Michael Burry, the investor of «The Big Short» fame who bet on GameStop long before the company became a meme, explained why he sold the stock before it skyrocketed.
Burry, who recently switched careers from hedge fund manager to online writer, first invested in GameStop in the summer of 2018. He thought the video game retailer’s shares were undervalued and saw a number of factors that could boost their price.
However, he exited the position in the second quarter of 2019 after the stock price remained flat. He reinvested the funds in July 2019, making the stock one of his largest holdings, as high short interest provided a new catalyst.
Burry said he bought GameStop shares for a second time at an average price of 83 cents, adjusted for the stock split, which is less than 1/26th of the current share price of $22. He acquired almost 5% of the shares and held them for more than 16 months.
For most of this time, I was lending out my shares at very favorable rates, double-digit interest rates, which was profitable and made up a significant portion of the deal, the investor wrote.
Burry sold his shares by the end of November 2020, averaging $3,38 per share, more than four times the purchase price.
A few weeks later, retail investors from the r/WallStreetBets forum staged a GameStop’s epic short squeeze, short sellers, which resulted in the stock price reaching an intraday high of over $120 on January 28, 2021.
At its peak, my multi-year investment could have gone from $12 million to $1 billion…,” Berry wrote, adding that he would have sold the shares long before that point.
I could have analyzed this situation better. I knew GameStop inside and out and thought I understood trading volume, short positions, and other factors. However, I was blinded by what I perceived as execution risk.
Berry is famous for predicting and profiting from the housing market crash that preceded the 2008 financial crisis, the story of which is told in the book and film «The Big Short.»