Why Michael Burry just sold all his stocks
Michael Burry just sold over $70 million in stock, liquidating his entire portfolio except for one stock, doubling down on a company that other investors are fleeing in droves.
Burry is one of the few investors to foresee the 2008 financial crisis, shorting the housing market and netting $700 million from the move. Big successes like this have contributed to Burry's hedge fund, Scion Asset Management, significantly outperforming the S&P 500 and most other hedge funds over the past 10 years.
Now, investors are paying close attention to his latest moves, which include over $187 million worth of short positions. So, what stock is Burry doubling down on, and what does this shift in his portfolio say about his outlook for markets? That's what we'll dig into in this video.
Past performance isn’t a reliable indicator of future results
This was Burry's portfolio in Q4 2024
Heavily weighted towards Chinese tech giants like Alibaba, Bilibili, and JD.com, along with defensive and value stocks in healthcare and consumer staples. And this is his stock portfolio now. That's right. Burry sold everything he owned and doubled his stake in cosmetics giant Estée Lauder from 100,000 to 200,000 shares worth $13.2 million, and it now makes up 100% of his portfolio.
This obviously marks a dramatic strategic shift for Burry
This isn't the only way he's spending money—we’ll come back to that later. But this obviously marks a dramatic strategic shift for Burry, and it may come as a surprising move, especially considering that Estée Lauder has not been doing well. The cosmetics company's stock price has fallen by over 80% from its 2021 highs.
Burry is known for his contrarian investment style—going against the crowd and seeking alpha in undervalued and overlooked companies he thinks can bounce back. But that's a big bet considering how bad things look for Estée Lauder right now. The company reported a 10% drop in net sales in this year’s first quarter. Their operating margins are shrinking, cash flow is down, and earnings have been cut in half.
Much of that poor performance comes from a weakening consumer market, particularly in Asia. Estée Lauder relies on the Asia-Pacific market for 31% of its revenue, and they got hit hard by the recent economic crisis in China. This has led to multiple ratings downgrades by analysts on Wall Street, reflecting a pessimistic outlook for the company.
Read more: China’s economic crisis is worse than you think (here’s why)
Everyone seems to hate the stock, but that’s exactly when Michael Burry doubles down
This is his style of investing. He's a value investor, taking after the likes of Warren Buffett, looking for undervalued companies with strong fundamentals. And that often requires looking for companies that are scoffed at by other investors.
Burry has done this before. Just look at GameStop. The video game retailer was deeply out of favour with investors for years, struggling with declining physical game sales and fears of obsolescence. Many viewed it as a dying retailer in the age of digital gaming. Starting around 2019, Michael Burry bought a significant stake in GameStop, seeing value in its assets and potential for a turnaround that the market was ignoring.
His investment gained huge attention during the famous short squeeze in early 2021 when GameStop's stock price skyrocketed from under $5 in 2019 to an intraday high of nearly $500 in January 2021. Burry sold before the Reddit surge, but he still netted a healthy $100 million or so.
So, could the same kind of thing happen with Estée Lauder? Hard to say, but there are some promising numbers. For one thing, Estée Lauder reported a gross margin of 75%. That's high for the industry and a strong sign for the company. The company’s price-to-sales ratio sits at 1.67, which is much lower than competitors in the cosmetic sector—this suggests it may be undervalued.
The company also has a new CEO who has announced a plan to turn the company around. And if the Chinese economy begins to recover, consumer spending may pick up again, and that could be a boon for Estée Lauder’s bottom line—picking the stock price back up. All of these are potential tailwinds for the fallen stock price and make Burry's big bet seem like it could pay off after all.
Burry’s portfolio reshuffle also points to a broader bearish outlook on the economy
For one thing, doubling down on a cosmetics company signals that Burry may see a recession on the horizon. That’s because of the so-called lipstick effect. This is the theory that when consumers face economic hardship—like a recession—they cut back on big-ticket items like cars or vacations but still buy affordable luxuries such as cosmetics. In that way, cosmetics companies are defensive stocks.
It was dubbed the lipstick effect by the chairman of Estée Lauder during the early 2000s recession. He claimed that lipstick sales grew for the company despite the economic contraction. And it’s true. During the recession in 2001, US GDP only grew by 1%, but Estée Lauder revenue grew by 5.5%. During the financial crisis in 2008, US GDP fell 2.8%, but Estée Lauder revenue grew by 7.7%.
This means Burry may see a recession on the horizon or at least a period of economic contraction—and so he’s bought into a stock he thinks can weather that storm. But doubling down on Estée Lauder isn’t all he’s done with his money. He’s also gone for a series of aggressive put options on other highly valued companies.
Put options give the buyer the right to sell an asset at a predetermined price at a set date, so you make profit if the price falls. These are bearish bets that a company’s stock will fall. One company he targeted with a put is the chip giant Nvidia—with a put order of $97.5 million. He may be bearish on AI because he believes that the AI growth narrative is already largely priced into the market. So, there’s high potential for a pullback because he believes the fundamentals don’t justify the valuation.
He’s also placed put options on Chinese tech companies that he recently sold off—Alibaba $26.45 million, PDD Holdings at $23.7 million, JD.com at $16.45 million, Bilibili at $9.2 million, and Trip.com at $12.72 million. The shift to bearish positions on Chinese tech marks a reversal of his earlier bullish stance and suggests a concern about the durability of recent gains—potentially due to geopolitical factors like tariffs.
These big moves in Burry's portfolio at Scion reflect a convicted contrarian strategy that he’s become famous for. All in all, he seems to be betting that there will be a broad economic downturn as highly valued tech stocks pull back on their recent rallies, while an underdog like Estée Lauder could rebound from its declining stock price.
At Capital.com, we’ll continue to keep you updated on major portfolio changes by influential investors like Michael Burry, along with other market trends and economic developments.
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