Even as the coronavirus pandemic hits the market and causes many stocks to plunge, the ‘big short’ investor, Michael Burry is not disturbed by the turn of events in the stock market.
“I have had a significant bearing market bet that is working out for now,” he says. Burry became popular after making a fortune from betting against mortgage securities during the 2008 financial crisis which was triggered by the subprime mortgage crisis. Though he is yet to offer details about his bet, he insists that it was a good size wager against the stock market indexes.
In addition to his flourishing bearish position, Burry has taken up an interest in stocks of smaller public companies whose shares are plummeting with the current market situation—a strategy that has been long used by the “Oracle of Omaha,” Warren Buffet, a big-time investor.
In his opinion, the coronavirus outbreak has changed the calculus for investors as its effects continue to rampage the markets. Global supply chains have been put on hold, as well as major business operations have been either put on hold temporarily. Consumer demands have also been affected and the whole global economy is threatened with a recession. The uncertainty surrounding the pandemic further creates panic in the economy as many investors may soon result in panic selling.
Regarding the coronavirus and its effects on the economy, Burry says “No one knows how long it will last, and so people have a valid reason to sell” and it would only be a matter of time before shareholders exhaust their patience even with the Feds economic stimulation. Investors are therefore uncertain about two things: how soon the economy would stabilize and central bank’s ability to prevent a sell-off by “applying the brakes.”
“Despite the viciousness of the sell-off, there has not been enough time for the buy-the-dip mentality to truly go away… but the fear in the markets is being paralleled by the growing fear of the virus, and the twofer is toxic to the market sentiment,” he said concerning possible panic selling and the market.
In addition to the effects of the pandemic on the markets, Burry believes that the stock market could exit passive investments—investments such as index funds and exchange-traded funds. According to his belief, there had been too much money in passive investing and most of the focus was on bigger companies, neglecting smaller companies. In his words, “a global pandemic is absolutely a potential trigger for the unwinding of the passive investing bubble.”
“With Covid-19, the hysteria appears to be worse than the reality, but after the stampede. It won’t matter whether what started it justified it,” he said.
Burry has made up his mind to remain with his long-term investments even as the market continues to tumble rather than sell-off. He is still placing his bet on the market as he believes that the economy is due for a change and investors who weather the storm a little while would benefit from it.
“The virus is a temporary problem… I am still 100 percent focused on stock-picking, and there are lots more opportunities today,” he said.