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Michael Burry in the news again

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  • Avatar enelson 
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    Thought this article interesting. Thoughts on index funds being the next bubble? What other options exist to harness the market while avoiding the downsides of active management?

     

    https://www.cnbc.com/2019/09/04/the-big-shorts-michael-burry-says-he-has-found-the-next-market-bubble.html

    #243598 Reply
    Avatar Peds 
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    i thought it was supposed to be water….

     

    also so what if index funds are a bubble? i will be waiting to capitalize in an instant…..unlike housing which is hard to pick up a few thousand shares at a time….

    #243601 Reply
    Avatar Panscan 
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    Isn’t it in his best interest for the indexes to fail?

    Why are his aum only 340 million? He must be as eccentric as people claim. If he actually got the returns they claim with the whole cdo thing, wouldn’t people be falling over themselves to give him money? Something isn’t adding up. Why would he have less aum now than before? I would expect him to have orders of magnitude more now.

    I also don’t understand the fundamental principal. You can say stocks are overvalued. I’m not sure how you attribute that solely to index funds.

    #243602 Reply
    Avatar HumbleInvestor 
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    @panscan I think he is saying the vast amounts of money going in to index funds are making those fund managers to buy low volume stocks because they are part of the index Increasing their price artificially.

    #243608 Reply
    Zzyzx Zzyzx 
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    the CNBC version is poorly distilled from: https://www.bloomberg.com/news/articles/2019-09-04/michael-burry-explains-why-index-funds-are-like-subprime-cdos

    I couldn’t really comprehend the CNBC version, read the whole thing, his premise is logical but fails if investors don’t en masse exit passive funds and equities in general.

     

    “The dirty secret of passive index funds — whether open-end, closed-end, or ETF — is the distribution of daily dollar value traded among the securities within the indexes they mimic.

    “In the Russell 2000 Index, for instance, the vast majority of stocks are lower volume, lower value-traded stocks. Today I counted 1,049 stocks that traded less than $5 million in value during the day. That is over half, and almost half of those — 456 stocks — traded less than $1 million during the day. Yet through indexation and passive investing, hundreds of billions are linked to stocks like this. The S&P 500 is no different — the index contains the world’s largest stocks, but still, 266 stocks — over half — traded under $150 million today. That sounds like a lot, but trillions of dollars in assets globally are indexed to these stocks. The theater keeps getting more crowded, but the exit door is the same as it always was. All this gets worse as you get into even less liquid equity and bond markets globally.”

    It Won’t End Well

    “This structured asset play is the same story again and again — so easy to sell, such a self-fulfilling prophecy as the technical machinery kicks in. All those money managers market lower fees for indexed, passive products, but they are not fools — they make up for it in scale.”

    “Potentially making it worse will be the impossibility of unwinding the derivatives and naked buy/sell strategies used to help so many of these funds pseudo-match flows and prices each and every day. This fundamental concept is the same one that resulted in the market meltdowns in 2008. However, I just don’t know what the timeline will be. Like most bubbles, the longer it goes on, the worse the crash will be.”

     

    It’s psychosomatic. You need a lobotomy. I’ll get a saw.

    #243609 Reply
    Vagabond MD Vagabond MD 
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    Index funds being a bubble is silly. Maybe active management was the real bubble. What he really probably means is that small value and microcap stocks are under followed and under appreciated in the current market environment. Calling index funds a “bubble” makes it sound sensational and newsworthy. Maybe Burry has not been getting enough attention lately.

    "Wealth is the slave of the wise man and the master of the fool.” -Seneca the Younger

    #243610 Reply
    Liked by Zaphod
    Zzyzx Zzyzx 
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    Index funds being a bubble is silly. Maybe active management was the real bubble. What he really probably means is that small value and microcap stocks are under followed and under appreciated in the current market environment. Calling index funds a “bubble” makes it sound sensational and newsworthy. Maybe Burry has not been getting enough attention lately.

    Click to expand…

    Counterpoint (I’d recommend you read the entirety of his quotes):

    Every brokerage now has a buffet of passive index funds and they need to attract purchasers via demonstrating increasing returns so they utilize proprietary, mysterious indexing algorithms.  Do you really know all the funds in every one of your passive/target date/index funds and understand how their algorithms work?  There are so many of these funds now that he’s seeing price distortion in the markets: “these do not require the security-level analysis that is required for true price discovery.”  I believe he’s implying there are bad players in this system and some players are oblivious to the problems they are generating – which he feels is similar to 2006 CDO’s.

     

    It’s psychosomatic. You need a lobotomy. I’ll get a saw.

    #243618 Reply
    Liked by PhotonsRGR8
    Avatar ajm184 
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    I believe he’s implying there are bad players in this system and some players are oblivious to the problems they are generating – which he feels is similar to 2006 CDO’s.

    Click to expand…

    Sorry this story has been played before.  In the 90’s when prostnoficator’s were bemoaning the fact that there were more mutual funds than stocks.

    I agree there is a lot of stuff that is called an ‘index’ that should not.  At the end of the day, a mutual fund/index that doesn’t attract sufficient assets and/or performs poorly against the benchmark over time will be shut down or ‘combined’.

