This summer several clients brought up recent headlines touting hedge fund manager Michael Burry’s latest market prediction and subsequent bet on a U.S. stock market crash. Michael Burry is widely known as a hedge fund manager that gained notoriety by being among the first investment professionals to predict and profit from the subprime mortgage crisis and subsequent market drop that occurred during the Great Recession from 2007 – 2009. His fund, Scion Capital, recorded returns of 489% net of fees and expenses between November 2001 and June 2008. Compare that to the 3% return of the S&P500 during the same period and it is understandable why some people listen to what Burry has to say.
The headlines clients were referring to were regarding recent short positions Burry had taken on the S&P 500. When an investor shorts a stock or market, they are betting that the investment is going to have a significant decline in value. So, if Burry is again predicting a drop in stock prices, just as he did before the bear market of 2007 – 2009, should investors listen? Before selling out of your portfolio, let’s take a look at all of Burry’s predictions since that time.
In December 2015, Burry predicted that the U.S. stock market would crash within the next few months. The S&P 500 was up over 11% over the next year.
In May of 2017, he predicted a global financial meltdown. Again, investors were rewarded for sticking with stocks, as the S&P 500 returned over 19% over the next twelve months.
A couple years later, in September of 2019, Burry was in the headlines again as he thought the stock market was about to crash due to a bubble in index ETFs. The S&P 500’s return over the next twelve months was 15%.
In March of 2020, the market did have a pull back and Burry revealed that he had made a massive bearish bet by shorting the market. This was already after the market had dropped quite a bit as COVID was beginning to take hold. Again, his timing was off, as the S&P 500 quickly rebounded and was up an astonishing 72+% from March 2020 to March 2021.
Again, a year later, in February of 2021, he made a similar prediction as he stated the market was in a speculative bubble. The market was up 16% over the next year.
As many investors remember, 2022 was a difficult year for stocks. About three-quarters of the way through, in September of 2022, Burry went on record talking of continued bank failures and the stock market’s bottom still being a significant way off. Fortunately, for those who hung in, the market was on its way back and has returned about 21% through July of 2023.
Finally, Burry predicted in January 2023 that the U.S. would experience a recession and a new round of inflation this year, thus driving the markets lower. The S&P was up around 17% through July 2023.
The point of all this is not to question Burry’s ability as an investor, but rather to remind us just how difficult it is to predict what is going to happen in the stock market, especially over the short term. Also, investors such as Burry stay relevant and in the news only by making bold predictions. If Burry were to continually say “be diversified and rebalance with a long-term approach”, the media would have stopped caring what he thought long ago, as that doesn’t drive readers to their websites or publications. Of course, doom and gloom predictions are always more eye-catching than positive ones, and if an investor is continually predicting a market crash, at some point they are going to be correct.
As investors it is crucial that we don’t get caught up in the hype around media stories that look for warnings from “experts” like Burry. These short-term plays are as much about grabbing headlines to attract more investors to their funds as they are about making their clients money. While most will quickly forget about the predictions that they got wrong, when they do once again get a prediction correct they will tout that out to the media for months to come in order to bring in more money under their management.
While it may not grab headlines, a well-diversified portfolio that is designed with your cash flow needs and long-term goals in mind is the better approach for most people. Incorporate that with disciplined rebalancing rather than short-term market plays and your portfolio will likely take advantage of the inevitable rise of equities prices AND income generated from the world’s greatest companies.
*Graph and return numbers from
Adam Khoo on X: "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%…https://t.co/fpBj9V2Shq" / X (twitter.com)
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