Michael Bury, the hedge fund manager who perfectly timed his bets against the housing markets ahead of the 2008 financial crisis, liquidated his entire portfolio of stocks, and replaced it with a stake in a single prison company, according to SEC stock filings.
It is an interesting strategy, which seems to be viewing the incarceration rate as being artificially suppressed at present, and concluding that is thereby artificially suppressing the fundamentals of the prison company. If we were to enter a period where greater emphasis was placed on law and order, that would increase incarceration rates dramatically, and that would dramatically alter the fundamentals of the prison company. He appears to feel we are heading toward such a time.
According to reports, Bury has invested roughly $3.9 million in GEO Group. This publicly traded corporation operates over 100 mental health facilities and prisons in North America, Australia, South Africa, and the UK.
Although Geo Group’s shares rose 12% on Monday, the biggest one-day rally since June, the stock is down 1.6% overall for the year. However, worth about $852 million, some analysts say Geo’s cash flow is healthy enough, and its balance sheet clean enough for it, “to merit a speculative investment.”
One Seeking Alpha analyst wrote, “GEO Group is arguably a classical example of a cigar butt as defined by Warren Buffett… an approach to investing where you try and find a really kind of pathetic company but it sells so cheap that you think there is one good puff left in it. In other words, a cigar butt is not a good company, but the valuation is so cheap, that a value investor has a good chance to make some money based on the favorable risk/reward skew.”
The portfolio Bury liquidated included Facebook parent Meta Platforms, tech giant Alphabet, insurance company Cigna Corp and pharmaceuticals firm Bristol-Myers Squibb.
In a recent Tweet, Bury noted that he, “can’t shake that silly pre-Enron, pre-9/11, pre-WorldCom feeling,” indicating he feels now is similar to events which set off a 75% drop in the Nasdaq Composite Index. Already the Nasdaq has dropped 20% for the year to date as of Friday’s close.
