“The Big Short” Michael Burry Buys Real Assets

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Astrid Stawiarz

Michael Burry is one of the most influential investors of our time.

He rose to fame after correctly predicting the housing crash of 2008-2009 and making a fortune shorting it. When he closed his hedge fund in 2008, he had gained almost 150 times the returns of the S&P 500 (TO SPY) over the same period.

But what many of you might not know is that Michael Burry was already a very successful investor before that. He also profited from the dot-com crash and more recently also managed to short Tesla (TSLA) and the ARK Innovation ETF (ARKK) when they were near their peak valuations. He also invested in GameStop (GME) shortly before it became a meme stock!

Needless to say, it is worth following. His company’s holdings and latest transactions are public and, moreover, he tweets a lot and is highly publicized.

He has been making a lot of headlines lately as he has sold almost all of his positions. Among the stocks he has sold are Meta (META), Bristol Myers (BMY) and Cigna (CI), and many others.

This comes after he repeatedly warned us on Twitter (TWTR) that the latest bull run is not sustainable and will likely be followed by another crash:

Michael Burry tweets about the recent market rally

Twitter

Michael Burry tweets about the recent market rally

Twitter

Michael Burry tweets about the recent sale

Twitter

If you scroll through his Twitter feed, you’ll see that he worries about a lot of things:

  • Inflation
  • Valuation multiples
  • The wider economy
  • Soaring energy prices
  • The pandemic
  • The political landscape
  • Growing socio-economic tensions
  • China’s Potential Invasion of Taiwan
  • And the devastation caused by Russia’s invasion of Ukraine

In the end, it looks like he came to the conclusion that the market couldn’t keep rising with all these lingering problems and decided to sell everything.

Or “almost“everything I must say!

Because it is equally interesting that he decided to buy a stock of real estate assets called GEO Group (GEO).

GEO is a former real estate investment trust (REIT) specializing in private prisons and mental health facilities. Last year it spun off into a C-corp to maximize its value by conserving cash flow to deleverage, buy back stock and diversify its business, but essentially it’s still a real estate stock REIT type.

GEO Group - Private Prison

geo group

This means that Michael Burry’s hedge fund is now 100% invested in real assets and therefore holds a lot of cash. What we can take from this is that he is very bearish in the broader market, but also that he sees opportunities in specialist real estate assets.

This makes sense since its primary concern seems to be inflation and real assets are notoriously resilient to it. Additionally, many REITs and other REIT-like entities are currently valued at historically low valuations, as we explain in a recent market update which you can read by click here.

And most investors seem to forget one important thing: Michael Burry’s wealth is not entirely in his hedge fund. He’s amassed a lot of private wealth over the years, and he’s given us plenty of clues that he invests heavily not just in prisons, but in other real assets as well.

Michael Burry’s bet on real assets, water and farmland in particular

Burry shot to fame in 2015 when cinemas around the world released the movie “The Big Short.” The storyline mainly focused on how he managed to short the housing market, but at the very end of the film we also learned how he redeployed his earnings. The very last statement from the film read:

The small investment he still makes is entirely focused on a single product: water.

There are many ways to invest in water, but the most popular approach is to invest in farmland and that seems to have been Burry’s strategy. In a later interview, he explains that:

What became clear to me is that food is the way to invest in water. In other words, grow food in water-rich areas and transport it to sell in water-poor areas. It is the least contentious method of water redistribution, and ultimately it can be cost-effective, which will ensure the sustainability of this redistribution.

Agricultural land as an investment

Gladstone Land

He added that:

Farmland with water on site will be very valuable in the future, and I have invested a lot of money in it.

When asked how much of his portfolio is in farmland, he replies:

Oh, I don’t want to divulge that, but that’s a significant amount at this point.

This interview is of course old.

But farmland is an illiquid asset class that investors typically buy and hold over multiple generations. Therefore, a decade is actually not a long time for farmland.

Also, more recently, Michael Burry tweeted about the inflation resistance of farmland, so I think it’s safe to say that he still owns a lot of farmland, in addition to his position in the group GEO.

Michael Burry deleted on Twitter:

Twitter

It would also make sense since he’s mainly worried about two things: inflation and a stock market crash. Real assets and farmland in particular have always been very resilient to inflation, as well as stock market crashes.

In the graph below, you can see that the value of farmland even continued to increase in 2008-2009:

Farmland is highly resilient to recessions

FarmTogether

While he mainly focused on farmland investment in 2015, and has only become more concerned about inflation since then, I think it’s safe to assume that he is still heavily invested in farmland and other real assets.

So all the headlines that say Burry sold “everything” are probably not accurate. If Burry tried to sell all of his farmland, we’d probably know because it’s a significant part of his personal net worth.

A more accurate title would be: Burry invests heavily in real assets and holds cash to protect against a stock market crash.

So before you rush out to sell your stocks, you might want to consider investing in a real asset allocation instead.

That’s what I did.

I have always been heavily invested in real assets, but increased my allocation again in 2022, and it now exceeds 50% of my portfolio:

High Yield Ownership Portfolio Strategy

High Yield Owner

I get most of my exposure to real assets through listed vehicles like REITs (VNQ) and MLPs (AMLP), and I also use crowdfunding to gain additional exposure to some specialty real estate assets that are not traded on the public market.

Below I highlight a few examples:

Private prisons

I don’t own the GEO Group (GEO), but I actually hold a position in its closest counterpart CoreCivic (CXW) for exposure to private prisons. I am bullish on this sector for the same reasons as Michael Burry. Public facilities are over capacity and therefore private facilities are very valuable as they are absolutely necessary to our society. Yet their price is greatly reduced compared to replacement costs due to political fears. We believe that even if private prisons were eventually banned, it would lead to a positive outcome for shareholders because these prisons are still needed, you buy them at a very low price, and CXW has a strong balance sheet. Currently, CXW is priced at about 5x cash flow and about one-third the replacement cost of its properties. The company is deleveraging and repurchasing shares to create shareholder value.

farmland

I invest in farmland in two ways. I hold a position in the listed agricultural land SIR: Farmland Partners (FPI) and I also invest in the crowdfunding platform: FarmTogether.

I am bullish on REIT as it is trading at a slight discount to NAV and expect its new asset management business to result in significant growth.

I also use FarmTogether as it gives me better diversification benefits (protected from public market volatility) and much higher income as many of their trades earn over 8% annually.

Apartment communities

Everyone needs a roof over their head whether the economy is booming or crashing. I primarily focus on affordable housing in fast-growing cities like Austin, which enjoy rapid rental growth and near-100% occupancy rates.

One would expect REITs that own such properties to trade at high valuations, but unexpectedly a few of them are actually heavily discounted.

Warehouses, billboards, relay antennas, hospitals, foreign real estate,…

There are over 200 REITs in the United States alone, and there are REITs in over 30 countries. I could discuss many different types of opportunities, but that is not the subject of this article. You should know, however, that investing in real assets is easier than ever, and you don’t have to be a wealthy investor like Burry to gain exposure to these investments.

Conclusion

Burry doesn’t just hold money.

The many headlines claiming it’s completely off the market are almost certainly untrue.

Yes, his hedge fund only holds one position, but his personal wealth is still heavily invested in real assets as far as we know.

So before you make the mistake of going cash, remember that Burry is protected from inflation by investing in real assets.

You may also want to consider investing more in real assets.

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