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Index bubble michael burry

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Index bubble michael burry

Michael Burry has been predicting an index bubble since 2019. What are your thoughts and if there's enough evidence that we should move our investments out of index funds?
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Jul 27, 2017
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jdu0ng wrote: Michael Burry has been predicting an index bubble since 2019. What are your thoughts and if there's enough evidence that we should move our investments out of index funds?
isnt index investing about 'stay the course, relax & ride it out'

Michael Burry is smart, maybe even makes sense in the "we are screwed', get out of index funds" - OK, I'll buy it Michael, but where or what do we invest in?

anyone have his update on 'getting out of index funds to get into what? .... and dont say "water"

sec filings as of 13 December 2019 for his company Scion Asset Management shows 7 holdings value $60 million as of 30 September 2019 ... would you buy his portfolio?

https://fintel.io/i/scion-asset-management-llc

seems the guy likes to rotate his holdings.

take a look at his past 3 year performance graph, which begs the questions .... is he that good?

.
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May 21, 2019
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Hes been investing in Water stocks... its failed as an investment..
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Jul 27, 2017
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further research on his new positions in the last half of 2019, some of these have done extremely well ..... whaddaya know eh!

https://finance.yahoo.com/news/michael- ... 03896.html


BBBY CNQ, GOOG, GME

maybe & I say maybe, could he be a pump & dump market maker - or could this be his (guru followers) secret as a hedge fund manager?

I'll buy what he buys as long as I know when he enters a position.
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Jul 1, 2007
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Is Burry really that smart, or is he a serial crash predictor who got it right one time?
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
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Thalo wrote: Is Burry really that smart, or is he a serial crash predictor who got it right one time?
Even if you forget about Burry even existed, there's a lot of chatter out there from various other sources basically stating the same thing... it's not like he is going out on a limb all by himself.

One thing is true (regardless if you believe in Burry or not) however that the majority of passive investors who are invested in the US are in an S&P500 based index fund so all of that money is going into the same 500 stocks at the same market weights. And if you think about it, sooner or later, using basic supply and demand principles, all of that extra demand should affect supply which could have moved the market prices of those 500 stocks especially the largest companies in the S&P500 as it's a market weighted index and the supply of those stocks is limited to the number of stocks on the market.
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Apr 25, 2006
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All in downside. sorry mates.

Phase 1 deal baked in. What else can people do besides take profits? There's a bit too much greed amongst investor sentiment.

Phase 2 will take another year.
"If you make a mistake but then change your ways, it is like never having made a mistake at all" - Confucius
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craftsman wrote: Even if you forget about Burry even existed, there's a lot of chatter out there from various other sources basically stating the same thing... it's not like he is going out on a limb all by himself.

One thing is true (regardless if you believe in Burry or not) however that the majority of passive investors who are invested in the US are in an S&P500 based index fund so all of that money is going into the same 500 stocks at the same market weights. And if you think about it, sooner or later, using basic supply and demand principles, all of that extra demand should affect supply which could have moved the market prices of those 500 stocks especially the largest companies in the S&P500 as it's a market weighted index and the supply of those stocks is limited to the number of stocks on the market.
https://awealthofcommonsense.com/2019/0 ... bble-myth/
Active funds literally own the market. When you buy an index fund of the total stock market, you are literally buying the stock market in proportion to the shares held by all active investors. If you sum up the collective holdings of active managers, what you basically get is a market-cap-weighted index. Index fund investors are simply buying what the active investors have laid out for them.

Plus we have to remember that not every cent flowing into index funds is going directly to the S&P 500 or a total market fund. Most of the money is going there but there are also index funds for small caps, mid caps, value, growth, sectors, themes, and everything in-between.

Many of the worries about indexing really boil down to career risk in the asset management space. By taking themselves out of the game and buying index funds, there are now fewer suckers at the poker table for the pros to take advantage of.

Isn’t it a good thing most small investors have decided they can’t compete with the professional active managers who trade with one another?
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So, basically, the article is saying that even though passive funds are buying stocks (ie creating demand) which are in limited supply in the market place, they have no affect on the market itself and the law of supply and demand doesn't apply? Unless those passive funds don't actually hold stocks or any kind of stock related instrument that will rise and fall on the value of the stock, they are creating demand as they will need to buy those instruments on the open market place which will create additional demand in a limited market which will affect the price. Now, if those funds don't actually buy/hold those securities/instruments, then maybe that's a creditable answer.

