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Michael Brewery is continuing to sound the alarm on the stock market this time comparing the current environment to the mid-2000 period which was about halfway through the crash of the internet companies and well was right before the 2001 recession and the beginning of a broader market decline by now I'm pretty sure bury has just about compared today's market to every recession since the invention of the toothbrush but hey it's important to listen to what Michael J bury says because in his words don't take what I say seriously oh anyway we're going to be talking about his last five or six tweets because it's content and who am I kidding half my subscriber base are only here for bori videos anyway oh and I'm gonna go ahead and skip this tweet about hormone therapy it's not exactly relevant to what we talk about here on the channel and I enjoy not being canceled so let's try and keep it that way but just before we jump into today's first tweet from Michael burry some of today's research was done in Seeking Alpha which is a great resource for stock and market analysis and news there are tons of very smart people sharing their analysis on companies on there and while I certainly think that you should try and do your own analysis and rate your own independent opinion contrasting your opinion your rationale with other people's analysis is a really great way to test your logic and ultimately make yourself a better investor start your free trial today and then get a whopping 58 off your subscription by signing up at hamishotter.com forward slash Seeking Alpha the link is also in the description below this first tweet we're going to take a look at was posted on October 1st he said this morning there were still 218 primary stock listings in the United States with a market cap of over 1 billion and ebitda of less than negative 100 million 29 of them actually had a market cap of over 10 billion totaling 655 billion saying it again all the silliness must go shortly after this the Twitter page Michael burry stock tracker also shared the list of these companies in case anyone was curious the biggest companies on the list are snowflake Uber Shopify Coupe block and rivian as you can see most of these stocks have done extremely poorly this year and that really shouldn't be surprising because as interest rates rise the businesses will with cash flows that come very far into the future their valuations will get hit the most severely by those interest rate increases how this works is as the Federal Reserve raises interest rates it essentially raises the discount rate in the discounted cash flow formula that most investors institutional and individual use to assess what the value of a business is and how this formula works is as the discount rate goes up the cash flows that come far into the future say five years out which is most of the cash flows or all of them for businesses that are not profitable to date all of the cash flows are going to be at some point in the future those cash flows get discounted the heaviest which means it causes the most dramatic difference in the revaluation of those businesses and through that process those stocks get hit the hardest and even beyond that it's also not really surprising to see speculative uncertain businesses get hit the hardest first when there's turbulence in the market because people want to take money out of businesses where they're not short they want to take money out of risky assets to move them towards safer assets essentially so is Michael burry saying that all of these stocks including Uber and Shopify all of them should be going to zero no he's definitely not saying that I guarantee you he's not saying that even though a lot of people are interpreting it this way on Twitter maybe some of these businesses are worth zero they're actually there's no point at which they will become profitable and therefore they're actually worth zero dollars but for many of these companies they're not currently profitable but they could reach a profitable state if they needed to take Uber for example they spend pretty much all of their revenue on R D and marketing and they're doing this because they're still trying to scale but if they needed to they probably could get to some kind of profitability now would that profitability be far lower than what the current stock price justifies sure it could be the stock could even go to zero or maybe the business is worth the 50 odd billion dollars that it's currently valued at maybe it's even worth more than that the point is that it's highly uncertain given the current state of the business and therefore it doesn't justify a value of 50 billion dollars and that's the message that Berry is saying in his tweet not necessarily that all of these companies will go to zero next tweet the next day he tweeted 13.48 of stocks closed above their 200 Moving Day average bottom in 2009 was 1.2 percent bottom in 2020 was 2.8 currently at December 2007 levels and I'm not really sure what to make of this tweet maybe I don't understand some deeper understanding of what the 200-day moving average can mean and if someone has this Insight feel free to leave it down in in the comment section below but as far as I can tell I can just see a graph that has various dips not just at recessions but at many points over time to me moving averages are more of a correlation with stock price declines rather than a causation of them or some kind of leading indicator suggesting that stock prices will go down in the future how can a figure that just measures the average of stock prices be an indicator of stock prices to me that doesn't really make any sense but maybe I'm misinformed the same day he tweeted another feeling I'm getting is mid late 2000 free cash flow totally on sale and ignored while former momentum stocks are coming down but not enough and darling better businesses still have a way to fall value was about to take off for years despite more crash on the way and there's quite a bit to actually unpack here first of all he's kind of describing three different types of businesses that you could invest in he's got momentum businesses better businesses or quality businesses I guess you could call them as well and then traditional value momentum stocks are speculative businesses with little or no profitability behind them and falls in the same category or is exactly the same as the types of businesses that he was talking about earlier like Uber or Shopify essentially people trade these businesses on momentum that they're going to continue to head in the same direction