Michael bu the legendary investor who predicted the 2008 housing crash and invested in GameStop before it was a meme stock has just decreased his stock Holdings from $12 million to $53 million in the third quarter of 2024 according to Bloomberg data in his latest 13f filing bur revealed that he's been offloading some of his largest Holdings one of his biggest sales was his position in banking stocks that he's cut by 90% now bur did make a few new entries but one thing is clear the third quarter of 2024 marks a major turning point in bur's
investment strategy and reveals a big shift in his outlook for the US economy when we look at the largest reductions that Michael bur has made in the third quarter we see that five of these were US Stocks together these made up 37% of his portfolio and he sold about $38 Million worth of them so is Dr bur all of a sudden flipping bearish on the US Stock Market well there's growing talk of a potential recession in the United States with many economists suggesting it is becoming a real possibility unfortunately 13f filings don't mention the reasons
for why a certain transaction was made and Michael bu himself self hasn't specifically mentioned that recession risks were a factor behind his decisions but we can get a clear understanding of his rationale by looking at the sectors of the economy that he reduced the most aggressively this is what his portfolio looked like at the end of the first quarter of 2024 before his big changes he had a big allocation to Consumer discretionary these are stocks that sell non-essential goods and services financials banking stocks energy and Industrial stocks these are all parts of the economy that
are very sensitive to the business cycle consumer discretionary companies need a strong consumer if the economy is getting weaker people don't tend to buy non-essential Goods banking stocks are sensitive to financial stress if the economy is getting weaker that usually means more people in businesses are defaulting on loans which isn't very good for the banking sector energy and Industrial stocks also need a strong economic environment because these are companies that thrive when lots of goods are being produced and transported so given his high allocation to these sectors in the first quarter we can say that
Michael bur was pretty constructive on the US economic Outlook now in the second quarter of 2024 we see that he reduced his allocation to Consumer discretionary by about 30% financials by 90% And he completely cut out his allocation to energy and Industrials instead he started building a position in consumer staple stocks which are notorious to be a defensive sector and less sensitive to the business cycle he kept a good exposure to Communications and technology stocks which are also less sensitive to the business cycle so we notice a clear shift away from the sectors that are
sensitive to the economy towards sectors that are not sensitive we also see that his total stock allocation in the first quarter was about $102 million as of the quarter it stands at $53 million now again bur himself hasn't spoken specifically about this reduction in his portfolio allocation but typically selling half of your portfolio doesn't mean you're getting very optimistic on markets something important to note however is that Michael bur isn't going short on the market today like he was heading into the 2008 financial crisis overall his portfolio remains positioned to the long side today meaning
he is still betting that stocks can move up and most of this long exposure is in China Michael bu went on a buying spree of Chinese tech stocks recently and as of the third quarter of 2024 three of his biggest Holdings are Chinese tech stocks together representing a massive 46% of his portfolio he increased his Alibaba group Holdings by 24% adding 30,000 shares and he also boosted his stake in Buu by 87.5% Buu is a major player in Ai and internet services in China one of the reasons he may be doing this is that Chinese
stocks are much cheaper than US Stocks this chart shows that Chinese stocks are at their lowest price compared to US stocks in over 15 years many people are worried about China's economy because of government crackdowns Global tensions and slower growth but arguably a lot of this pessimism could already be reflected in the cheaper valuations of Chinese stocks clearly Michael bu believes these low prices are a great buying opportunity and probably believes that this pessimism is overdone indeed if China's economy improves or stabilizes valuations could revert back to more reasonable levels which could cause these stocks
to rise sharply making bets that few other investors agree with is a core part of Michael bur's investment strategy this is what you call contrarian investing it's well known that heading into the 2008 financial crisis his short bet on the housing market was not considered to be a very wise investment the risk with this strategy is that these cheap stocks stay cheap or Worse become even cheaper that's what you call Value traps companies that are cheap because they have very weak growth and that end up staying cheap because their growth never picks up companies like
Alibaba and Buu are leaders in e-commerce cloud computing and artificial intelligence areas with strong growth potential the real problem with these stocks is the Chinese economy that is currently experiencing a real estate crisis if the US is any example China could witness a pretty strong recovery like US Stocks did after the 2008 financial crisis but if China follows the footsteps of Japan instead it could be decades before China sees a durable recovery now Michael bu has made one very surprising shift in his portfolio he sold his allocation to Gold up until last quarter about 7%
of his portfolio was invested in the Sprat physical gold trust which provides direct exposure to the price of gold gold is known as a safe haven asset because it tends to keep or even gain value when markets are volatile and economies are shaky selling out of gold suggest that bur may not be as worried about an immediate economic collapse or severe market downturn so what's the big picture here Michael bur has sold off a big chunk of his stock Holdings and is Shifting his money away from expensive US stocks and into undervalued areas especially in
China sectors that he believes are undervalued and offer better returns in the current environment he's not going short on stocks like he was in 2008 and he also sold his gold position which doesn't necessarily reflect he's expecting a major crisis overall we can probably conclude by saying that Michael bu has become cautious but not outright bearish
