Investors are always eager to see what famous and successful investors are doing in the stock market. Certain funds have to make their holdings public, and anyone can read the 13F filings of retail quarterly holdings for large money management funds.
The market was abuzz last week with the news that Michael Burry, who became famous for shorting the stock market during the 2008 mortgage crisis, was betting against Nvidia (NVDA +1.68%) and Palantir Technologies (PLTR +1.00%). Both stocks fell recently, and the revelation of Burry's position may have contributed to that.
While it might be giving investors pause, it's not necessarily what people think it is, and the message may be entirely different from a bet against these two top artificial intelligence (AI) stocks.
Image source: Getty Images.
What's in Michael Burry's portfolio?
Michael Burry runs Scion Asset Management, a fund with almost $1.4 billion in assets. Funds with more than $100 million in assets are required to report their holdings quarterly; however, these holdings aren't stagnant by the end of each quarter. What you see in a 13F filing is more of a glimpse into what could be a rapidly changing portfolio.
The classic hedge fund employs hundreds of traders and maintains thousands of equity positions that are constantly in flux. These types of funds typically utilize instruments like call and put options to hedge their bets and ensure, as much as possible, gains for investors. Their 13F filings may not always provide a complete picture, as their positions can change frequently.
Then you have some funds, like Berkshire Hathaway, that aim to take long-term positions. Even Berkshire's positions change from quarter to quarter, but not as frequently, and its positions are more telling.
Scion's portfolio is relatively small, and over the past few years, it's had as few as one position and as many as 33, according to quarterly reports. As of the third quarter, it has eight positions, although it only owns four stocks: Molina Healthcare, Lululemon Athletica, SLM, and Bruker.
Its four other holdings are call options in Pfizer and Halliburton, and put options in Nvidia and Palantir.
NASDAQ: NVDA
Key Data Points
Not necessarily the bet you think it is
Puts are options to sell a stock at a locked-in price. They imply that the buyer thinks the price of the stock is going to decline, and the buyer gets to sell at the higher price. However, you don't have to exercise options, and if the price goes the wrong way, the buyer can just let them expire.
Burry's position, again, is a snapshot in time. He might have anticipated some pressure on these expensive stocks, and indeed, both of their prices have come down recently. Big hedge funds often generate profits from slight movements, and with $1.1 billion in put options, exercising these options could yield a substantial amount of money for the fund, depending on various factors, such as the strike price, the extent of the price decline, and when the fund exercises them. It's entirely possible that they've already been exercised.
That doesn't mean Burry thinks the prices will remain low forever or that these stocks aren't good long-term investments. This could simply be a financial move that makes money for a large fund. Burry could just as easily be buying these stocks as I write this, and Scion's fourth-quarter filing could look completely different from the third-quarter filing.
In fact, in comparison with the second-quarter filing, the only position that has remained is Lululemon, which Burry doubled up on in the third quarter. Every other position was sold out, and the other seven positions are new.
NASDAQ: PLTR
Key Data Points
The retail investor is not the institutional investor
It's great to draw inspiration from successful investors like Burry, but remember that this is his day job, and he has different goals from individual investors.
I don't think Burry's message is to reevaluate Nvidia or Palantir from a long-term investment perspective. His message, if there is one to take, looks more like he thinks they've been overvalued, or that there's enough reason to expect them to fall in the near term. He's clearly a contrarian investor, and his strategy will be different from yours.
So I wouldn't follow Burry into his Nvidia and Palantir bets, but I would keep them in mind as part of a broader analysis if you're considering buying either stock today.