Also, I do find this statement interesting -
Plus we have to remember that not every cent flowing into index funds is going directly to the S&P 500 or a total market fund. Most of the money is going there but there are also index funds for small caps, mid caps, value, growth, sectors, themes, and everything in-between.
Especially, from past discussions we have had, you have pointed out that investing funds other than the S&P 500 was cherry picking, predicting, active investing and not true passive investing. You can't have it both ways...
Last edited by craftsman on Jan 4th, 2020 2:03 am, edited 1 time in total.
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Nov 25, 2017
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Passive funds just magnifies gains and losses. If everyone in the world activates auto-deposit mode on the same securities, everyone is raking much money just investing in the largest safe large-cap companies because the supply of money is always increasing and liquidity is always being injected by CBs. Concentration builds wealth, diversity [of asset classes] protects wealth. The US market is also one of the largest and highest yielding, unlike China or other countries due to its perceived stability.

Everyone should be going all in on Financial Sector, Tech Sector and/or Defense Sector of the top 10-30 stocks because they will get the largest attention, with moderate volatility and constant funds being injected. However, the converse is also true. The higher the gains, the greater the losses. Just as with every crash or down day, you see the largest drops relative to other slow-moving stocks when fear is cascading through the market; which is why the rate of drop is always faster than the rate of gains (
although this scenario is being rewritten since all gains are being actively protected by elite interests since people discovering that the stock market declining at a rapid rate will cause mass panic, not to mention .. large outflows and undesirable circumstances not withstanding). Liquidity would dry up - reminds me of that one day in early 2018 after the 'nice' year of 2017 of January or so when buying SPY calls every week guaranteed you free $$ same as 2019 today and all security prices were fluctating so fast that VIX rose for the first time ever and I couldn't even get my trade in on my online brokerage. This same scenario would eventually repeat this year or next year; anyhow even if the year is 30% up, if you factor in the decline of the previous year it's only 4-5% up. The portfolio is devastated every time you lose your $$ because it takes a larger % of relative gains vs % drop to lose a portion of your portfolio. Whatever rules you use, 50DMA, EMA or whatever, at the risk of losing 10-30% of profits, you gain 300-500% in long-term gains from 'stopping out' or exiting the market at inversion points where the market drops below a certain threshold and does not cross-over enough for you to 'reinvest' because it's better to miss the 10 best-performing days of the market rather than having your portfolio in the 10-worst performing days of the market.

I can't remember the chart or graph but personally I would just keep 10 or 20% of my portfolio in 'street-name' securities or derivatives and put the rest in real assets this year so as to bank the free $$ you get while keeping the gains on the underlying increasing while you 'wait' for the crash or whatever devastating economic event. Like rolling 3/6-month calls, and re-investing a fraction of those in OTM puts whenever you see sequential negative days while keeping the rest in LMT/VGT or whatever that is most likely to constantly be funded by the government / getting free cash (spur of the tech unicorns) or miners this q1-q2.

Holding your money in any other security without considering the dynamic circumstances of the market is stupid. Canadian markets return almost nothing, world ETFs and similar location or thematic-based ETFs are just as silly as risk is equivalent everywhere; the correlation of all or most asset classes rises when everything is in free-fall, so it's just safer to exit the market than put something in a lower-return fund. Cyclicials, consumer staples and utilities are meh - more like trading tools to reduce the amount of $ you lose rather than something you rebalance your portfolio in. Strong-valued fundamentals / cash-flows / obscure, less publicly known but high-performance stocks year over year or everyone's favorite tech/defensive stock or some combination of derivatives of the underlying is what one should aim for to maximize the gains, or if you're more the zesty type, unicorns or entities that are about to explode in the future due to it being a manufacturing powerhouse/prerequisite in pipeline for some service and then just exit it after it goes up 400-1600%. Anything else is just pure dilution and pointlessness. No mutual funds. No treasury bills. Nothing else.

Looks like the water guy found a niche for investments; it is pretty sound. High margins, low fixed costs, good cash flows, no to little speculation.
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craftsman wrote: Especially, from past discussions we have had, you have pointed out that investing funds other than the S&P 500 was cherry picking, predicting, active investing and not true passive investing.
1. I pointed out that most individual investors are better off buying a well diversified, low cost portfolio of ETFs (which certainly should included the S&P 500, but also other ETFs of course; the author of the article I posted referred to "index funds for small caps, mid caps, value, growth, sectors, themes, and everything in-between."
2. My remarks about cherry picking were with respect to advocates of active investing providing examples of a particular active strategy which had outperformed the market as evidence to support active investing. In doing so, they are reaching in the past to "cherry pick" a strategy and timeframe which supports their position. The problem with this is it ignores strategies/timeframes which underperform the market - this is an example of survivorship bias.
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Is this guy managing a hedge fund? If so, then it's 100% conflict of interest.
Now then, if Warren BUffett comes out and says the Index Fund is a bubble, that would be a different story.
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Yindare wrote: I can't remember the chart or graph but personally I would just keep 10 or 20% of my portfolio in 'street-name' securities or derivatives and put the rest in real assets this year so as to bank the free $$ you get while keeping the gains on the underlying increasing while you 'wait' for the crash or whatever devastating economic event. Like rolling 3/6-month calls, and re-investing a fraction of those in OTM puts whenever you see sequential negative days while keeping the rest in LMT/VGT or whatever that is most likely to constantly be funded by the government / getting free cash (spur of the tech unicorns) or miners this q1-q2.
Just to be clear: are you predicting that a crash/devastating economic event will occur in 2020?
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AssetsKey wrote: Is this guy managing a hedge fund? If so, then it's 100% conflict of interest.
Now then, if Warren BUffett comes out and says the Index Fund is a bubble, that would be a different story.
Exactly.

