Who Is Michael Burry

And Why Should We Care?

The Big Short

I’m sure you’ve seen The Big Short. It centres around Margot Robbie explaining subprime in a bubble bath… oh wait no, that’s just a small scene….

Erm.

It’s really all about the big financial crisis of 07-08 triggered by the housing bubble. Great movie, well worth a watch if you haven’t yet seen it. 

Anyway, one of the main characters is based on Michael Burry.

To cut a long story short, this trader bet big on the housing crash. The trade took a while to play out (the movie covers that nicely) but he held firm and ultimately made a killing when the market finally crumbled.

Possibly the best trade of our time. Because of this, anytime his fund reports a new position, the world of old finance gets a semi-on and starts claiming the end of the world.T

Here’s the Latest…

“Burry bets $1.6 billion on stock market collapse”

Of course, this looks like a juicy headline to your average stock market investor. But we aren’t your average stock market investors are we? Oh no, let’s decipher the truth.

This all stemmed from Burry reporting a bunch of put options in both the SPY and QQQ. The crowd went wild at the notional value of the trades.

“Whooo look at that position, he must think it’s the end of the world!”

In reality, the truth is a bit different:

  1. We don’t know the option strike price, he might be betting on a small pullback or armageddon.
  2. He could have closed those trades by now, those trades were as of June 30th.
  3. The market value is a notional value, not really a true indicator of position size.
  4. He’s been wrong so many times before. (But he can be with his outsized payout when he’s right.)

So what’s the takeaway?

Maybe Michael Burry’s trade will pay off. There are plenty of solid arguments for a sell-off.

But he doesn’t know anything we don’t. (Probably…)

He made the trade of a lifetime before and that does deserve respect, but as for following his market calls… na.

The good news is that If the market does sell off hard, there will be plenty of juicy trading days to play with!

Stay focused on price, nothing else matters. The rest is just entertainment.