Comment from Tomáš Vranka, XTB analyst. Few people inspire as much passion in the investment world as Michael Burry. If his name is familiar to you, you probably know this investor from the movie The Big Short, where he was portrayed by Christian Bale. Burry is most famous for predicting the great financial crisis of 2008 several years before it happened and betting on the markets to crash, making fabulous profits. It was this story that became the subject of the aforementioned film. And since then, his predictions have been devoured by investors around the world.
However, there have been many jokes about Michael Burry in recent years, as he continues to regularly warn of a coming crisis that will be worse than the one in 2008. Someone once wrote that Burry predicted fifty of the last two major market crashes. Although his latest predictions have not yet come true, this investor is receiving a lot of media attention. Most likely simply because talking about a disaster brings interest.
The last time Michael Burry attracted attention was last week when he the message appeared, that he opened a position for a decline in the US stock market by $1.6 billion. However, this is the total value of the underlying asset and Burry shorted the market using options for a realistically lower amount. According to available information Michael Burry bet on a market decline using 20,000 S&P 500 put options and 20,000 Nasdaq put options. However, the total amount invested in this business is estimated at 26.5 million dollars.
It should be added at this point that according to available data, the performance of Burry’s investments prior to the 2008 crash, i.e. between 2000 and 2006, was very good. In the figure below, you can see how his Scion Value Fund fared against a benchmark similar to the S&P 500. The fund outperformed the index very significantly during this period.
Výkon Scion Value Fund vs. index S&P 500
But the problem is that Burry’s fund doesn’t publish its performance in recent years, so we don’t have exact numbers. We can read something from ongoing purchases or sales, but I didn’t get to concrete numbers. However, at first glance, it appears that Burry makes very significant changes to the fund every quarter and makes a really huge number of trades, which is not so typical in investing.
Most investors tend to make longer-term trades within their portfolios. Many times they will enter a position and later increase it, or in the event of problems or a change in the investment thesis, they will decrease it and gradually sell it. However, Burry makes a large number of trades and often adds brand new positions and just as often sells positions completely.
It’s a slightly more aggressive approach, but fund managers are different, everyone just has a different investment strategy. Warren Buffett is a long-term investor, he can serve as a good example of a different approach. He makes fewer transactions, builds positions and gets rid of them mostly gradually.
You can view an overview of purchases and sales within the Scion Value Fund on the Dataroma website. However, we do not know the actual performance of the fund. Burry also often commented on his view of the market through the social network Twitter/X, where he came up with predictions of disasters and collapses of the entire market. The last time he wrote a post at the beginning of the year was “SELL”.
After his message went viral, Burry decided to delete his Twitter profile instead. After all, he has done so several times in the past, usually after a similar proclamation that attracted a lot of attention. But he always came back and we can also find him now on the X network under the account @michaeljburrywhich has not yet published a single post.
In the column, Burry’s name has been listed as “Cassandra BC” for a long time. This is a reference to Greek mythology and the priestess Cassandra, daughter of the Trojan king Priam, who was a famous fortune teller. However, although every one of her predictions came true, no one ever believed her predictions. The fact that Michael Burry is not a modern-day Kassandra has now stirred up debates again.
Journal editors The Wall Street Journal with they looked on the performance of the S&P 500 over the next six months after Burry issued a given forecast of a decline or comment about problems. The average six-month annualized return of the market was 34 percent after the given forecasts. If you did the exact opposite of what Burry meant between the lines, you’d make a pretty decent profit.
The Wall Street Journal compared Burry’s predictions with subsequent market developments
From the graphic above, we can see that after Burry’s predictions of a crash, the stock markets rose quite strongly. At the same time, more of Burry’s predictions, including the subsequent evolution of the S&P 500 index, were added to the next chart in the attached tweet below, and this is the result.
A look at all of Michael Burry’s recent predictions.
In 2005, Predicted the collapse of the subprime mortgage market
-> Housing market crashes in 2008, Global Financial Crisis.On Dec 2015, he predicted that the stock market would crash within the next few months.
-> SPX +11%… pic.twitter.com/fpBj9V2Shq— Adam Khoo (@adamkhootrader) August 15, 2023
Long story short, Burry has made at least five predictions in the last few years that the market crash will be worse than the one in 2008. So far, we are waiting in vain.
So the latest data shows that Burry’s public predictions are definitely not very successful. The second thing is the real performance of his fund, which may not be bad, but since we don’t have official numbers, we can only speculate about it. At the very least, we can state that Michael Burry’s public statements are controversial and inaccurate.
The advantage of such a long-term setup is that sooner or later some major or minor crisis or at least a correction will come. Smaller corrections come often, once every few years there is a big drop and once every few decades a really big drop. If one talks about the crash long enough, sooner or later one will hit it and can say that one really talked about it.
It is similar to saying that the person who reads will die. Yes, we will all die eventually (probably?), but some may die in a year and some in a hundred years. It is not the art of predicting something, but of predicting something exactly.
Even a broken clock shows the correct time twice a day. However, it is important to note that the headlines in the media are full of rather negative predictions, and so part of the motivation to invoke crises may come from this very reason. Due to the size of his fund, which according to available information should be around 110 billion dollars, Burry is given disproportionate attention.
However, there’s still a chance that the Scion Value Fund is doing well and the doomsday predictions are just hype for Burry’s fund. Either way, he is undoubtedly one of the most interesting people in the investment world today. What do you think of Michael Burry’s book? Mr. Big Short you
2023-08-24 08:32:05
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