Another Big Short
The story of The Big Short is always familiar in investors’ heads. Dr. Michael Burry, manager of fund Scion Capital, identified that the housing market was going to crash and shorted it in 2006 in a move that made him seem crazy. The housing market did crash, but not until 2008 due to malpractice, corruption, and fraud in the banking industry and rating agencies. As a part of his housing market short, he would have to pay monthly premiums to the bank, and this ate into Scion’s profit for those 2 long years of waiting. Burry faced backlash during that time, but he came out with some of the greatest profits in stock market history.
We’ve seen many magnificent shorts since then, namely Bill Ackman’s COVID-19 short that resulted in billions of dollars, but nothing matches the story of The Big Short as well as a recent trade from small Hedge Fund Coltrane Asset Management.
As 2020 was ending, Coltrane noticed that US companies, specifically growth stocks, were trading at valuations that seemed insane and unrealistic. As a result, they took a very risky bet and shorted multiple growth stocks that included Carvana, Peloton, and Roblox, letting investors know in a presentation with their investment thesis. As we all know, 2021 was an amazing year for the stock market with indices rising by more than 25 percent, and this was bad news for Coltrane. The fund ended the year down 56 percent, and clients and investors were very unhappy with the firm. Even then, they kept adding to the trade, similar to what Burry was doing in 2007. As 2022 struck, growth stocks started tumbling from sky-high valuations, falling to pandemic lows as investors readjusted their expectations to match the current economic picture. In that time, Coltrane’s value has gone up by a whopping 223 percent this year, outpacing nearly every Hedge Fund while others are gasping for air. Coltrane’s bet against Carvana was one of the most profitable, with the company losing 90 percent of its value during the current bear market. After almost 2 years of waiting, Coltrane came out with one of the most impressive profits in stock market history. Seems familiar? Now, Coltrane is looking to go long on the market, signaling that this might be a good area to buy good businesses at a low price, and it might not be a bad idea to trust them after all.
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
