Michael Burry: How And When To Participate In Market RalliesThe Acquirer's Multiple
In his 2001 shareholder letter Michael Burry discussed how and when investors should participate in market rallies. Here’s an excerpt from the letter:
The optimal way to participate in a market rally, by definition, is to buy the better-known stocks that either are in the major indices or are comparable to those that make up the indices. However, doing so exposes one to the risk that one is wrong on the direction of the market. To my knowledge, such a hazard has proven notoriously difficult to avoid. In any case, the goal, always, of intelligent investing is not to mimic the market but rather to outmaneuver the market.
This is not to say that I am not a fan of larger, well-run businesses with fantastic economic characteristics and durable competitive advantage. I have a list of about eighty or so stocks that represent businesses with very decent and predictable long-term business characteristics. At the right price, I would like to include any one or more of these stocks in the Fund.
Of course, what I consider the right price seems ridiculously low given where most of these stocks have been priced in recent years. When these stocks come to my prices, then I will consider adding them to the Fund.
But only because they represent absolute value, and not because of any desire to “upgrade the portfolio” into either more palatable or more market-responsive stocks.
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