4/30/2014

Michael Burry Some Old Posts From Silicon Investor www.valuewalk.com

valuewalk.com

MichaelBurrySomeOldPosts
FromSiliconInvestor

byVwStaff April30,2014 10minread original

IfinallygotaroundtoreadingagoodchunkoftheMichaelBurryarchivethatstillresideson

theoldSiliconInvestorforums.Itsahighlyinformativereadthatshowstheevolutionof

MichaelBurryfromanenthusiast,toaninvestorwithauniquestyleandphilosophy.Hereare

afewinterestinghighlightsthatIcameacross.

Initially,BurrycuthisteethontraditionalBenGraham-typestocksthattradedbelowbook

value.Below,hediscussestheTejonRanchCompany(TRC),astockwithstrongdownside

protectionduetothe270,000acresthatitowned.

LookslikeTRCisfairlyvaluedonanassetbasisifthesepricesarethecase.When

reviewingtheseads,notethatTehachapiarealocationsaresimilarinterraintothe

Tejonranch,butclosertoBakersfield.

Theexcitementcomesfromthefactthatmanagementhastakenaninterestin

developingsomeofthese270,000acres.Asnotedabove,landindevelopedareascango

for$15kto$30k/acre.SonotalloftheTejonRanchneedstobedeveloped.ANY

developmentshouldjustifythecurrentprice,andmayleadtosignificantgainsdownthe

road.

Whatsalsoremarkable,wasthatBurrywasgettingsolicitedbycertainhighranking

investorssinceearly1997.

Asyousay,Iagreethathigh-rankinginvestorslurkhere,sinceIgete-mailfromthem

everysooften

WhileitsclearthatBurrywasawareofthemania(andindeedderidedmanyinvestors

expectations)forDot-Comstocks,hesawAppleforwhatitwasin1999,avaluestockwith

anyfuturegrowthbeingessentiallythrowninforfree.Healsoscoldshimselfforsellingittoo

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soonaftera30%run-up.Mostimportantlythough,itwaswithstockslikeApplethatBurry

begantoappreciatethepowerofbranding,marketingandmanagement,thesortofintangible

factorsthatBuffettissoperceptiveinrecognising.

IboughtitasaBuffettpick.AndthenIsolditafteraquick25-30%run-up.Shame

shame.ButImakenoexcuses.Therun-uptomeseemedflimsy.Ittradedbacktothelow

20?sthenjumpedonitsinternetstrategyannouncement.Igotout.ButIsorelywant

backin.Iwouldliketobuyinthelow20?sagain,andIwill.ButatthetimeIneeded

moneytobuysomeotherstocksthatwerebecomingmuchmoreacutelyundervalued

(myAAPL,APCC,FIC)withIMOpossiblybetter-positionedandbetter-managed

businesses.Sofarthisbetispayingoff,butforittoreallypayoffonbothendsIdbeable

tobuyMATat221/8again.AndCallawayGolfat10andchangeagain,sinceIsoldmy

Buffettsoulandgotoutofthatonetoo.

BTW,really,nooneiscreditingApple,buttomeithasthemarkingsofavaluestockand

potentialBuffett-likestock.Arealcashmachineoflate,tradingatamid-singledigit

multipleofcashflow,withagreatrecoveryintermsofoperatingefficiency.Agreat

brandnamewithproprietaryadvantagesandmindshare.Subtractoutthecashandit

wasrecentlytradingatabout10timesearnings.Agoodholdingforan8yearold.Buyher

ablueberryiMacandgivehersomestock

Iboughtitasalong-termholdingbutits

runuptoo.Thisproblemofultra-quick30%gainsdespiteBuffetesqueintentisvexing,

butnotunpleasant.

Re:Apple,boy,everyoneislivinginthepastonthisone.Managementisnowgreat.The

productisnowverygood,butevenmoreimportantlythemarketingisnowgreat.The

winratefornewPCbuyershereandespeciallyJapanhasgonethroughtheroof.And

theresafuturedividendthatcomeswiththat.Itwasnt$15justafewmonthsago.In

fact,nowithas$15incashgeneratedprimarilyfromoperations.Itsbeenbouncing

betweenthemid40?sandlow30?sformanymonths,andisnowrightwhereitsbeen

since1988(forareasoneverytimeitgetstothislevelpeoplesell),exceptforthedipto

theteenswheneveryonemisjudgedthepowerofthebrand.Thissuccessfulemergence

fromtrialbyfireisnewinformationaboutthedurabilityofthebrand,andsuccessful

investorsitseemstomeshouldbeabletoabsorbitquicklyratherthanbelatedly.

