s US/Canadian portfolio at a sector level. Burry had one investment in technology (FOUR) that he exited, and two consumer cyclical investments (REAL and OLPX) that he exited.
His remaining 9 US/Canadian investments are essentially in two groups:
7 defensive investments (stocks that do well even in a recession)
MAGN, Basic Materials (Paper Products)
EL, Consumer Defensive (Personal Products)
ACIC, Insurance
MOH, Healthcare
HCA, Healthcare
BRKR, Healthcare
OSCR, Healthcare
2 bullish investments (stocks that do well when the economy does well)
VFC, Consumer Cyclical
GOOS, Consumer Cyclical
What that seems to tell us is that while he feels more comfortable increasing the portfolio allocation for US/Canada from 34.5% as of September 30, 2024, to about 47.1% on December 31, 2024, he still plays it safe and invests for the most part in defensive companies that will do well in recessions, with only 2 US/Canadian companies (VFC and GOOS) that require an economy that does well.
4. Key Insights for Your Own Investments
What can we learn from Michael Burry’s latest investment decisions that can help guide our investment decisions?
Here are my 4 key takeaways as I try to infer his thinking based on his investment decisions:
Burry sees investment opportunities mainly in China, the US, and Canada. Notice that he did not invest in Europe, India, or any number of other investment locations.
Burry seems comfortable that the sanctions risk towards China is now mostly gone with the new administration, which seems to prefer tariffs over sanctions.
Burry seems bullish on technology companies in China but not on technology companies in the US. I guess the valuation levels in China on a P/E basis are much more attractive.
Burry seems more comfortable increasing the US/Canadian part of his investment portfolio but not comfortable enough to make aggressive investment bets. Seven out of nine of the current US/Canadian investments are defensive plays. He seems to have a similar investment perspective as Warren Buffett, who has mostly cash and more and more defensive stocks. (You can read more about Warren Buffett’s cash pile here.)
Thank you for reading the article. Hope you enjoyed it.
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