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10 Times Michael Burry’s Market Crash, Other Predictions were Wrong

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·9 min read
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In this article, we discuss the 10 times Michael Burry's market crash, other predictions were wrong. If you want to skip our detailed analysis of these predictions, go directly to the 5 Times Michael Burry's Market Crash, other Predictions were Wrong.

Michael Burry, the investor who predicted the stock market crash of 2008 and made billions by betting against subprime mortgages during the financial meltdown, has become somewhat of a legend in the finance world. He runs the California-based hedge fund Scion Asset Management with over $1.3 billion in assets under management. Over the past few years, as the market goes on a bull run, buoyed by incredible numbers posted by technology firms, Burry has repeatedly warned investors of another looming financial crisis.

Burry, with a personal net worth of over $300 million, is one of the most successful money managers in the world. However, it seems like his obsession with market crashes has led him down a rabbit hole from which he cannot emerge. In the past few years, he has made multiple predictions around market crashes, cryptocurrencies, retail investors, and meme stocks that have all proved to be false, damaging his credibility irreparably. Perhaps disappointed at his recent record, Burry has even deactivated his Twitter account.

The investor deactivated his account after he faced criticism over his bleak outlook on the economy from internet users. Burry still engages with the mainstream media, mostly through email interviews, though the audience that accepts his worldview has thinned in recent months. Some of the top stocks in his portfolio, discussed in detail here and here, include Alphabet Inc. (NASDAQ: GOOG), Facebook, Inc. (NASDAQ: FB), and The Kraft Heinz Company (NASDAQ: KHC), among others.

Burry is one of the few investors who have been immortalized through Hollywood. He was the subject of the film The Big Short that captured his 2008 crisis prediction and the money he made through it. In the decade since the crisis, the market dynamics have changed remarkably, with technology stocks dominating the S&P 500 and investors like Burry, who avoid unnecessary risk and like to make profits by betting on value plays, have pushed to the periphery as retail investors take center stage in the finance world.

The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

10 Times Michael Burry's Market Crash, Other Predictions were Wrong
10 Times Michael Burry's Market Crash, Other Predictions were Wrong

Michael Burry of Scion Asset Management

With this context in mind, here is our list of the 10 times Michael Burry's market crash predictions were wrong. These were ranked keeping in mind the timing of the prediction, the nature of the crash predicted, and the market dynamics following the prediction. Burry has deleted some of the predictions from his Twitter handle since he made them, but they are still a part of public record through news platforms that covered them when they were made.

Times Michael Burry's Market Crash, Other Predictions were Wrong

10. Index Funds are Like Subprime CDOs

Source: Bloomberg Interview, September 2019

Burry told news publication Bloomberg through an email interview in September 2019 that index fund inflows were distorting prices for stocks and bonds in much the same way that CDO purchases did for subprime mortgages more than a decade ago. The investor, who had made billions by betting against CDOs during the financial crisis of 2008, said it would be ugly when the flows reversed. However, index funds have continued to generate record returns over the past two years, proving Burry wrong.

One of the top holdings in the Burry portfolio is SunCoke Energy, Inc. (NYSE: SXC), the Illinois-based raw material processing company. At the end of March, Burry owned more than 1.1 million shares in SunCoke Energy, Inc. (NYSE: SXC) worth more than $7.7 million.

At the end of the first quarter of 2021, 22 hedge funds in the database of Insider Monkey held stakes worth $86 million in SunCoke Energy, Inc. (NYSE: SXC), up from 19 in the preceding quarter worth $65 million.

Just like Alphabet Inc. (NASDAQ: GOOG), Facebook, Inc. (NASDAQ: FB), and The Kraft Heinz Company (NASDAQ: KHC), SunCoke Energy, Inc. (NYSE: SXC) is a top holding in the Scion portfolio.

9. Issue 25-50% Tesla Shares at Current Ridiculous Price

Source: Twitter, December 2020

While Tesla, Inc. (NASDAQ: TSLA) was on a record rally at the turn of the year, Burry put a damper in the hopes of those who wished to see the stock climb even higher. He took to social networking platform Twitter to say that was shorting the stock and that the electric vehicle maker was ridiculously priced, advising Musk to issue shares to finance debt. However, Tesla, Inc. (NASDAQ: TSLA) continued to rally despite the bearish Burry prediction, jumping from a 526% rally at the time to over 700% in the coming months, before taking a breather in April.

The stock has recorded a slump in recent weeks amid a massive sell-off in electric vehicle stocks. However, the basic business of the firm continues to deliver. In June, the firm posted vehicle delivery numbers for the second quarter, reporting 201,250 deliveries over the period, just below market estimates of around 230,000 deliveries but topping the key 200,000 milestone.

