Investor Michael Burry recently shut down his fund, Scion Asset Management, and launched a newsletter on Substack, citing concerns about the current state of the stock market. He believes that the rise of passive investing could lead to a prolonged downturn, as over half of the money invested in the market is now passively managed.
In an interview with Michael Lewis, Burry expressed his concerns about the lack of actively managed funds and the shift from more active to passive investing. Historically, when markets go down, it’s not just one or two stocks that are affected but rather the entire market. However, with passive investing on the rise, this dynamic may change.
Burry also raised concerns about artificial intelligence, comparing it to the dot-com bubble of 2000, and expressed skepticism over accounting practices used by AI companies. He believes that these factors could contribute to a potential downturn in the market.
For retail investors concerned about the rise of passive investing, Burry suggests taking certain steps. One option is to shift funds to more conservative investment strategies, such as equal-weighted ETFs following the S&P 500 index. Individual stock owners should also carefully evaluate valuations and consider trimming gains if a stock has become overvalued.
While investors with long-term horizons may not need to take action, Burry’s concerns highlight the importance of understanding the changing market landscape and considering alternative strategies to minimize potential losses.
Source: https://www.nasdaq.com/articles/michael-burry-big-short-no-longer-pulling-any-punches-and-his-warning-wall-street-couldnt