Michael Burry is probably most famous for shorting subprime loans during the 2007–2009 mortgage crisis.
You might recognize his name from the movie The Big Short. Actor Christian Bale portrayed Burry in the film. (I first wrote about Burry shorting the real estate market right here.)
Here’s the thing…
Most people don’t know that Burry is one of the world’s greatest value investors. His track record while running a public fund is second to none.
In the eight years he ran Scion Capital, he returned nearly 500% to investors. He did that while the S&P returned a grand total of 2.4%… including dividends.
And he didn’t make most of that money by making risky bets like in The Big Short. Instead, he owned cheap companies.
Burry had a knack for finding value investments… even during one of the most expensive markets ever.
Burry founded Scion in November 2000. This was the peak of the tech bubble.
In 2001, the CAPE ratio was 37. That’s more than twice its historic average… and 23% higher than today’s ratio of 30. Still, Burry made 55% that year in value stocks.
[The cyclically adjusted price-to-earnings (CAPE) ratio is a widely used measure of value. The ratio is based on average inflation-adjusted earnings from the previous 10 years.]
And in 2002, the CAPE ratio was 30. That’s about the same as today. Burry still made 16% that year.
High valuations didn’t scare Burry out of investing… and he made a killing. I don’t want high valuations to scare you, either.
As Burry has shown, even when the market is at peak valuation levels, you can still find value. And that’s what I’ve spent the last week concentrating on.
Today, I’ll show you a simple way to find value. But first…
Don’t Be Scared by the Doomsday Headlines
“U.S. stocks are overvalued.”
Experts back up statements like the one above by showing you scary charts like the one below…
They say the market was only this expensive before the Great Depression and the dot-com crash… thus implying another crash is imminent.
These headlines may scare sane investors into jettisoning their whole portfolio and buying gold coins.
But these analysts are wrong. High valuations don’t mean the market will crash.
And if you pick individual stocks, the price of the overall market doesn’t matter. You can still dig deep and find value plays. You just need to know where to look.
That’s why I created the Elite 25.
Profitable, Growing, and Cheap
For those unfamiliar with the Elite 25, it consists of the most profitable and growing companies in the world. These are great companies regardless of market conditions.
To find the Elite 25, we searched all 4,200 securities tradable in the U.S with a market cap greater than $200 million.
Just under 100 companies fit our three criteria for elite companies. Of those 100, the Elite 25 are the cheapest.
(You can read how we select companies for the Elite 25 right here.)
The results have been astounding. Over the past 20 years, the Elite 25 system would have returned over 20% per year.
That would have made over 16 times more than simply holding the S&P 500.
If you want to start your search for value, check out the Elite 25. You can view the entire portfolio right here.
Nick Rokke, CFA
Analyst, The Palm Beach Daily
His northern California neighbors think he’s growing weed or flipping penny stocks… but the truth is, what he’s doing is far more lucrative…