Burry bought Deckers instead of Lululemon, but wants to buy back his favorite stock in a month

Michael Burry, who predicted the global financial crisis and profited from it, sold his shares in Lululemon, a Canadian manufacturer of yoga and sports apparel, and invested in Deckers Outdoor, a footwear manufacturer that owns the Hoka and Ugg brands, he wrote in his Substack blog. In this way, the iconic short seller is booking a loss that can be used to reduce taxable income from the sale of other assets, while not missing out on a potential rebound: according to Burry’s calculations, the factors that could drive Lululemon’s growth in the coming month—while it’s still too early to buy back the shares without losing the tax benefit—should also support the stock price of Deckers, which is similar to Lululemon.

Lululemon is one of six stocks in Burry’s portfolio that, in his assessment, are likely to be sold to realize tax losses. Each of these stocks has recently hit a new low, and the investor predicts that the fall will be a tough time for them. “These are all my favorite positions, which the market is currently treating very harshly,” writes Burry.

The tax calendar forces investors to part ways with their favorite stocks. “The fourth quarter is the season for taking losses to reduce taxes. At this time of year, I try to get ahead of the main wave of selling, which begins in late October and peaks in the first week of December,” he explains. According to Burry, this surge in trading puts additional pressure on stocks that have already fallen sharply in price. This can “open up real opportunities,” but it creates difficulties for their owners.

Instead of Lululemon, Burry bought a similar stock. “I swapped my Lululemon shares for Deckers Outdoor shares—as a substitute—but I like this investment on its own merits,” he notes. The investor’s reasoning is based on the fact that the stocks are “remarkably similar,” although Lululemon is cheaper in some respects. “Whatever forces drive LULU to rebound next month—before I can buy it back and claim the loss on my taxes—will also affect DECK,” Burry reasons.

Seeking Alpha notes that Burry remains confident in Lululemon over the long term. The tax implications of the transaction are described differently by the website and the investor himself. Seeking Alpha calls Burry’s move a “wash sale” and writes that the U.S. Internal Revenue Service will not allow the loss to be used to reduce this year’s taxable income but will instead carry it forward to the value of the new Deckers shares. Burry, however, points out that he would only forfeit this opportunity if he repurchased Lululemon shares before the 30-day period expires.

Under the wash sale rule, the U.S. Internal Revenue Service does not recognize a loss if an investor purchases the same or substantially identical security within 30 days before or after the sale; however, similar assets may be purchased, Barron’s reported. “If you’ve exited a position in General Motors, you can buy shares of another automaker or an index that tracks the automotive sector,” explained Brian Schultz, a tax partner at Plante Moran, in that article.

“[My] plan is to return to LULU after the 30-day wash sale period expires,” writes Burry. However, he admits that he might buy back Lululemon while keeping Deckers. That will depend on how the portfolio is allocated “across industries, sectors, and factors” by that point.

Burry links some of his other trades to his main forecast. “I expect a resurgence of value investing in the spirit of 2000–2003, when the AI boom will give way to a crash, and I expect this to happen sooner than I had previously anticipated,” he writes. According to the investor, this assessment is based on his own research and on rumors reaching him about asset valuations deep within the portfolios of private lending and private equity funds.

Burry converted his investments in Sprouts Farmers Market, a natural foods chain, and Zoetis, a manufacturer of veterinary drugs, from stocks into relatively inexpensive long-term call options expiring in 2028 and 2029. He has not incurred significant losses on these securities, but both have recently hit new lows. The investor chose options that are “far out of the money”—that is, with strike prices well above the current stock prices—to gain greater leverage in the event of a rally.

Among the Hong Kong stocks that, according to Burry, are being sold off again, he bought additional call options expiring in 2029 on shares of the Chinese online retailer JD.com. In addition, the investor has put “a decent amount” into BYD, China’s largest electric vehicle manufacturer. “This is the second time BYD has dipped into this range, and I’ve been patiently waiting for this,” he writes.

The only bearish bet in Burry’s analysis is linked to the same rumors about valuations in private credit funds’ portfolios. “Insurance regulators will likely be the first to dismiss this as nonsense. We’ll see,” he writes. As part of this strategy, the investor purchased additional put options with a strike price well below the current share price of the U.S. insurer MetLife, expiring in 2029.

Burry applied the same strategy he used with Lululemon to the securities of the government-sponsored mortgage giants Fannie Mae and Freddie Mac. He sold his entire stake in Fannie Mae, investing the proceeds in Freddie Mac, and plans to do the same in reverse next month.

Buying shares of Alibaba, the Chinese e-commerce and cloud computing giant, whose stock has plummeted by a quarter this year, Burry is in no hurry: he expects them to become even cheaper after the additional share issuances the company is using to fund the development of its AI infrastructure.

Burry doesn't always sell securities that have fallen in value for tax purposes. Another approach, he says, is simply to buy more of them and not worry about taxes. He usually does this when the paper loss on a position is small.

Burry takes a different view of companies whose stock prices have just hit a new low. “That said, all-time lows always make me pause. Sometimes I buy, knowing that these markets are full of bear traps. But prudence is the better part of valor: you have to be patient and wait until the stocks settle down,” he concludes, paraphrasing Falstaff from Shakespeare’s play.

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This article was AI-translated and verified by a human editor