Author Topic: Michael Burry - the passive bubble is deflating  (Read 682 times)

D4NIM4L

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bacchi

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Re: Michael Burry - the passive bubble is deflating
« Reply #1 on: January 23, 2023, 11:09:23 AM »
That's a huge article with a lot of data and opinions. My first impression is, TINA.

Quote from: https://seekingalpha.com/article/4571634-michael-burry-the-passive-bubble-is-deflating
But in practice it does seem easier lobbying as "low-cost" index funds acting in the favor of the "little guy" protecting people from "lousy active hedge funds," acting in their "own interest." Yet, behind the scenes, the money keeps flowing, assets keep growing in the favor of these oligopolies, and the notion of research about passive investing distorting pricing gets swiftly ignored. How come?

OMG! Index funds aren't really low-cost! Maybe we should be investing with hedge funds and full service brokers instead?!? </s>

Burry may have reach broken clock status, too. Let's not trust his every word because he went big on shorting housing. Here's a quote he retweeted from last summer: https://twitter.com/burryarchive/status/1540438778174550017?s=10&t=bLiaWn-62Z5OpdGb2Teuhw

Quote from: burry_retweet
"Q. In 2022, what brings a Christmas in July?" he wrote. "A. A disinflationary overstock consumer recession at Christmas."

That didn't age well.

Most important is what's stated in the conclusion of the evidentiary study of this long, scary, article.

Quote from: https://www.nber.org/system/files/working_papers/w28967/w28967.pdf
We emphasize though that the “inelastic market hypothesis” remains just that: a hypothesis. Our empirical analysis relies on a new empirical methodology and on fairly unexplored data in this context.

In order for this seekingalpha article to be correct, we have to accept both a 1:5 ratio and that markets are inelastic, using "fairly unexplored data."

SilentC

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Re: Michael Burry - the passive bubble is deflating
« Reply #2 on: January 23, 2023, 01:44:43 PM »
I think 2022 tarnished passive but it’s still the best way to bet if you don’t want to actively manage yourself.   The prior 5 years I generated modestly negative alpha/beaten by VT and then I was up last year as an anecdote, so now looking good on 1, 3, 5 and 10 year and a decent amount of mutual funds and hedge funds crushed it last year.  Basically everyone with a value bent did well. 

MustacheAndaHalf

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Re: Michael Burry - the passive bubble is deflating
« Reply #3 on: January 24, 2023, 02:32:16 AM »
@bacchi ridiculed a paragraph halfway into the article - and that ridicule is deserved when calling 0.12% expense ratios "low cost" in quotes.  Vanguard has a Total Stock Market ETF (VTI) costing 0.03% in expense ratio, which simply is low cost.  No quotes needed.

One problem with claiming Michael Burry was wrong about recession: how do you know?  When a recession is known and declared after two quarters of negative GDP (or whatever criteria is used now), the recession started months before.  While I imagine he is wrong about December, we actually don't know yet.  Recessions are always called after the fact, not as they start.

MustacheAndaHalf

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Re: Michael Burry - the passive bubble is deflating
« Reply #4 on: January 24, 2023, 03:09:14 AM »
Very interesting - I plan to read the "inelastic markets hypothesis" research paper at a later time.

The article worries about passive investing becoming too much of the market, which is flawed in my view.  High frequency trading firms are maybe 2% of firms overall [1], but are responsible for half of the market trading volume [2].  Which means a very tiny percent of assets can be used by HFT firms to do price discovery, which ensures prices reflect available information.  Passive investors holding half the market assets doesn't ruin price discovery by HFT firms using a tiny fraction of the remaining assets.

[1]
Quote
In the United States in 2009, high-frequency trading firms represented 2% of the approximately 20,000 firms operating today, but accounted for 73% of all equity orders volume
https://en.wikipedia.org/wiki/High-frequency_trading#Market_share

[2]
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It is estimated that 50 percent of stock trading volume in the U.S. is currently being driven by computer-backed high frequency trading.
https://www.nasdaq.com/glossary/h/high-frequency-trading