Michael Burry is likely one of the most influential buyers of our time.
He turned well-known after he appropriately predicted the housing crash of 2008-2009 and made a fortune by shorting it. By the point he closed his hedge fund in 2008, he had earned virtually 150x the returns of the S&P 500 (SPY) over the identical time interval.
However what a lot of it’s possible you’ll ignore is that Michael Burry was already a really profitable investor previous to that. He additionally profited from the dot-com crash and extra just lately, he additionally efficiently shorted Tesla (TSLA) and the ARK Innovation ETF (ARKK) once they have been close to their peak valuations. He additionally invested in GameStop (GME) shortly earlier than it turned a meme inventory!
So for sure that he’s one thing value following. His firm’s holdings and newest transactions are public and apart from, he additionally tweets so much and is closely mediatized.
These days, he has made plenty of headlines as a result of he offered practically all of his positions. Among the many shares that he offered are Meta (META), Bristol Myers (BMY) and Cigna (CI), and plenty of others.
This comes after he has repeatedly warned us on Twitter (TWTR) that the newest bull run is not sustainable and that will probably be seemingly adopted by one other crash:
In the event you scroll via his Twitter feed, you will see that he worries about many issues:
- Valuation multiples
- The broader financial system
- The surging vitality costs
- The pandemic
- The political panorama
- The growing socioeconomic tensions
- China’s potential invasion of Taiwan
- And the devastation attributable to Russia’s invasion of Ukraine
In the end, it seems that he got here to the conclusion that the market can’t maintain rising with all these points lingering round, and determined to promote every little thing.
Or “virtually” every little thing ought to I say!
As a result of equally attention-grabbing is that he determined to purchase one actual asset inventory known as GEO Group (GEO).
GEO is a former actual property funding belief (REIT) that makes a speciality of non-public prisons and psychological well being amenities. Final yr, it transformed right into a C-corp to be able to maximize its worth by retaining its money circulation to deleverage, purchase again inventory, and diversify its enterprise, however primarily, that is nonetheless a REIT-like actual property inventory.
Which means that Michael Burry’s hedge fund is now 100% invested in actual property after which holding plenty of money. What we will take away from that is that he’s very bearish on the broader market, however secondly additionally that he sees some alternatives in specialty actual property.
This is smart since his major fear seems to be inflation and actual property are notoriously resilient to it. Furthermore, many REITs and different REIT-like entities are presently priced at traditionally low valuations as we clarify in a current market replace that you could learn by clicking right here.
And most buyers seem to overlook an vital factor: Michael Burry’s wealth just isn’t solely in his hedge fund. He has amassed plenty of non-public wealth over time, and he has given us plenty of clues that he’s closely investing in not simply prisons, but additionally different actual property.
Michael Burry’s Wager On Actual Property, Water, and Farmland Particularly
Burry turned well-known in 2015 when theaters worldwide aired “The Massive Brief” film. The storyline targeted primarily on how he efficiently shorted the housing market, however on the very finish of the film, we additionally acquired to know the way he was redeploying his positive factors. The final assertion of the film learn:
The small investing he nonetheless does is all targeted on one commodity: water.
There are various methods to spend money on water, however the preferred method is to spend money on farmland and this seems to have been Burry’s technique. In a later interview, he explains that:
What turned clear to me is that meals is the way in which to spend money on water. That’s, develop meals in water-rich areas and transport it on the market in water-poor areas. That is the tactic for redistributing water that’s least contentious, and in the end it may be worthwhile, which can be certain that this redistribution is sustainable.
He added that:
Agriculture land with water on web site might be very priceless sooner or later, and I’ve put a superb sum of money into that.
When requested how a lot of his portfolio is in farmland, he replies:
Oh I do not need to disclose that, however it’s a vital quantity at this level.
This interview is previous after all.
However farmland is an illiquid asset class that buyers usually purchase and maintain over many generations. Subsequently, a decade truly is not a very long time body for farmland.