Inanearlypost,hechipsinwithsomethoughtsonanovervaluedmarketwithaquotethatI

love.

Buyandholdbecomesmantraattheendofabullmarket.

Buyandholdbecomesanathemaattheendofabearmarket.

Thankstotheragingbullforthose10years,everyoneispreachingbuy,hold,patience.

However,ifyouhadinvestedinthemarketin1969,youwouldbeatasignificantlossin

1983,especiallygiventhehigh

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inflationofthetimesandthedownmarket.Intheearly50?s,thecommonlogicwasthat

stockssimplydontgoup,thankstothedoldrumsmarketfromthemid30?stothemid

50?s.Whycantthismarketconceivablycrashfromtheselevelsandnotrecoverfor20

years?IguessIamjustabitofacontrarian.

AsforhowBurrychoosesstocks,hestatesitonthisthread,alsorevealingthatpriceisthekey

determinantinwhethertoinvest,ornot.

Thescreenthatworkedthebestforme?ScanningtheS&PMidCap400guideeyeing

thelowerrighthandpageforhighandconsistentROE.

Then,movingupthepage,comparingcapitalexpenditurestocashflows,thenmoving

uptoequityandobservingthatitsgrowthvalidatestheROEnumbers.

Then,stillmovingupthepage,lookingatthelast10yearsofearningsconsistencyand

growthatleastdoublingin10years,withoutmorethanonedownyear.

Thenlookforthelowpayoutratioandconservativedebt.

Thenlookatthecurrentpriceandfigureoutyourbuypriceandwait.Youllhitafew.

Ifyoudothiswiththe1997S&PMidCap400Guide,twocompaniesjumpoutatyou

DairyQueenandFlightSafety,both

Buffettbuys.

IusedthistofindMedusaandBMCIndustries,bothofwhichIbought.Medusawas

takenoutbySouthdownata50%premiumtomypriceinjustafewmonths.BMChad

significantinsiderbuyingandnowsitsabout13%abovemyprice.Ofcourse,byvirture

oftheirbusinesses,neithermeetsallofBuffettscriteria.

Re:hispicks,Illhavetotakeacloserlook.Someofthemhavecomeupinmyreviews

overthelast6months.IshouldsaythatIhavegonethroughallthestockscoveredby

S&Pinitsthreemajorguides,andthepickingsareslim,andwillremainsowithouta

majorcorrection.

Ivesaiditbefore,andIllsayitagainfindingBuffettcompaniesnowisntsohard.

Findingthematreasonablepricesisdangnearimpossible.

Finally,hereareafewbookrecommendationsfromBurry.

Mybiasisvalueinvesting,andIhighlyrecommendJanetLowesValueInvestingMade

Easyasaprimer.IdfollowthatbookwithWhyStocksGoUp(andDown)byWilliam

Pike.Otherbookshavebeendiscussedherei.e.SuperstocksbyKenFisher,etc.Youcan

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getanyoftheseevenobscureonesfromwww.amazon.comveryeasilyandcheaply.

Whenyouthinkyouvegotitallfiguredout,trySenseandNonsenseinCorporate

Finance.

Re:Mattel,Apple

IboughtitasaBuffettpick.AndthenIsolditafteraquick25-30%run-up.Shameshame.But

Imakenoexcuses.Therun-uptomeseemedflimsy.Ittradedbacktothelow20 sthen

jumpedonitsinternetstrategyannouncement.Igotout.ButIsorelywantbackin.Iwould

liketobuyinthelow20 sagain,andIwill.ButatthetimeIneededmoneytobuysomeother

stocksthatwerebecomingmuchmoreacutelyundervalued(myAAPL,APCC,FIC)withIMO

possiblybetter-positionedandbetter-managedbusinesses.Sofarthisbetispayingoff,but

forittoreallypayoffonbothendsIdbeabletobuyMattel,Inc.(NASDAQ:MAT)at221/8

again.AndCallawayGolfCo(NYSE:ELY)at10andchangeagain,sinceIsoldmyBuffettsoul

andgotoutofthatonetoo.