Burry is on the losing side of the Index vs active battle. I don't know if his hedge fund has done as badly as most others of late, but possibly that's influencing him.

Buffett is a guy that has actually won by making active investment decisions, yet he outright tells people they should buy the index (before even suggesting they should buy BRK.B).
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Thalo wrote: Exactly.

Burry is on the losing side of the Index vs active battle. I don't know if his hedge fund has done as badly as most others of late, but possibly that's influencing him.

Buffett is a guy that has actually won by making active investment decisions, yet he outright tells people they should buy the index (before even suggesting they should buy BRK.B).
Buffett is not willing to take on another bet going from here because the stock market is severely overvalued and he’s never been in this low interest rate environment before. Well he was in this environment before but that was when he was like 5 years old.

I believe here are the reasons why he won’t take on another active vs passive bet:
1) The one I stated above.
2) Don’t want to give another guy the publicity he doesn’t deserve.
3) Good chance that he will lose the bet going from here because Hedge funds can short and index fund cant’s. Since he’s never been in this low interest rate environment before, he don’t know if 10 years is enough to correct everything. See Japan for example.
4) Most likely he won’t be around to see the result.

Buffett is still very discipline with the shareholder money. I mean he could have easily outbid anyone on those deals that he missed recently.
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AssetsKey wrote: 3) Good chance that he will lose the bet going from here because Hedge funds can short and index fund cant’s.
Buffet's bet was over a relatively long period (10 years), and since stocks rise over the long term, I would say that he has a good chance to win a bet on low cost index funds vs. Hedge funds which short.
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craftsman wrote: Even if you forget about Burry even existed, there's a lot of chatter out there from various other sources basically stating the same thing... it's not like he is going out on a limb all by himself.

One thing is true (regardless if you believe in Burry or not) however that the majority of passive investors who are invested in the US are in an S&P500 based index fund so all of that money is going into the same 500 stocks at the same market weights. And if you think about it, sooner or later, using basic supply and demand principles, all of that extra demand should affect supply which could have moved the market prices of those 500 stocks especially the largest companies in the S&P500 as it's a market weighted index and the supply of those stocks is limited to the number of stocks on the market.
Perhaps it's time to add some exposure to Russel 2000? Actually why isn't it Russel 2500? If we assume companies outside the first 3000 to be too small to be publicly traded ( a valid point actually), someone should make an index called "total market ex-S&P 500".

Another argument is that active traders will sell any stocks that are overvalued due to index funds, bringing the stock price back to its "intrinsic" value.

In fact, active fund managers should be cheering the rise of index funds -- the more money is in passive index funds, the fewer active funds there are, and the less efficient the market becomes. A less efficient market makes it easier for active managers to identify undervalued stocks and deliver value for their client. Perhaps active managers, collectively as a whole, would finally beat the index?
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BlueSolstice wrote: Perhaps it's time to add some exposure to Russel 2000? Actually why isn't it Russel 2500? If we assume companies outside the first 3000 to be too small to be publicly traded ( a valid point actually), someone should make an index called "total market ex-S&P 500".
Or you can get an equal weighted index fund (if you like the larger cap names that is) so that the large mega cap companies (like the Apples, GOOGLEs,...) don't make up as much as the portfolio that they do and the smaller cap large cap names will have more of a weight. The Russel 2000 is actually a subindex of the Russel 3000 where the Russel 3000 is the 3000 largest companies trading in the US while the Russel 2000 is the smallest cap companies of the Russel 3000.
BlueSolstice wrote: Another argument is that active traders will sell any stocks that are overvalued due to index funds, bringing the stock price back to its "intrinsic" value.

In fact, active fund managers should be cheering the rise of index funds -- the more money is in passive index funds, the fewer active funds there are, and the less efficient the market becomes. A less efficient market makes it easier for active managers to identify undervalued stocks and deliver value for their client. Perhaps active managers, collectively as a whole, would finally beat the index?
I believe a lot of hedge funds do sell many of the SP500 names but due to the volume of the trading that happens due to SP500 index funds, those short positions don't amount to much without a greater sell-off. It would be easier to just to get out of the way of the large index funds and buy non-large index fund names. However, that would mean that those investors will have to do their own research as many well known analysts/researcher won't report on smaller cap companies.

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