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Michael Burry in the news again

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  • Vagabond MD Vagabond MD 
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    Status: Physician
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    Joined: 01/21/2016
    Splash Refinancing Bonus

    Another debunking: https://www.etf.com/sections/index-investor-corner/big-short-whiffs-indexing?utm_source=newsletter&utm_medium=email&utm_campaign=weeklynewsletter

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

    #245302 Reply
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 6186
    Joined: 01/12/2016

    Again I didnt read his thing, but I think the factor blowout we’ve had the last 3 days (long momentum/short value) was basically his message. The difference in growth large and small value was the highest its ever been before just a couple weeks ago, and it appears a massive rotation is underway with rates as well. Basically any terrible business with high beta and poor recent performance is being rotated into (macy’s, tsla, etc…) and others are getting crushed.

    The factor, positioning and liquidity portions of the market and how its interconnected has lead to several blow ups of late (vol, iron condors, etc…etc..). Systematic things get dangerous after everyone has piled in. I wonder if this sort of factor flipping rush was in any of the backtests. It seems pretty obvious in hindsight that if enough people do it and are using similar screens and rebalancing timelines that this would happen.

    #245377 Reply
    Vagabond MD Vagabond MD 
    Participant
    Status: Physician
    Posts: 3477
    Joined: 01/21/2016

    Again I didnt read his thing, but I think the factor blowout we’ve had the last 3 days (long momentum/short value) was basically his message. The difference in growth large and small value was the highest its ever been before just a couple weeks ago, and it appears a massive rotation is underway with rates as well. Basically any terrible business with high beta and poor recent performance is being rotated into (macy’s, tsla, etc…) and others are getting crushed.

    The factor, positioning and liquidity portions of the market and how its interconnected has lead to several blow ups of late (vol, iron condors, etc…etc..). Systematic things get dangerous after everyone has piled in. I wonder if this sort of factor flipping rush was in any of the backtests. It seems pretty obvious in hindsight that if enough people do it and are using similar screens and rebalancing timelines that this would happen.

    Click to expand…

    Yes, I have noticed the same. The deeper the small/value tilt, the greater the outperformance over the last 10 trading days or so. (Index, passive, quant. active, whatever, …). Same goes with international, international small/value, and emerging markets all outperforming TSM/S&P 500/NASDAQ 100 complex.

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

    #245408 Reply
    Liked by Zaphod
    Avatar Dont_know_mind 
    Participant
    Status: Physician
    Posts: 955
    Joined: 11/21/2017

    I’ve nibbled on some resource dependent real estate but I’m waiting for the bottom.
    I read an interesting rebuttal of Burry’s thesis on small cap Japanese:
    “Dr. Burry (and Third Point before him) suggested that corporate governance is the main problem. And maybe it is for specific companies, especially in the small cap space. But it seems like for the broad large cap market as a whole, short term liabilities (red) have increased in line with the increase in cash & cash like assets. (green)

    Chart 7. TPX Index vs. TPX Current Liability and Current Asset [cid:[email protected]]
    Data source: Bloomberg

    In fact, the increase in short term liabilities have been faster than the increase in cash like assets, which has resulted in a decline in the current ratio. Chart 8. TPX vs. TPX Current Ratio
    [cid:[email protected]]
    Data Source: Bloomberg

    This may be one reason Japanese equities haven’t performed as well, despite the fact that they are now only trading at a small premium above book value: (1.1 vs 3.3 for the S&P 500) Chart 9. TPX vs. Book Value Per Share
    [cid:[email protected]66F0.4BE1A180]
    Data Source: Bloomberg
    The point is that for the broader Japanese equity market, the problem is not what it may seem. On balance, it does not seem like Japanese corporations are sitting on significant excess cash relative to their needs, which means that further policy efforts to penalize cash holdings (i.e. via negative rates) will not necessarily spur a push into stock buybacks”.

    Also, another idea I thought was interesting:
    “A final point to consider is that within the context of a balanced portfolio of equities and bonds, if the bond portion becomes less negatively correlated to equities because yields have hit a floor, to keep the portfolio at the same level of risk the manager has to reduce the amount of equities in the portfolio. This is a key point…”

    Bond:stock allocations are predicated on risk parity. It’s inevitable this will get tested at lower rates at some point. The indexing worry could just be a red herring.

    #245490 Reply
    Avatar phibub 
    Participant
    Status: Physician
    Posts: 3
    Joined: 09/02/2019

    Hi. I’m generally follow a passive, asset class diversified, portfolio strategy.  However, I’m intrigued by the Burry Water investment strategy. Anyone here figure out a way to replicate (to the extent possible) his strategy for the individual investor.  Obviously, the options available to a relatively-low net worth individual will be different to what Burry and his investment company can do, but curious.  I found this article:

    https://www.thestreet.com/how-to/invest-in-water-commodities-14812159

     

    ..but i’m not really convinced it captures the essence of his investment strategy.  Any thoughts?

     

    #245569 Reply
    CordMcNally CordMcNally 
    Participant
    Status: Physician
    Posts: 2851
    Joined: 01/03/2017
    ..but i’m not really convinced it captures the essence of his investment strategy. Any thoughts?

    Click to expand…

    I would stick to your passive investment strategy, honestly. If you wanted to put 5% of your portfolio in something like this then I guess that’s fine because everyone deserves a little leeway for some ‘fun money’.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #245589 Reply
    Liked by Vagabond MD
    Avatar phibub 
    Participant
    Status: Physician
    Posts: 3
    Joined: 09/02/2019

    Yeah,  a very small percentage of my portfolio is to play with alternative investments.  I know it’s not the wisest choice, but it’s a way to contain my impulses so it doesn’t have too much of an impact on my overall portfolio.  I tend to think Burry’s concept of water as an investment has merit too.

    #246679 Reply
    Avatar Dont_know_mind 
    Participant
    Status: Physician
    Posts: 955
    Joined: 11/21/2017

    I think Burry said he had sold out of his water investments as they had become too expensive.

    #246854 Reply

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