BTW,really,nooneiscreditingAppleInc.(NASDAQ:AAPL),buttomeithasthemarkingsof

avaluestockandpotentialBuffett-likestock.Arealcashmachineoflate,tradingatamid-

singledigitmultipleofcashflow,withagreatrecoveryintermsofoperatingefficiency.A

greatbrandnamewithproprietaryadvantagesandmindshare.Subtractoutthecashandit

wasrecentlytradingatabout10timesearnings.Agoodholdingforan8yearold.Buyhera

blueberryiMacandgivehersomestock:)Iboughtitasalong-termholdingbutitsrunup

too.Thisproblemofultra-quick30%gainsdespiteBuffetesqueintentisvexing,butnot

unpleasant.

Mike

H/Tcornerofberkshireandfairfax

https://web.archive.org/web/20120402061512/

http://www.siliconinvestor.com/profile.aspx?userid=690845

Hereissomemore(notelinksfromhere

https://web.archive.org/web/20120402061512/http://www.siliconinvestor.com/profile.aspx?

userid=690845shouldworkifnotletusknowbycomments/twitter/FBandwellpostsome

ofthetextinhere)

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Message

Subject

Recs

Date/Time(ET)

Justdroppinginforsomehelp.Iamlookingforaquotewhere

Buffettology

01/21/2001

Buffettmakesac
Eegad.Dobother.IllbehonestandsaythatwhatImdoing

02:17:59AM
ValueInvesting

professionallywill
FollowinguponmyexaminationofWorldcom,Iconcluded

12:02:02AM
ValueInvesting

thatWorldcomwouldhave
OTInanycase,myGPSpositionisreallyahedgeagainstmy

ValueInvesting

ValueInvesting

Buffettology

09/01/2000
06:22:23 PM

Buffettology

beenpoundingthet
Imsure,butitsmysecrethowIknow.;)

09/05/2000
09:45:3 1PM

stocksare.A
USTsriskexposureis180degreesdifferentthanMOs.Ive

09/06/2000
11:11:58AM

Interestingpriceaction
AllIseeisalotfashionrisk.Thatsaynothingtohowcheapthe

09/06/2000
11:3 6:3 4AM

wifesspending
IalsograbbedsomeSPORtoday.At3 1/4,ano-brainer.

09/14/2000

08/3 1/2000
07:45:55PM

Buffettology

08/3 1/2000
04:59:59PM

IthinkwerelearningsomethingaboutGapandfashionin

Buffettology

retail.Basically,it
Toanswerwhetherthisisagoodbusiness(andnotjust

09:05:3 1PM
ValueInvesting

apparentlycheapbasedo
Archimedes,Whatsuggestionsdoyouhaveforusintermsof

08/21/2000
04:3 4:57PM

ValueInvesting

specificplays?
Wow.Sickening.Thanksjhg.

08/3 0/2000

08/07/2000
04:11:00PM

Buffettology

08/04/2000
03 :25:51PM

Yeah,thatswhatIgettoabout40.Thatswhyitwascritical

Buffettology

tobuywhenBu
Ithinkyoudhavetobalancethetendencytowanttobuy

12:3 1:12AM
ValueInvesting

withoutdrivingtothe
CiscoSystems,Inc.

thatsolidasyste

(CSCO)

