Michael Burry: Volatility Does Not Determine RiskThe Acquirer's Multiple
In his April 2001 Shareholder Letter, Michael Burry issued a stern warning to his shareholders who may have been upbeat about the fact the Scion Value Fund had beaten the S&P 500 by 33.79%, five months following its inception. Here’s an excerpt from the letter:
During the first quarter of 2001, the Scion Value Fund (“Fund”) appreciated 7.81% after deducting accrued and actual expenses and fees. The S&P 500 Index experienced a net loss of 12.21% during the period. Since its inception, the Fund has appreciated 14.96% net of fees and expenses, while the S&P 500 Index has recorded a loss of 18.82% during the same time period. As a result, since inception five months ago, the Fund has outperformed the S&P 500 by 3,379 basis points, or 33.79 percentage points.
This performance was not without volatility. However, allow me to be quite stern on this subject: volatility does nor determine risk. I guide the Fund to a net long position by investing in a concentrated manner and by frequently taking relatively illiquid positions in undervalued situations.
The goal here is long-term capital appreciation, with the emphasis on long-term. Therefore, while the Fund may yield surprising results over short time frames, this phenomenon neither concerns me when the results seem cause for lament nor lifts me when the results seem cause for celebration. I urge the same reactions in you.
Thus, I will advise that whatever numbers you see before you on your capital account statements, they should not be compounded into the future indefinitely. I fully expect and recommend that members of this investment vehicle judge my performance over a period of five years or greater, not five months or less. This will prove to be the most fruitful and enjoyable manner in which to participate in the Fund.
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