How Michael Burry predicts the market: Lessons for investors.

Michael Burry: The visionary investor who predicts the market

Michael Burry is an enigmatic figure whose financial foresight has earned him a legendary status among investors. Best known for predicting and profiting from the 2008 housing market crash—a feat immortalised in the movie The Big Short—Burry secured a 696% return in a single year for his clients. His uncanny ability to decipher market trends has consistently proven prescient, making his opinions highly sought after in economic and investing circles. Most recently, Burry has turned his focus toward a new, foreboding financial strategy that every investor should heed.

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A proven track record: From 2008 to present

Michael Burry’s investment career is marked by bold, high-stakes bets that consistently defy conventional wisdom. His ability to identify systemic vulnerabilities, act decisively, and capitalise on market inefficiencies has earned him a reputation as one of the most astute investors of our time.

2008 Financial crisis: Betting against subprime mortgages

Michael Burry’s rise to prominence came during one of the most devastating economic events in modern history—the 2008 financial crisis. While most investors remained optimistic about the booming housing market, Burry delved into granular data, uncovering alarming trends in the subprime mortgage sector. He realised that many of these loans were issued to borrowers with poor credit histories, creating a bubble destined to burst.

Burry pioneered the idea of shorting mortgage-backed securities (MBS) by purchasing credit default swaps (CDS) on these assets. This bold move, executed against widespread skepticism, paid off spectacularly. When the housing market collapsed, Burry’s foresight yielded $700 million in profits for his clients and $100 million for himself. This astonishing 696% annual return solidified his position as a visionary investor and was later immortalised in the Oscar-winning film The Big Short.

His success during the crisis demonstrated not only his analytical rigor but also his willingness to go against the tide, a hallmark of his contrarian investment philosophy.

2021: The ARK Investment short

In 2021, Burry once again captured headlines by shorting Cathie Wood’s ARK Innovation ETF (ARKK), a fund heavily focussed on disruptive technology companies. At the time, ARKK had experienced meteoric growth, fuelled by investor enthusiasm for tech stocks like Tesla and Zoom. However, Burry recognised that the lofty valuations of these companies were unsustainable, driven more by speculative fervour than by fundamental earnings growth.

Burry’s strategic bet against ARKK was timed perfectly. As inflation concerns and rising interest rates weighed on growth stocks, ARKK’s value plummeted by over 50%, validating his thesis. This move not only cemented his reputation as a contrarian investor but also highlighted his ability to identify and exploit speculative bubbles in the market.

2023 and beyond: A pivot toward emerging markets

In recent years, Burry has shifted his investment focus dramatically. By 2023, his portfolio revealed a significant divestment from US equities, signaling a growing scepticism about the long-term prospects of the US economy. Instead, Burry began channelling substantial capital into emerging markets, particularly Chinese stocks.

This pivot was driven by his macroeconomic thesis that the US is entering a period of stagnation and decline, echoing the fate of historical empires. Burry sees China as a rising global power, fuelled by initiatives like the Belt and Road Initiative and dominance in key sectors such as manufacturing, AI, and green energy.

By 2024, more than 65% of Burry’s portfolio was concentrated in Chinese companies, including:

Alibaba (25.5%): The e-commerce giant is a leader in AI and logistics innovation.

JD.com (24.8%): Known for its advanced supply chain capabilities and international expansion.

Baidu (15.85%): A pioneer in autonomous driving and AI technology.

This strategic shift underscores Burry’s ability to anticipate global economic trends and position his portfolio accordingly. Despite regulatory and geopolitical risks, Burry’s investments reflect his belief in the undervaluation of Chinese stocks and their potential for outsized returns in the long run.

Burry’s track record, spanning over two decades, highlights his ability to identify opportunities where others see risks. From profiting during the housing market collapse to positioning for a shift in global economic power, his decisions showcase a rare blend of data-driven analysis, historical perspective, and contrarian conviction. This makes his investment strategies not only successful but also highly instructive for those seeking to navigate uncertain markets.

Decoding Michael Burry’s current strategy

Cryptic Clues on X (formerly Twitter)

Burry’s cryptic 2023 tweet, likening the rise of China to the Ottoman Empire’s ascendance over Byzantium, highlights his thesis: the US risks decline, much like historical empires that succumbed to complacency, internal divisions, and external competition.

China’s economic surge

Belt and Road Initiative: This massive infrastructure project mirrors the Ottomans’ control over trade routes, positioning China as a global economic hub.

Technological innovation: Companies like Alibaba and JD.com are leaders in AI, 5G, and green energy, fueling China’s competitive edge.

Manufacturing dominance: The US reliance on China for manufacturing echoes historical patterns of economic outsourcing that weakened empires.

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How and why we can track Michael Burry’s trades

Regulatory transparency requirements

As a hedge fund manager with significant assets under management (AUM), Burry’s firm, Scion Asset Management, must adhere to the Securities and Exchange Commission (SEC) 13F filing requirements. This regulation mandates that institutional investment managers with over $100 million in AUM disclose their equity holdings quarterly.

13F filings: A window into Burry’s mind

Every quarter, Burry’s investment moves are made public through the 13F filings. These documents include:

The stocks he owns.
The number of shares held.
The total value of each position.

