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Big Short investor Michael Burry is predicting a stock market crash, driven by artificial intelligence (AI) stocks, and a lot of people are trying to figure out whether or not he’s right. But I’m not one of them.
From my perspective, it doesn’t really matter whether share prices fall sharply or not. History suggests that even if Burry’s right, it isn’t going to matter to my investment plans.
‘Sell’
Burry’s an extremely sophisticated and intelligent investor. He says share prices are high quite a lot, but he’s always got a thoughtful reason why. For that reason, I think he deserves to be taken seriously. People object that he’s not always right (as if anyone is), but he’s right more often than you might think.
In February 2023, Burry issued a one-word tweet saying “Sell”. The S&P 500‘s up around 65% since then (not including dividends) but that doesn’t mean the forecast was incorrect.
The US index did fall almost immediately after Burry’s tweet, meaning anyone who sold (or went short) had the chance to buy (or cover) at a lower price. So the insight was a good one.
Long-term investing
Anyone who sold in February 2023 and didn’t buy back in has missed out in a big way. Burry’s instruction though, was meant to be a short-term insight, not a long-term thesis.
Pointing out that the S&P 500’s now well up from where it was when Burry said to sell is therefore missing the point. But this is also why I’m not worried about his crash forecast.
The stock market often recovers quickly from sharp downturns. And while this doesn’t mean a crash prediction’s wrong, it does mean long-term investors don’t have to worry.
In other words, Burry might be right about an upcoming crash – just as he was right to say ‘Sell’ in 2023. But I suspect that investors who can wait it out don’t need to do anything.
What I’m focusing on
The stock I own that’s most closely involved in AI is probably Amazon (NASDAQ:AMZN). And Burry does have a reason to be concerned with the company that I take very seriously.
Nvidia releasing new chips each year gives AWS – the firm’s cloud computing division – a problem. It either has to spend more and more on new hardware or risk being left behind.
I’ll be keeping a close eye on this, but there might be a way out of the dilemma. Amazon’s own silicon – Trainium – could replace some of its Nvidia purchases and help bring down costs.
This is an important part of my investment thesis. So if AI falls out favour with the stock market, I’ll be looking to see what’s happening on this front to guide my next move.
Getting an edge
Burry’s track record isn’t perfect and this leads some investors to dismiss his concerns without careful consideration. I think they’re playing a very dangerous game.
My approach is the opposite – I’m going to assume he’s right. But history suggests that long-term investors can look past short-term crashes and that’s what I plan to do.
