The stock market is on a tear in 2023, led mostly by the technology sector. But we've just entered the weakest seasonal period of the year for stocks; August and September are the two worst months for the benchmark S&P 500 index, based on data going back more than three decades.
We're only a couple of weeks into August, and the SPDR S&P 500 ETF (SPY -0.62%) is already down more than 2% this month, and the technology-focused Invesco QQQ ETF (QQQ -0.92%) has declined by over 3%. But based on the positioning of Scion Asset Management, which is run by famous investor Michael Burry of The Big Short, the market might be set for an even steeper decline.
The firm just filed its 13F, which details its holdings as of the end of the second quarter (ended June 30). It revealed big bets against the SPY and QQQ ETFs using put options worth a notional $1.6 billion. Here's what it could mean.
Michael Burry is no stranger to making controversial bets
The Big Short film follows the story of Michael Burry and a handful of other investors who made one of the largest contrarian financial bets in history. In the lead-up to 2008, they purchased securities that would increase in value if U.S. homeowners failed to pay their mortgages, based on the idea that the housing market was flooded with fraudulent behavior and unsustainable excess.
Burry made his bet through his hedge fund, Scion Capital. His investors thought the play was reckless, and he endured vicious criticism -- up until it eventually paid off when the housing market crashed in 2008. Burry took home an estimated $100 million, and Scion's investors pocketed a whopping $700 million.
After cashing out in 2008, Burry shut down his hedge fund to focus on other ventures. He decided to operate under a new firm called Scion Asset Management a short time later, which is the vehicle he now uses to make many of his own personal investments. He has used social media actively over the last few years to express his opinions on everything from the economy to the U.S. Federal Reserve's policy decisions -- and he typically makes investments to back up his views.
But the position he just took against the stock market came without any commentary. According to Scion's second-quarter 13F filing with the Securities and Exchange Commission, the firm bought put options against the tech-focused QQQ ETF worth $739 million and put options against the SPY ETF worth $886 million.
Those figures represent the notional value of each position -- options are leveraged securities, so Scion would have paid significantly less than that (the amount wasn't disclosed). Put options express a bearish view of a given market, so if the QQQ and SPY ETFs decline in value, the premium Scion paid for its options will increase in value -- which will deliver a profit for the firm.
Burry also bought a few individual stocks in Q2
It appears The Big Short investor still sees value in some pockets of this market because he was also an active buyer during Q2.
He opened new positions in consumer-focused stocks like Expedia, MGM Resorts, and CVS Health. Burry also made some bets on the energy sector by opening new holdings in NexTier Oilfield Solutionsand Crescent Energy, among others. Those moves suggest he might be expecting oil and gas prices to remain elevated for the rest of 2023.
But Burry did sell down many of his previous holdings, too. He slashed Scion's exposure to China by dumping every share of Alibabaand JD.com, and he also exited several regional bank stocks. The latter move is unsurprising, given the turmoil in that sector earlier this year.
The average investor shouldn't follow Burry's lead
Most investors have built a stock portfolio to help fund their retirement. Burry, on the other hand, is already extremely wealthy, and investing is not only his job, but it's also his hobby. He has enough experience to jump in and out of different securities every few months and make outsized, short-term bets on the direction of the market.
That isn't a realistic strategy for most people. Instead, buying quality stocks and holding them for the long term is a proven way to generate positive returns. Burry could very well be right about the market declining further in the short term, given the historical weakness in August and September, but that should be treated as an opportunity to buy more stocks for the long run.
While it's fun to watch Wall Street's heavy hitters move and shake, it's important for everyday investors to remain focused on their own goals.
Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JD.com. The Motley Fool recommends Alibaba Group and CVS Health. The Motley Fool has a disclosure policy.
FAQs
Burry's success in predicting the stock market crash is largely credited to his unique focus on lenders rather than borrowers. "What you want to watch are the lenders, not the borrowers," he said. "The borrowers will always be willing to take a great deal for themselves.
What happened to Michael Burry in The Big Short? ›
According to his website, Burry liquidated his credit default swap short positions by April 2008 and did not benefit from the bailouts of 2008 and 2009. He subsequently liquidated his company to focus on his personal investments.
