The Guy From The Big Short Is Investing Big In GameStop

Common wisdom in the video game world is that GameStop is on its way out thanks to the rise of digital distribution, but hedge fund operator Michael Burry, who made an unfathomable amount of money by betting against subprime mortgages, is all in. His fund even owns 3 million shares, or about 3 per cent of the struggling retailer.

Burry, best known as “that guy Christian Bale plays in The Big Short,” told Barron’s that he’s long on GameStop because the retailer’s “balance sheet is actually in very good shape.” He thinks that GameStop is currently at its lowest point, and that the company will bounce back next year when the PlayStation 5 and Xbox Scarlett — both confirmed to use physical media — start showing up in stores.

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“The streaming narrative dovetailing with the cycle is creating a perfect storm where things look terrible,” Burry told Barron’s. “It looks worse than it really is.”

This tidbit of investing advice comes the same week as massive layoffs at GameStop, which has seen its stock plummet over the past four years.

The company announced in January that it had given up on its attempts to sell itself, and its new c-suite has been looking to overhaul its business and salvage the company. As more and more people flock toward digital purchases, it’s hard to see much reason for optimism, but maybe, just like in the mid-2000s, Burry sees something we don’t.


Comments

    There's a lot of coverage out there about this, but nearly all of the commentary is pretty poor, to nonexistent.

    In reality, a large chunk of Burry's position has been held since at least 2018. Since that time GameStop's share price has dropped 75%. Burry may or may not be a financial genius, but to date his head is well under water on this particular punt.

    Sure, as of a couple of days ago he'd decided to hold the stock rather than sell at fire sale prices, but this is almost entirely because GameStop is currently sitting on a lot of cash and he'd prefer that to be cashed out direct to shareholders instead of risking further losses selling into a falling market.

    Any cash distribution to shareholders (in this case he's proposing that happen via a share buyback) is going to necessarily torpedo any potential medium term growth for GameStop due to no money in the kitty for new sites, diversification or buying other companies.

    That much cash on the balance sheet also makes GameStop a less desirable take over target, and this also limits any potential upside on the share price.

    Essentially, he's playing stock market games rather than expressing any particular faith in GameStop as a viable long term stand-alone proposition.

      Maybe he knows that digital distribution is only a small part of gamestop failing and not the single cause, and maybe he has hopes of picking it up cheap and turning it around.

        Maybe. Except Michael Burry only owns 3% of the company (about $11M worth of a $360M company) and is trying to increase the company's share price, which would be a bit silly if he was trying to buy it himself. Also, Michael Burry is a hedge fund manager, he doesn't run a private equity firm and doesn't do corporate takeovers. So, no.

    There’s no doubt that he’s a smart man who made a very good call, but even the smartest investor will make a poor investment, because there is an element of risk in all investments. I think he’s making a mistake.

    If they actually took a good look at the market as a whole, and put themselves somewhere in the competitive ballpark then they could do well.

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