The Passive Investment Bubble: The Big Short’s Michael Burry and his perspective on ETFs.

Michael Burry correctly predicted the collapse of the real estate bubble in 2007. Utilizing a traditional understanding of value investing, Burry’s research led him to the conclusion that collateralized debt obligations inflated subprime mortgages and that the bubble was bound to burst. Despite the revolting investors, Burry was able to stick to his research and made a personal gain of $100 million in profit and $700 million for his remaining investors.

Burry recently offered his take on the passive investment markets, specifically exchange-traded funds. Burry claimed that the soar of ETFs has created a bubble and that when the gigantic inflows into passive vehicles reverse, it isn’t going to be pretty.

Burry compared the bubble to the one he capitalized on in the aughts. Burry’s concern is that the price-setting in that market was done by massive capital outflows based on Nobel-approved models of risk that proved to be untrue and not by fundamental security-level analysis.

Passive investments currently make up almost half of the stock market. If Burry is a true harbinger of things to come, then the markets could be in for a turbulent ride. “The theatre keeps getting more crowded, but the exit door is the same as it always was. All this gets worse as you get into even less liquid equity and bond markets globally,” Burry said.

At the Ramberran Wealth Group, we heavily value research and information from successful and reliable sources. Are you prepared if the next bubble is about to burst? Contact us to ensure that your future can stay secure, no matter the case.

Sources:
https://www.bloomberg.com/news/articles/2019-09-04/michael-burry-explains-why-index-funds-are-like-subprime-cdos
https://www.nytimes.com/2007/03/09/business/09insider.html