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Welcome back to the Investing from Home channel! In today's video, I'd like to talk to you about a famous, very famous investor who just bet $35 million against Apple's stock price. If you're interested, make yourself a nice cup of coffee and let's enjoy this chat together. Cold day, good coffee, now we can begin.
First things first , who is Michael Burry? The name of the investor you see in the title of this video. Michael Burry was a retail investor like you, like me, who became very famous and well known in the early 2000s because he started posting his investment ideas on blogs. Many investors saw that his investment philosophy yielded good results in the long term, they saw that he was a genius and then they began to entrust their capital to him to manage.
This is how the Scion Capital fund was formed , I don't know if I'm saying it right, it's SC. Scion Capital managed hundreds of millions of dollars. But its popularity peaked in 2005 because the fund led by Michael Burry was the first fund to detect the mortgage bubble that was forming and invest in it.
In very simple terms, what did Michael Burry do? Michael Burry began to study some complex securities, but ultimately they were mortgage bonds, that is, bonds that were backed by mortgages. These bonds, this set of bonds, in turn each had thousands and thousands of mortgages. What Michael Burry did was begin to study the creditworthiness of these mortgage borrowers.
And after studying thousands upon thousands of them, he concluded that these mortgages or these mortgage borrowers had a serious risk of insolvency when interest rates began to adjust. And what did he say? He said, "Actually, if this is about to default, this bond backed by these mortgages is also worthless." And he bet against those bonds.
Or rather, insurance was purchased in case those bonds defaulted. You'll have seen it, anyone who's seen the movie Big Short knows what I'm talking about. Many investment banks laughed at him. They thought he was crazy. But when the housing bubble burst in 2007 and the great financial crisis was unleashed , one of the biggest crises the United States has ever known, hence the name the great financial crisis, while the market was falling apart, Michael Burry made a fortune.
Because he had bet that it was going to happen. That's the gist of it, so who is Michael Burry? Having made the introduction, I think we are now ready to move on to the important part of this video. Michael Burry currently manages over $100 million . Therefore, as any investor who manages more than 100 million, he is required to report to the SEC quarter after quarter what he buys or sells.
And as you will now see on screen, in the latest 13F report, a short position could be seen, a bet against Apple for a total of 35 million dollars through, as you will have seen, puts, sell options. What are these puts or these sell options? Let me explain it to you in a very simple way. Let's assume that today this computer is worth $100.
And I think that in 12 months this computer will be worth less. and I want to benefit from that fall. What do I do ? I buy the right, not the obligation, to sell it for $100 within 12 months. If my prediction comes true and the price of the computer drops to 80 or 60, I have purchased the right to sell it for 100.
Therefore, my right to sell it for 100 is more valuable. Why? Because the price just dropped and fell. The same applies to shares. Because? For example, if I think that Apple's price is going to fall in two months, but well, I'm not entirely sure, I can buy the put option to sell Apple's stock at a certain price.
If my 150, let's say. If the price actually falls to 100, any drop is profit for me , because I've already bought the right to sell it at 150. That's what this famous investor just did with the shares of one of the world's best-known companies, which is none other than Apple. Now, does that mean that if we are Apple investors, we should rush out and sell the stock just because this investor has bet against it?
Absolutely not, absolutely not . It goes without saying that Apple is not a fraud, not at all; on the contrary, it is extremely transparent and open with its investors. But it has nothing to do with the housing bubble of 2006 or 2007. In my opinion, Michael Burry is no amateur. And what he might be doing is a trade, a short- term trade like he did and maybe you saw it in the news with Tesla stock for mid-2021, if I'm not mistaken.
A short-term trade where you're betting that Apple's price might experience some downward pressure, because obviously, even though it's the best company in the world, the best business in the world, it's not immune to what's happening globally. Let's not forget that a very important market for the company is China, and it already said in the last conference call that it expects a hit of 4 to 8 billion dollars due to the closures that this country is experiencing because of the current problem.
There is inflation at a global level, and that also reduces consumption. Apple is no stranger to all of that and if you'll allow me, this is a personal opinion, it has a few points of overvaluation. Therefore, what Michael Burry is doing, in my view, is a trade; he is betting on the short-term market.
He has shown some ability to do so, yes. Personally, it's not my area of expertise. It goes without saying, I repeat, that Apple has nothing to do with what happened in the 2007 housing bubble. It's one of the best businesses in the world, and I'll say it again , I'm not telling you to go and sell just because Michael Burry bet against it.
Moreover, I said it publicly in a video that will surely appear here, I regret to this day the sale price of this stock, even though from the moment I bought it until today the price hasn't changed at all. Apple is an excellent business, but it seems Michael Burry is betting on a temporary downturn in the short term.
Having said all that, in previous videos that should also be appearing on your screen and which I will leave here, I already gave my opinion regarding Apple. I haven't made a video yet about the last quarterly report, which, by the way, was excellent. It's not spectacular; it's about what it used to be because it's being compared to other good quarters, but excellent nonetheless.
It's a business with excellent returns on invested capital, and I already mentioned in those videos that popped up here and there and down here that I think $ 110 to $120 is a fair price for this stock because it's a price that discounts a futures price quite similar to what the company has had in the past.
I think it's perfectly likely for a business of Apple's caliber. I also said that I don't know if I would invest in those stocks; I would wait to have a little more margin of safety. But anyway, that's all for this video. I thought it was an interesting topic for a casual chat, to introduce you to put options.
Perhaps you'd be interested in us making a video about that. Leave any comments below. Are you an Apple investor? Do you like the future of the company? Were you adding positions? Don't you agree with me and think that the current price is quite fair? In fact, Berkshire Hathaway's latest February 13th report showed that Warren Buffett added small positions in Apple when the price was around these values, and he actually mentioned it at his annual meeting.
We'll probably make a video about that report, showing what Buffett bought and sold on Sunday, and that's all. Thank you for joining me in this video, as I always say, I really appreciate it a lot. Thank you so much to everyone who joined the courses, and who keeps asking when the new spots will be available.
We'll be announcing it soon. We're taking it one step at a time. I'll see those who are already in the course on Friday and Saturday, and those who aren't, of course, because Investing from Home will continue to generate content. I'll see you on Sunday at the next one.
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