Additionally, extra just lately, Michael Burry has tweeted about farmland’s inflation resilience, so I feel that it’s protected to say that he nonetheless owns plenty of farmland, along with his place within the GEO Group.
It will additionally make sense since he’s primarily frightened about two issues: inflation and a market crash. Actual property and farmland particularly have traditionally been extremely resilient to inflation, and likewise to market crashes.
From the beneath chart, you’ll be able to see that farmland values even saved on rising in 2008-2009:
If he was primarily targeted on farmland investing in 2015, and he has solely turn out to be extra involved about inflation since then, I feel it’s protected to imagine that he’s nonetheless closely invested in farmland and different actual property.
So all of the headlines that say that Burry has offered “every little thing” seemingly aren’t correct. If Burry was on the market making an attempt to promote all his farmland, we might in all probability learn about it since it’s a good portion of his private internet value.
A extra correct headline can be: Burry is closely investing in actual property and holding money to guard himself in opposition to a market crash.
So earlier than you rush to promote your shares, maybe it’s possible you’ll need to take into account investing in actual asset allocation as an alternative.
That is what I’ve carried out.
I’ve all the time been closely invested in actual property, however I’ve bumped my allocation even additional in 2022, and it’s now surpassing 50% of my portfolio:
I get most of my actual asset publicity via listed automobiles like REITs (VNQ) and MLPs (AMLP), and I additionally use crowdfunding to get further publicity to some specialty actual property that are not traded on the general public market.
Beneath, I spotlight some examples:
I do not personal the GEO Group (GEO), however I truly personal a place in its closest peer CoreCivic (CXW) to get publicity to personal prisons. I’m bullish on this sector for a similar causes as Michael Burry. The general public amenities are at overcapacity and subsequently, the non-public amenities maintain plenty of worth as they’re completely essential to our society. But, they’re priced at an enormous low cost to alternative prices resulting from political fears. We expect that even when non-public prisons have been ultimately banned, it might result in a constructive consequence for shareholders as a result of these prisons are nonetheless wanted, you’re shopping for them at a really low worth, and CXW has a robust stability sheet. At the moment, CXW is priced at ~5x money circulation and simply round a 3rd of the alternative prices of its properties. The corporate is deleveraging and shopping for again shares to create worth for shareholders.
I spend money on farmland in two methods. I maintain a place within the publicly listed farmland REIT: Farmland Companions (FPI) and I additionally spend money on the crowdfunding platform: FarmTogether.
I’m bullish on FPI as a result of it trades at a slight low cost to NAV and I anticipate its new asset administration enterprise to end in vital development.
I additionally use FarmTogether as a result of it offers me higher diversification advantages (shielded from the general public market volatility) and far larger revenue as a lot of their offers yield over 8% per yr.
All people wants a roof over their head, whether or not the financial system is booming or collapsing. I focus primarily on inexpensive housing in quickly rising cities like Austin, that are having fun with speedy hire development and close to 100% occupancy charges.
You’ll anticipate the REITs that personal such properties to commerce at excessive valuations, however in opposition to all odds, a couple of of them are literally deeply discounted.
Warehouses, billboards, cell towers, hospitals, international actual property,…
There are over 200 REITs within the US alone, and there are REITs in over 30 nations. I might focus on plenty of several types of alternatives however that is irrelevant of this text. It is best to know nevertheless that it’s simpler than ever earlier than to spend money on actual property and you do not must be a rich investor like Burry to get publicity to those investments.
Burry isn’t just holding money.
The various headlines that declare that he’s totally out of the market are virtually actually fallacious.
Sure, his hedge fund holds just one place, however his private wealth remains to be closely invested in actual property so far as we all know.
So earlier than you make the error of going into money, do not forget that Burry is protected against inflation via his actual asset investments.
You could need to take into account investing extra closely in actual property as effectively.