Flashback 1999: Michael Burry on Apple

Updated on

Michael Burry become an instant celebrity after Michael Lewis released his best-selling book, The Big Short: Inside the Doomsday Machine, in 2010. Lewis described how Michael Burry produced phenomenal returns in the equity markets in the early 2000s. However Burry began to see the subprime bubble forming and started to devote all his attention to it. Burry bought CDSs on bad loans, which he made a fortune off of.

Burry originally a doctor, started getting into stocks and value investing in 1996 when  the dot-com bubble was starting to take off. He started to talk about stocks and value investing. As described in Lewis’ book below:

Late one night in November 1996, while on a cardiology rotation at Saint Thomas Hospital, in Nashville, Tennessee, he logged on to a hospital computer and went to a message board called techstocks.com. There he created a thread called “value investing.” Having read everything there was to read about investing, he decided to learn a bit more about “investing in the real world.” A mania for Internet stocks gripped the market. A site for the Silicon Valley investor, circa 1996, was not a natural home for a sober-minded value investor. Still, many came, all with opinions. A few people grumbled about the very idea of a doctor having anything useful to say about investments, but over time he came to dominate the discussion. Dr. Mike Burry—as he always signed himself—sensed that other people on the thread were taking his advice and making money with it.


Thanks to my friend Alex, who runs Alex Bossert.blogspot.com/, and is a hedge fund analyst already at 19!
I will quote some interesting ones (there are thousands of them) below:

On Apple (from 1999) when market cap was 9.29b (today $350b) :

To: Fredman who wrote (1322) 4/27/1999 7:00:00 PM
From: Michael Burry Read Replies (2)  of 4127
Oils? Boy did I ever. I loaded up on RIG, TDW, NE a few months back. And won big doing it. But those aren’t Buffett-like stocks. In fact, I recently got out on the 60% spurt by crude oil. Probably more appropriate for the Value Investing thread. And then only when NE falls to 12 again, Tidewater below 20 again, RIG below 21.

Re: APPLE, boy, everyone is living in the past on this one. Management is now great. The product is now very good, but even more importantly the marketing is now great. The “win rate” for new PC buyers here and especially Japan has gone through the roof. And there’s a future dividend that comes with that. It wasn’t $15 just a few months ago. In fact, now it has $15 in cash generated primarily from operations. It’s been bouncing between the mid 40’s and low 30’s for many months, and is now right where it’s been since 1988 (for a reason – every time it gets to this level people sell),except for the dip to the teens when everyone misjudged the power of the brand. This successful emergence from trial by fire is new information about the durability of the brand, and successful investors it seems to me should be able to absorb it quickly rather than belatedly. .


o: LauA who wrote (1324) 4/27/1999 8:11:00 PM
From: Michael Burry  of 4127
Just FYI, Apple’s already sold the ones on the shelf and in storage at Fry’s. But there’s not that many in storage. And APPLE has been able to mandate that resellers buy all colors equally. That’s the reason for the Best Buy balk. The net of it is that APPLE gets paid prior to delivery, and that the inventory isn’t sitting. It gets all this because the iMac has been so popular. As far as R&D, well, I don’t subscribe to the “R&D as a portion of revenues” is a good indicator for anything unless it’s absent or nearly non-existent. It just ignores quality. It’s why I think that the “growth flow” of Michael Murphy is ridiculous, and I think why his success with it is spotty.

As far as less than 3.5%, it is pretty amazing, but there’s a lot of APPLE diehards out there who have been using Windows becauseAPPLE fell behind the curve. The new products are if anything ahead of it. And I’m sure we all know some people who are switching.


To: James Clarke who wrote (1317) 4/27/1999 3:43:00 PM
From: Michael Burry Read Replies (1)  of 4127
I could study APPLE for the next three years and not
understand the business – soup and chocolate I’ve got a shot at understanding
Just remember if it was really that easy everyone would be rich.
To me the slow-growth vs no-growth food companies are attractive as
businesses but not as investments at current prices. We know they’ll be around. But on the price issue do they really qualify? A business that doesn’t grow in real terms isn’t worth 20X or even 15X earnings even if it is around forever. 24 X earnings for no/ultraslow growth? CPB at 20 would be very attractive. Not at 40.And really, what’s so hard to understand about Apple? Once you get
over the technology bias, not all tech companies are hard to understand, and probably a lot easier than your garden-variety food company with brands here, there, and everywhere. It’s shown its resilience over a couple decades.Mike
To: LauA who wrote (1700) 7/22/1999 1:52:00 PM
From: Michael Burry  of 4127
What tells me APPLE is a Buffett stock can be summed up in recent events.

Analysts expect the new iBook to retail for 1299. APPLE jumps the price 30% to 1699 and gets some criticism for the price at the same time analysts are saying “they’ll sell as many as they can make.”
If this isn’t market power, I don’t know what is. To look at all box makers, lump them in one group, and say APPLE has only this much percent is the wrong way to look at it (even so, the share is growing, not declining). To say that corporate IS isn’t going to rally behindAPPLE is also missing the point. This is a consumer franchise, not a corporate one. And I think Buffett’s point has always been that in the long run it is the consumer franchises that last. There is not another box-maker out there that could pull off what APPLE is doing. No, not even Dell, jhg. That software makers (including Microsoft) are once again pouring resources into APPLE development at breakneck pace is another clue as to the longevity here.

Plus, you have all of Wall Street trained to think that APPLE is the antithesis of good business thanks to case studies from the 80s. How can you go wrong? ;)


Ill be posting more over the next few days, but if you want to check it out


Ill be posting more over the next few days, but if you want to check it out here is the link-techstocks.com “Value Investing” thread

Leave a Comment