A premier holding of the investor is NOW Inc. (NYSE: DNOW), the oil drilling firm headquartered in Texas. At the end of the first quarter of 2021, Burry owned 700,000 shares in NOW Inc. (NYSE: DNOW) that were worth $7 million.

Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Renaissance Technologies is a leading shareholder in NOW Inc. (NYSE: DNOW) with 5.7 million shares worth more than $58 million.

Alongside Alphabet Inc. (NASDAQ: GOOG), Facebook, Inc. (NASDAQ: FB), and The Kraft Heinz Company (NASDAQ: KHC), NOW Inc. (NYSE: DNOW) is a top holding in the Scion portfolio.

8.Tesla, Inc. (NASDAQ: TSLA) Rally Similar to Past Internet, Housing Bubbles

Source: Twitter, January 2021

After his initial prediction on Tesla, Inc. (NASDAQ: TSLA) failed to materialize, Burry tried again in January 2021, again using Twitter to tell his followers that the stock would fall like the housing and internet bubbles of the past. He also took the opportunity to take a swipe at Tesla, Inc. (NASDAQ: TSLA) bulls, telling them to enjoy the bubble while it lasted. This was the second time Burry faced humiliation on his Tesla, Inc. (NASDAQ: TSLA) prediction, as the automaker continued to rally and made owner Musk the richest man in the world in the coming days.

On July 13, investment advisory Goldman Sachs maintained a Buy rating on the stock with a $860 price target.

Burry is shorting Tesla and buying Zymeworks Inc. (NYSE: ZYME), the Canadian biotechnology firm. At the end of March, Burry owned 281,018 shares in Zymeworks Inc. (NYSE: ZYME) that were worth around $8.8 million.

At the end of the first quarter of 2021, 27 hedge funds in the database of Insider Monkey held stakes worth $473 million in Zymeworks Inc. (NYSE: ZYME), down from 28 in the preceding quarter worth $688 million.

Zymeworks Inc. (NYSE: ZYME) is a top holding in the Scion portfolio, just like Alphabet Inc. (NASDAQ: GOOG), Facebook, Inc. (NASDAQ: FB), and The Kraft Heinz Company (NASDAQ: KHC).

7. Speculation, Betting Have Driven Market to Brink of Collapse

Source: Twitter, February 2021

After failed predictions on Tesla, Inc. (NASDAQ: TSLA), Burry used Twitter again in February 2021 to warn his followers that he feared that the market was on the brink of collapse, saying that passive investing, the spike in the trade of bull options, and speculative stock bubbles had taken the market to a knife’s edge, highlighting soaring debt to drive his point home. However, this prediction did not come true as well, as over the next few months, the market continued on a post-pandemic bull run without anything resembling a crash.

Meanwhile, Burry is bullish on Ingles Markets, Incorporated (NASDAQ: IMKTA), the regional supermarket chain based in North Carolina. At the end of the first quarter of 2021, Burry owned 150,000 shares in Ingles Markets, Incorporated (NASDAQ: IMKTA) worth $9.2 million.

Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm GAMCO Investors is a leading shareholder in Ingles Markets, Incorporated (NASDAQ: IMKTA) with 851,802 shares worth more than $52 million.

The top spots in the Scion portfolio are occupied by firms like Alphabet Inc. (NASDAQ: GOOG), Facebook, Inc. (NASDAQ: FB), and The Kraft Heinz Company (NASDAQ: KHC), as well as Ingles Markets, Incorporated (NASDAQ: IMKTA).

6. Bitcoin Is a Speculative Bubble, Poses Risk

Source: Twitter, March 2021

Piling onto his failures, Burry next took aim at Bitcoin, the most popular cryptocurrency in the world, the next month. In March, he tweeted that Bitcoin was a speculative bubble that posed more risk than opportunity despite most of the proponents being correct in their arguments for why it was relevant at this point in history. He also said the current price of the coin was unsustainable. This prediction did not come true as well, as the coin rallied to a record high of around $64,000 in the coming weeks, before taking a breather towards the end of April.

One of the top holdings in the Burry portfolio is CoreCivic, Inc. (NYSE: CXW), the Nashville-based firm that owns and operates private prisons. At the end of March, Burry owned more than 1.1 million shares in CoreCivic, Inc. (NYSE: CXW) worth $9.9 million.

At the end of the first quarter of 2021, 18 hedge funds in the database of Insider Monkey held stakes worth $95 million in CoreCivic, Inc. (NYSE: CXW), the same as in the previous quarter worth $67 million.

CoreCivic, Inc. (NYSE: CXW) appears alongside giants like Alphabet Inc. (NASDAQ: GOOG), Facebook, Inc. (NASDAQ: FB), and The Kraft Heinz Company (NASDAQ: KHC) on the Scion portfolio.

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Disclose. None. 10 Times Michael Burry's Market Crash, other Predictions were Wrong is originally published on Insider Monkey.