Although Wall Street doesn’t look good in red, contrarian investor Michael Burry believes otherwise. While braggadocious behavior may be generally frowned upon, Burry — who doesn’t always hit it out of the park — tends to be routinely correct, thus justifying his influence.
To put the crimson tide in numbers, while the benchmark exchange-traded fund SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is up roughly 9% on the year, it’s down 3% in the trailing one-month period. Regarding the high-flying technology sector, the Invesco QQQ Trust Series 1 (NASDAQ:QQQ) has popped over 31% since the January opener. However, in the past month, it slipped 2%.
By themselves, these figures don’t natively suggest a devastating market correction. However, Michael Burry — who came to prominence following his contrarian bet regarding the 2008 subprime mortgage crisis — wagered heavily against the market earlier this year. Per CNBC, at the end of the second quarter, he owned 20,000 put contracts against the SPY ETF via his hedge fund Scion Asset Management.
In addition, he owned 20,000 put contracts against the QQQ ETF. However, the news agency noted that the put options featured unknown value, strike price or expiry. Therefore, the contrarian’s win is theoretical. Still, given the leverage that options provide, they may amplify the “negative” profitability of the aforementioned ETF declines.
Market Correction Makes Michael Burry Great Again
The contrarian investor caught mainstream attention when Michael Lewis’ book, The Big Short, covered Burry’s exploits. As well, the narrative turned into an Oscar-winning movie of the same name. Since then, the hedge fund manager has continued to make a series of bold calls, both on the long side and the short.
Before the term “meme stock” entered the pop-culture lexicon in 2019, Burry wagered on a seemingly irrelevant video game retailer. However, not every one of his moves has been timed correctly. For instance, early this year, the contrarian issued a cryptic social media post with one word: “Sell.” Soon after, Burry admitted that he was wrong to broadcast that post.
However, with the market correction has now reaffirmed his original bearish thesis.
Why It Matters
From the outside, it may be easy to nitpick or criticize individual Michael Burry calls. However, according to TipRanks, Scion Asset Management continues to outperform both the market and other hedge funds. Since Dec. 31, 2015, Scion has returned its stakeholders nearly 194%. In contrast, the S&P 500 index gained under 137%, while the average hedge fund returned only 50%.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