    As Michael has not identified a trade for the issue he is pointing out, nor a catalyst for the coming ‘reckoning’ for index funds I find it hard to believe the article is substantive, especially for my VTSAX and VTIAX.

    #243636 Reply
    Avatar Antares 
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    Isn’t it in his best interest for the indexes to fail?

    Why are his aum only 340 million? He must be as eccentric as people claim. If he actually got the returns they claim with the whole cdo thing, wouldn’t people be falling over themselves to give him money? Something isn’t adding up. Why would he have less aum now than before? I would expect him to have orders of magnitude more now.

    I also don’t understand the fundamental principal. You can say stocks are overvalued. I’m not sure how you attribute that solely to index funds.

    Click to expand…

    I don’t know his current situation, but as Michael Lewis described it in his book The Big Short, iirc, Burry was so disenchanted with his investor behavior during the 2008 crisis that he said he no longer wanted to manage investor money. Specifically, he had trouble handling angry phone calls, people wanting their money out just as he was implementing the “investment of a lifetime”, and he had to make a new rule that investors objected to, limiting the conditions under which investors could ask for withdrawals.

    None of which has anything to do with the validity or not of his current prediction.

     

    #243645 Reply
    Liked by Tim
    Avatar Panscan 
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    Yet he’s doing it again to the tune of 340 million? Which is it?

    It absolutely has to do with the validity. There are tons of people managing millions who make all kinds of crazy predictions and piss away their clients money. We can’t listen to them all or take them seriously.

    #243656 Reply
    Avatar RollieStrummer 
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    Yet he’s doing it again to the tune of 340 million? Which is it?

    It absolutely has to do with the validity. There are tons of people managing millions who make all kinds of crazy predictions and piss away their clients money. We can’t listen to them all or take them seriously.

    Click to expand…

    I think the bulk of that 340MM AUM is his own money, so not really like a traditional fund.

    He was last in the news recently for taking a big stake in Gamestop.  LOL, wut?  Were there no share of Blockbuster Video available?  He certainly hit a home run with shorting the CDOs, and had a fair amount of success before that, but you are right, I don’t think that means we have to take seriously every prediction he makes.  It’s an interesting perspective, and I do like hearing differing opinions, particularly from contrarians, but I’m not changing anything I do based on what he says.

    #243752 Reply
    Avatar Dont_know_mind 
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    He started as a small cap investor and that is his area from what I recall.

    His points about indexing and Japanese small cap tech are interesting.

    He was a Neurology resident and said he might be on the spectrum from what I recall (but I could be wrong).

    I came across his comments from stock boards from the 2000-2005 and the Scion fund reports to investors when it was active, last year. It was very interesting, I wish I had followed him in real time.

    He was too early on the CDO short he is famous for, from what I could discern and could have easily gone broke.

    I think his point about the illogicality of indexing has basis. But I believe this to be due more due to conviction.

    I think very few people were indexing in scale previously.

    When it boils down to it, long term investing is about justified conviction.

    Bury will be holding because he has researched his small stocks very well.

    I am not sure how well index investors will be able to hold or how researched their conviction is.

    I am not a small cap investor or index investor.

    I don’t have conviction in either. I have researched them and I would not be able to hold them in  a downturn. But everyone is different.

    I do believe in what I currently hold. Hopefully I’m not mistaken !

    #243863 Reply
    Avatar HumbleInvestor 
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    If his reasoning is the index funds should have smaller set of companies in the basket they are creating/tracking then a S&P 100 is better than S&P500 and VTSAX. You loose the gains of some smaller companies before they become big and replace one of the existing companies in that basket. Is that right?

    #243912 Reply
    Avatar rdo 
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    I have made this comment in the past and it is not popular.  There are just so much ETF, passive index funds that have grown so much that it is hard to know how the algos work.  With any platform- fidelity, vanguard, whatever is selling, you produce more of those products.

    I mean, why will market suddenly rise and fall with a tweet?  It’s the same business.   No one is looking at the numbers.  Capitalism is dead.  Active analysts are pundits and just trying to sell their stuff yet passive investors need/dependent on them to make the price correct.

    Everything is working well since money is all inflow past decade.  It will be hard when everyone will sell at the same time.  I reviewed 401ks and 403bs made wall street even richer with just mindless influx of money.    It is automatic input of money to the same set of stocks- S&P, large cap, international.  value stocks- cheap does not mean value stock but algos will label it as value.  So if all of us invest on the same group of stocks, those companies will just get bigger and bigger, more and more overvalued.  I can’t remember, I think Exxon, showed earnings report down by 30%, stock price did not drop.  IT is because it is part of evert index fund available.  If we are not basing price on earnings, then what are we following?

    I also agree that it will based on conviction.  once confidence is gone, many passive indexers will capitulate and will be panic active selling.  It’s just nature. baby boomers will not allow their capital to drop 50%.

    #243937 Reply
    Liked by PhotonsRGR8
    Vagabond MD Vagabond MD 
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    Debunked!

    https://awealthofcommonsense.com/2019/09/debunking-the-silly-passive-is-a-bubble-myth/?utm_source=dlvr.it&utm_medium=facebook

    "Wealth is the slave of the wise man and the master of the fool.” -Seneca the Younger

    #244082 Reply
    Liked by CordMcNally

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