Burry said he invested in GameStop twice, driven by his belief that the stock was undervalued, apart from other catalysts to bolster his investment thesis.
- Burry first invested in GameStop in 2018, pushing for buybacks and board changes while betting on undervaluation, cash flow, and potential corporate catalysts.
- He rebuilt a nearly 5% stake in 2019 but exited by the end of 2020 due to client withdrawals and execution risk, saying he had no knowledge of “Roaring Kitty.”
- Burry described the 2021 GME short squeeze as a rare, legally distributed market corner.
Michael Burry posted a detailed account of his investment in GameStop Corp. (GME) on Tuesday and explained why he pared his holdings in November 2020, before a historic short squeeze sent the stock soaring weeks later.
“The Big Short” investor placed a bet on GameStop years before it became a meme stock, making his first investment in 2018, after noticing in 2014 that the company was in trouble.
GameStop shares were up nearly 1% in Tuesday’s opening trade. Retail sentiment on Stocktwits around the company trended in the ‘bullish’ territory at the time of writing.
The Deep-Value Bet
Burry detailed in his post that he pushed the GameStop board to announce a stock buyback program and also called on the company to change the composition of its board.
When he made his first investment in 2018, Burry said he saw several catalysts that bode well for GameStop. Apart from the GME stock being undervalued, Burry said that talk of a leveraged buyout of the company, the potential sale of Spring Mobile, and a healthy cash position were part of his investment thesis in the company.
Why Did Burry Sell?
Burry exited his position in the second quarter of 2019, after almost all the catalysts he expected had already played out.
“I was puzzled at the relentless selling pressure in the face of seemingly good news, and decided maybe there was something I did not understand. I had relatively small losses, and took them,” he said. Burry pointed out that the GME stock crashed nearly 36% on June 5, following the company’s bad earnings.
However, a subsequent stock buyback rekindled Burry's interest in the company. In July, he bought back into GameStop “with both hands,” making it one of his larger positions.
“I had a brand new thesis. Yes, I brought along most of the points of the prior thesis, and I had been eyeing their hard assets such as real estate, thinking of sale-leasebacks as source of cash,” he said.
Burry accumulated a nearly 5% stake in GameStop and lent the shares out for 16 months at high double-digit interest rates. He noted that this was a big part of his GME trade.
However, Burry cashed out his second bet on GameStop by the end of 2020, due to withdrawals from clients requiring sales across the portfolio.
“I had no idea what was coming. I had no idea that a Roaring Kitty existed. And I had no idea that a widely distributed gamma squeeze would thread the needle to become the one and only legal market corner,” Burry remarked.
The Historic Gamma Squeeze
What followed Burry’s exit from GameStop was a historic gamma squeeze, fueled by Keith Gill, also famously known as “Roaring Kitty.”
Burry described the 2021 GME short squeeze as a rare, legally distributed market corner. Retail investors on forums like Reddit, particularly the r/WallStreetBets subreddit, executed a short squeeze, sending GME stock soaring on Jan. 28, 2021, to a high of more than $120.
“At the peak, my years-long investment might have turned $12 million into $1 billion, but that was never a possibility,” Burry said.
GME stock is down 30% year-to-date and 25% over the past 12 months.
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