While these filings do not reveal short positions, private equity holdings, or non-equity trades, they provide an insightful overview of Burry’s long-term strategies.

Deliberate moves despite publicity

Despite the visibility of his trades, Burry operates with a long-term perspective. His contrarian strategy often involves targeting undervalued assets that may remain out of favour for extended periods, mitigating the impact of others copying his positions.

The risks of following too closely

Although Burry’s trades are publicly available, the delay in disclosure means they might not always reflect his current portfolio. For instance, the quarterly lag could lead to significant changes in his strategy before the public sees his positions.

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Risks and rewards: Why Burry is undeterred

Regulatory concerns

Variable Interest Entity (VIE) structure: While controversial, recent Chinese legislation suggests stability for foreign-listed companies.

US-China tensions: Although fears of delisting persist, Burry sees these concerns as overblown.

Market overreaction

Burry’s contrarian approach thrives on fear. He views undervalued Chinese stocks as “babies thrown out with the bathwater”, a fertile ground for long-term gains.

What can individual investors learn?

Understand global shifts: The US is not immune to the cyclical decline of empires.
Diversify wisely: Emerging markets may offer opportunities amid US stagnation.
Think contrarian: Follow Burry’s example of capitalising on fear-driven market mispricings.
Leverage public data: Utilise tools like SEC filings to analyse and understand top investor strategies without blindly copying them.

Heeding Michael Burry’s warning

Michael Burry’s financial predictions have repeatedly shaped the investment world. His current focus on China’s economic ascent and US vulnerabilities should prompt investors to reassess their strategies. While risks abound, ignoring the insights of one of the greatest financial minds of our time may prove costlier than embracing them. By leveraging publicly available data and understanding the context behind his trades, individual investors can learn to navigate the complexities of global markets with confidence.

Step-by-step guide: Using Robinhood to buy and sell stocks like Michael Burry

If you’re inspired by Michael Burry’s investment strategies and want to start trading stocks, Robinhood is a user-friendly platform that allows you to buy and sell stocks with ease. Here’s how you can get started:

1. Set up your Robinhood account

Step 1: Download the Robinhood app or visit the website

Download the Robinhood app from the App Store (iOS) or Google Play (Android), or visit Robinhood’s website.

Step 2: Create an account

Open the app or website and click on “Sign Up”.

Provide your email address, create a password, and follow the prompts.

Step 3: Verify your identity

Robinhood requires personal information such as your name, date of birth, Social Security Number (SSN), and address to comply with federal regulations.

Upload a photo ID for identity verification.

Step 4: Link a bank account

Connect your bank account to fund your Robinhood account.

Set up a one-time transfer or recurring deposits based on your investment goals.

2. Familiarise yourself with the platform

Step 1: Explore the interface

Navigate through the app to explore tabs like your portfolio, watchlist, and market news.

Step 2: Research stocks

Use the search bar to find stocks you’re interested in.

View detailed information about each stock, including historical performance, earnings, and analyst ratings.

3. Research like Michael Burry

Michael Burry’s success stems from thorough research. Use these tips to analyse stocks before investing:

Understand the market: Study global economic trends and specific industries.

Analyse financials: Check a company’s earnings reports, P/E ratio, and growth potential.

Consider macroeconomic trends: For example, Burry currently invests heavily in Chinese companies, signaling his belief in their economic rise.

Think contrarian: Look for undervalued stocks or sectors others are overlooking.

4. Buy stocks

Step 1: Search for the stock

Tap the search bar and type the company name or stock symbol (e.g., BABA for Alibaba, JD for JD.com).

Step 2: Review stock details

Study the stock’s current price, historical performance, and other key metrics.

Step 3: Place a buy order

Click the “Buy” button.

Enter the amount you want to invest in dollars or the number of shares you wish to purchase.

Select the type of order:

Market order: Buy at the current market price.
Limit order: Specify the maximum price you’re willing to pay.

Review your order and swipe up or click “Submit” to confirm the purchase.

5. Monitor your investments

Step 1: Check your portfolio

Access the “Portfolio” tab to see the performance of your holdings.

Step 2: Stay informed

Use Robinhood’s news feed to stay updated on market trends and developments affecting your investments.

Step 3: Set alerts

Enable notifications for significant price changes in your stocks or watchlist.

6. Sell stocks

Step 1: Select the stock to sell

Go to your portfolio and tap the stock you want to sell.

Step 2: Place a sell order

Tap the “Sell” button.

Enter the amount or number of shares you want to sell.

Choose the type of sell order:

Market order: Sell at the current market price.
Limit order: Specify the minimum price you’re willing to accept.

Confirm the transaction by swiping up or clicking “Submit”.

7. Adopt a Michael Burry mindset

To emulate Michael Burry’s success, maintain a disciplined and analytical approach:

Do your homework: Dive deep into market data and historical trends.

Be patient: Like Burry, look for opportunities that may take time to materialise.

Diversify strategically: Balance risk and reward by diversifying your portfolio.

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Conclusion

Using Robinhood, you can buy and sell stocks with ease, even as a beginner. While you might not match Michael Burry’s expertise overnight, adopting his thorough research methods and contrarian mindset can help you make informed investment decisions. Start small, stay consistent, and let your portfolio grow over time!

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