The Big Short is a 2015 film based on the 2010 book The Big Short: Inside the Doomsday Machine by Michael Lewis which was based on the life of hedge fund manager, Michael Burry about the financial crisis of 2007–2008 which was triggered by the United States housing bubble.
In the movie Michael Baum (aka Burry), discovers that the US housing market was about to collapse due to high-risk subprime loans, so he created a credit default swap market with the Banks, which allowed him to bet against mortgage-backed securities.
Because his bet took time pay out, many of his clients wanted out. Because they thought it wasn’t a great use of capital. However, the housing market eventually did collapse and his fund’s value increases by 489% with an overall profit $2.7 billion.
I have been talking about the demise of Gamestop for months now.
So I found it so interesting several weeks ago to discover Michael was making another contrarian call, he went long shares of GameStop because he felt Gamestop’s balance sheet was healthy relative to the stock price and felt the company’s cashflow justified a higher stock price. However, I think Michael should stick to shorting stocks, instead of going long stocks.
GameStop reported their second quarter earnings yesterday. GameStop not only reported a loss of $0.32/ share on sales of $1.29 billion (both below expectations), not only reported same-store sales drop 12% and forecasted full-year earnings of $1.15 to $1.30 / share which is below expectation as well. Needless to say the stock down double digits today.
Michael’s firm, Scion Asset Management, has disclosed big stakes in four small-cap companies, including GameStop (GME) and Tailored Brands (TLRD). However, I think Michael should stick to shorting stocks, instead of going long stocks.
Regarding GameStop..next stop is liquidation, followed by bankruptcy.
This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.