Warren Buffett is so influential that his words can move markets, a rare phenomenon known as the “Buffett effect.”
Now that Michael Burry is sharing what he’s buying and selling in almost real time, a “Burry effect” might exist, too. If enough people are copying his trades, that could be shifting stock prices.
Burry doesn’t think that’s a thing. “I do not believe there is a Burry effect,” he told Business Insider by email.
But the investor of “The Big Short” fame, who has pivoted from running a hedge fund to writing almost daily about his personal investments on Substack, might be selling himself short.
He ranks second in Substack’s “Bestsellers in Finance,” and has nearly 2 million followers on X. That’s more than Buffett, although the billionaire investor and Berkshire Hathaway chairman hasn’t posted in the past decade.
The “Burry effect” may have been on display this week. Burry said in a Substack post on Thursday that he’d shorted Micron the previous day. That followed the revelation in a Tuesday post that he’d placed fresh bets against Nvidia, Applied Materials, Caterpillar, Tesla, and the iShares Semiconductor ETF (SOXX) — which tracks an index containing Nvidia, Applied Materials, Micron, and other microchip stocks.
Burry, who shot to fame after his contrarian bet against the mid-2000s housing bubble was featured in the book and movie “The Big Short,” described the SOXX as a “pure form of overvaluation” in his earlier post.
He also said that news of Samsung and SK Hynix’s hefty spending plans, which had sent chip-equipment stocks higher on Tuesday, marked the “beginning of the end” for the boom.
Samsung shares tumbled 14% over the course of Wednesday and Thursday trading in South Korea, while SK Hynix tanked 17%.
The SOXX slumped 12% over those two days as well, as Applied Materials plunged 17%, Micron dropped 15%, and Nvidia retreated nearly 3%.
Caterpillar also dropped 11% in two days, while Tesla fell 6% despite Elon Musk’s automaker reporting a surge in second-quarter vehicle deliveries on Thursday.
Mirror image
Markets are complex machines with myriad factors at play. But when arguably the most famous investor to call the housing crash declares he’s shorting a slew of stocks, it’s possible others followed his lead.
“There’s certainly a case for what could be called a short-lived ‘Burry Effect,'” Susannah Streeter, Wealth Club’s chief investment strategist, told Business Insider.
“Investors know he has a track record of identifying excesses, even if his timing has often proved early,” Streeter continued. “So, when he takes aim at parts of the market enjoying lofty valuations, it can trigger sell moves to lock in gains, which appears to have happened this week to some extent.”
Streeter also pointed to Burry’s past bearish calls on tech stocks such as Tesla, which “hit the headlines and sparked bouts of volatility.” But she noted that when Burry makes waves, they tend to be temporary and swiftly superseded by “bigger drivers” such as interest rates, earnings, and the economic outlook.
“It’s almost the mirror image of the Buffett effect,” Streeter said.
“Buffett’s investments inspire confidence and attract buyers, while Burry’s bearish disclosures can encourage investors to take profits and reduce risk. However, Burry’s comments have tended to amplify existing nerves rather than create them.”
Neil Wilson, Saxo UK’s investor strategist, told Business Insider that Burry shorting Caterpillar was an unexpected move and “certainly would have had an impact,” perhaps amplifying investors’ concerns that the stock was overvalued.
Burry’s warnings may be “part of the patchwork of narratives that is building up against the durability of some of these earnings stories,” Wilson said about high-flying growth stocks.
One example might be Palantir, which Burry revealed he was betting against in November, prompting a sharp rebuke from CEO Alex Karp. Burry said in May that he’d “opened an outright short” against the stock, a position he cut in half last week, per a June 25 post.
Burry “took a lot of heat” for targeting Palantir, Russ Mould, AJ Bell’s investment director, told Business Insider. But shares of the specialist in AI and data analytics software have now plunged almost 40% from their November high.
None of Burry’s stated short targets immediately responded to requests for comment from Business Insider.
Mould said that Burry’s short bets signal he’s expecting investments in AI to slow as returns disappoint, resulting in surplus inventory and spare capacity, “to the detriment of suppliers of everything from servers, to silicon chips, to cooling systems to earthmovers.”
Burry’s history “suggests he is not frightened of being early and toughing it out, but hot money and passive fund flows may well look to put him to the test,” Mould added.
It’s anyone’s guess whether Burry will be proven right, but if his bets do pay off, the “Burry effect” will only grow stronger.
Read the full article here