How much did Michael Burry make from the crash? ›
Michael Burry is an investor who profited from the subprime mortgage crisis by shorting the 2007 mortgage bond market, making $100 million for himself and $700 million for his investors. Burry shut down his hedge fund, Scion Capital, in 2008.
What did Michael Burry just bet on? ›
Michael Burry shocked Wall Street this week by revealing he placed wagers with a notional value of $1.6 billion against the S&P 500 and Nasdaq-100 last quarter. But one veteran analyst thinks his apparent bet on a stock-market crash is a losing one.
What stock did Michael Burry buy? ›
Michael Burry's Scion Asset Management scooped up shares of Alphabet Inc. GOOGL and Amazon.com Inc.
Where does all the money go when the stock market crash? ›
The most straightforward answer to this question is that it actually disappeared into thin air, due to the decrease in demand for the stock, or, more specifically, the decrease in enough investors' favorable perceptions of it to move the price down by selling.
What is Michael Burry investing in 2024? ›
In this article, we discuss Michael Burry's top stock picks heading into 2024. These include Alibaba Group Holding Limited (NYSE:BABA), JD.com, Inc. (NASDAQ:JD), and HCA Healthcare, Inc. (NYSE:HCA).
What disease did Michael Burry have? ›
Michael lost his left eye to cancer when he was a child, and was diagnosed with Asperger's Syndrome as an adult—which might partly explain why he has always been able to see things from a different vantage point in the world of Wall Street.
How much is Michael Burry worth? ›
Burry's current net worth is estimated to be somewhere near $300 million.
Who made the most money on The Big Short? ›
Michael Burry made $100 million by predicting the housing market crash in The Big Short. Mark Baum, based on Steve Eisman, earned $1 billion from the market crash depicted in the film. Jared Vennett, based on Greg Lippmann, made $47 million from swap sales as shown in the movie.
Born on June 19, 1971, in San Jose, California, victim of a cancer that caused him to lose an eye at the age of two, Michael Burry spent his childhood as a withdrawn child without many social skills.
Who predicted 2008 crash? ›
Michael Burry, the “Big Short” investor who became famous for correctly predicting the epic collapse of the housing market in 2008, has bet more than $1.6 billion on a Wall Street crash.
How much did everyone make in The Big Short? ›
Summary. Michael Burry made $100 million by predicting the housing market crash in The Big Short. Mark Baum, based on Steve Eisman, earned $1 billion from the market crash depicted in the film. Jared Vennett, based on Greg Lippmann, made $47 million from swap sales as shown in the movie.
Who made money from the 2008 crash? ›
Michael Burry rose to fame after he predicted the 2008 U.S. housing crash and managed to net $100 million in personal profits, and another $700 million for his investors with a few lucrative, out-of-consensus bets.
Did Michael Burry short the S&P 500? ›
Michael Burry, who famously shorted subprime mortgages during the 2008 financial crisis, closed his bets against the S&P 500 and the Nasdaq 100 in the third quarter. But he also found another industry to short: semiconductors.
Who correctly predicted the 2008 crash? ›
Michael Burry, the “Big Short” investor who became famous for correctly predicting the epic collapse of the housing market in 2008, has bet more than $1.6 billion on a Wall Street crash.
Did anyone predict the 2008 housing crash? ›
"I think the biggest bubble right now is commercial real estate,” Gary Shilling, an economist best known for correctly forecasting the 2008 housing crash, said on investing podcast The Julia La Roche Show last week.
When did Michael Burry predict the housing market? ›
Investor Michael Burry rose to fame after he predicted the 2008 housing market collapse and actor Christian Bale portrayed him in 2015's "The Big Short." The film, which won acclaim as one of the best movies about Wall Street, highlighted Burry's call to "short" the U.S. housing market, betting against the industry by ...
How does Michael Burry pick stocks? ›
Michael Burry's Investment Philosophy & Strategy
In his words: “All my stock picking is 100% based on the concept of a margin of safety.” Dr. Burry does not differentiate between small-caps, mid-caps, tech stocks, or non-tech stocks. He only looks for their undervalued elements, regardless of their sector and class.