Yes,Ido,andyes,Iaminterestedinbuyingagain.Butnotat

Buffettology

ValueInvesting

ValueInvesting

ValueInvesting

ValueInvesting

ValueInvesting

ValueInvesting

ValueInvesting

ReYUM,todayIsoldallofitinallaccountsasitbroke251/4

ValueInvesting

ValueInvesting

< 1 min to Spreed

ValueInvesting

ValueInvesting

ValueInvesting

forconsolidati

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07/27/2000

07/22/2000

07/21/2000
01:3 3 :24AM

ValueInvesting

benchmarks.Therear
SoonafterIpostedthat,Ipickedupsome.Theindustryisripe

03 :14:07PM

10:53 :55AM

thoughtwasnotverymuch
Wallace,youhaveadifficulttask.Therearenogoodvalue

07/27/2000

02:16:12PM

strong,whycanthe
Overwhelmingdemandforthemessageboard(whichIhad

07/27/2000
03 :22:3 0PM

support.Good
<i>whyinaperiodthatprofitsandrevenuearegrowingand

07/27/2000
03 :3 1:58PM

exceedsthediluti

companiesforma

07/27/2000
03 :46:12PM

industryvaluations,owing

Iwouldguesstheexceptionstothe3 yearrulewouldbetech

07/27/2000
03 :59:40PM

JimsCrane).Ivebo

Jurgis,Imholdingtoo.Themarketcapitalizationlosttoday

07/27/2000
05:03 :23 PM

somethinglikethat

Yeah,butunfortunatelyALSCsstockvaluedependson

07/27/2000
06:46:23 PM

andUMCthatitmay

IllsecondCAT,andJimsHuttig(whichcomescourtesyof

07/3 0/2000
01:20:54AM

candoit,butjus

Sure14isanevenbetterpricethan20.butItriedtodo

07/3 0/2000
11:16:49AM

thoughtabo

YoureawarethatALSCislimitedintheamountofChartered

07/3 1/2000
12:3 0:49AM

over-analyzedst

Iamnotexactlyarguing,becauseIunderstandandbelievehe

08/01/2000
12:3 6:06AM

thisprice,asI

AndyoudontsellAmazonfivemonthsbeforeChristmas.I

08/01/2000
03 :15:3 9PM

IunderstandCiscocanclosetheirbookswithinanhour;with

OK,soitscontrarian,butitisalsooneofthemostvisible,

08/04/2000

07/20/2000
09:20:3 1PM

Buffettology

07/20/2000
03 :3 9:59PM

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ThethingaboutBuffettandServiceMasteristhatitISa

Buffettology

differentcompanynow.
Anotherwaytothinkaboutthetobaccoverdict:doesthelack

12:08:01PM
Buffettology

ofreactioninthe
suredo.butidontevenwanttogetstarted.englewasa

Buffettology

ValueInvesting

ValueInvesting

ValueInvesting

ValueInvesting

ValueInvesting

ValueInvesting

07/10/2000
12:55:26PM

ValueInvesting

belt,whatacrutch
VeryveryoffensiveJeffrey.

07/10/2000
04:16:3 4PM

opinions,there
HOLDONAboutthisexperienceissueandnotchesinthe

07/11/2000
10:26:04AM

positivethereare
NowhereandinnowayamIsayingIamthenextBuffett.Asfor

07/12/2000
12:20:05AM

attentionthatGATX
Thelearningcurvebeforeonefindsonesgroovevaries.Iam

07/12/2000
01:3 1:08PM

handsoffornot,Isee
CongratsontheANF.Iwouldliketobringtothisthreads

07/13 /2000
03 :15:49PM

namelyNationalInd
Heownsabunchofthecompany,andwhetherhesayshes

07/15/2000
12:3 3 :44AM

andcouldbeani
MyunderstandingisthatBuffetthandlesthesupercatfloat,

07/16/2000
12:00:3 5PM

physician,forcrying
Absolutely.Distressedbondsdoseemliketheywouldfithere,

07/20/2000

07/10/2000
11:12:3 4AM

ValueInvesting

07/10/2000
10:13 :16AM

Craig,Iwouldntgofarastosayshortsarenotpartofavalue

ValueInvesting

investings
Re:Gap,weallknowBuffettlikeditenoughtobuysome.It

11:11:45PM
Buffettology

definitelyhasbeen
Me,youandArmin.Thatsthree.Istartedonepositionat23

ValueInvesting

ValueInvesting

ValueInvesting

ValueInvesting

ValueInvesting

06/28/2000
09:3 0:00PM

ValueInvesting

Therearetworeas
Imnotfrettingaboutit.Itstillhassupportabove50.Itbreaks

07/01/2000
11:13 :45AM

wontbuyit
Asyouknow,Ihaveasimplephilosophy:sellonnewlows.

07/01/2000
06:42:45PM

valuemanagers
Jim,thattakesguts.Nottobuyit.Topostthatyouboughtit.I

07/05/2000
09:42:3 2PM

motivation:Youreadoctor,
IllpostmyoutragejustasIdidlastyear.Itmakesajokeof

07/08/2000
12:07:10PM

knewthatgoingin.
Yup.AndIvegotyourwordsetchedinmymindfor

07/08/2000
12:18:05PM

1/4,butasIveg
Imnotstoppingmyselfout.Thisisavolatilestock,andI

07/09/2000

06/27/2000
01:47:00AM

ValueInvesting

50andstil

06/26/2000
08:3 3 :00PM

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