that they have recently and if you think that sounds like a terrible strategy it's because it is and naturally these were the first and hardest businesses to get hit and this is the exact same as what happened in 2000 and internet companies that kind of formed the the initial bubble in 2000 uh those businesses collapsed first and most significantly before the rest of the market had even first of all before there was even a recession and before the rest of the market had even started declining the S P 500 was still going up while speculative businesses Tech uh internet companies were falling massively then there's a category that bori calls better businesses these are the companies I actually like to invest in the most they have really high quality management teams that are really have a long track record of being effective at investing capital in the business and they're also honest with us they translate uh and and give us all of the information uh transparently about what's happening in the business and companies that have a distinct competitive Advantage some kind of protective layer around them that gives me confidence that even while we're in a turbulent market like right now that on the other side of this customers will come back because customers desire and almost need or do need the unique product that that business cells the thing about these businesses is most of the time everyone can recognize that they're high quality businesses and therefore they're either fairly or overvalued most of the time and you have to look out for Unique opportunities where there's particular short-term bad news all the businesses having some kind of blip where they have poor performance for a couple of quarters or a year Marie believes that these stocks have further to fall and I don't really have any judgment on that comment specifically because I'm not a market timer I don't try and look and see all these this group of stocks have finished falling they're going to go up now I'm much more interested in assessing value but I can give some insight for at least the businesses I've looked at over the past couple of years uh they came from a position of being extremely overvalued in a lot of cases coming out of the pandemic and now a lot of those stocks have come down for good businesses but for many of them they haven't come further enough there's some good opportunities that I'm seeing but mostly broadly speaking I kind of agree that it wouldn't be surprising like say for high quality businesses to continue to see declining stock prices and then lastly he thinks that value is actually about to take off when I talk about value on this channel I'm actually including the purchase of high quality businesses as long as it's done uh at us at a significant discount so you're still getting the business far below intrinsic value what bori is talking about is the traditional definition of value deep value where you're buying businesses based on the cash flows that they produce today buying them at a severe discount to current cash flows or even the current Book value for example personally I don't look at these kinds of businesses very often I'm open to looking at them I'm open to investing in any kind of value investment but uh generally speaking I like to focus on preserving my Capital first and that means that I'm more interested in leaning on the side of investing in great companies that will be sustainable over time I'm sure there's higher potential returns to be made in deep value but I have in my mind this Buffett monger idea of preservation of capital in great companies that are likely to be thriving for many years to come and then this tweet was a follow-up from the previous one he said difference between now and 2000 is the passive investing bubble that inflated steadily over the last decade all theaters are overcrowded and the only way anyone can get out is by trampling each other and still the door is only so big so essentially he's saying that some conditions look the same as 2000 but it's actually worse now it's been exacerbated by this ETF Index Fund bubble I'm not going to talk about that in today's video I have an entire video dedicated to Michael burry's thoughts on the crowded theater and the index fund bubble I'll leave it linked down in the description below and then just yesterday he posted two tweets back to back he said I admit I'm feeling greedy and then as a follow-up he said just remember I was feeling greedy on the long side in 2000 and this is him basically as blatantly as you will get from Michael burry him saying that he's no longer shorting parts of the market or shorting stocks that he is primarily at least going long and it's very likely that he's going long on some deep value companies which is where he tends to invest and it would make sense given the tweets just from a couple of days ago where he said that deep value or value is about to take off and if anything these tweets really just motivate me to keep looking for gems out there because as I said I'm open to investing in many different types of value Investments value investing really is just the idea that you want to have a confident view of what cash a business a stock can deliver to you over time and compare that to the price and if that relationship is extremely good extremely attractive then you invest in that business and generally for me that means I'm looking at high quality businesses where the future cash flows for the next 10 maybe even more years are very very stable and those businesses have the opportunity to take those profits reinvest them and grow profits over time but I'm certainly open to finding businesses that produce a lot of cash flow today maybe 10 years out their future is far more uncertain but the next one two or three years they're going gonna produce a lot of cash flow and have the ability or intention to deliver that to shareholders in some kind of buyback or divot special dividend so these kinds of tweets just motivate me to keep looking out there and and trying to identify these opportunities and ultimately uh every quarter we get to see what Michael burry does invest in at least in the US so uh relatively shortly we'll be able to see what individual companies he's been buying in the latest quarter and if you don't want to miss out on those videos then make sure you're subscribed super easy scroll below the video hit that red subscribe button it's completely free and you'll be notified and updated uh when I post new content with that said hope you guys have a great day see you in the next one
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