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we bought basically short 8.4 billion of credit default swaps um related to mortgages or financial companies if you're looking for an edge in the stock market analyzing the predictions of famous investors can be a great tool in this video we will take a look at predictions of Michael buray and see how their predictions have panned out we will also look at one Investor's experience when they attempted to replicate a famous Investor's trade and how it went wrong let's get started Michael bur is a well-known figure in the financial world bur's prediction and subsequent bet against the housing market earned him substantial profits and garnered attention from investors and the media his story is a prominent example of how an individual's analysis and insight can significantly impact financial markets a notable prediction from Michael bu occurred in 2005 when he predicted the housing markets collapsed two years before October 2007 early 2008 eventually making him $800 million during that period there's a movie called The Big Short where an actor Christian Bale played bur in the 2015 film directed by Adam McKay and showed his bet against housing people thought he was crazy back then as they believed the housing market was the safest investment anyone could ever make he was so sure it would fail that he invested 8 $4 billion in credit default swaps against it now the world is waking up to his latest bet against the stock market and you might have seen these headlines from organizations like Yahoo and CNN which are saying that Michael bur just bet $1.6 billion against the stock market Michael bur the investor who became famous for predicting the massive 2008 housing market collapse in the US appears to have recently placed a big bet against the US Stock Market well this time around burri has bought $1.6 billion do worth of financial instruments called options that would allow him to profit from a stock market Fall according to a filing made with us regul in this instance bur has invested $1.6 billion in financial tools called options as stated in a filing submitted to us Regulators these options could let him gain if the stock market goes down however this perception is flawed and it's due to a concept called 13f filings these filings are like report cards that big investors must share quarterly revealing their Investments bur's recent filing indicated a substantial portion of his client's money being used to bet against the stock market seeing bur's past successes and this new BET the average person might worry but let's clarify the situation to prevent Panic selling before we continue let me clarify that I can't advise you to sell or buy stocks your decisions depend on factors like age goals and risk tolerance at the same time no one can predict the stock market the $1.6 billion bet hints at something unusual however there's confusion 13 F filings require institutions to report their stockholdings and their options which are essentially contracts now here's an example of a call option imagine you and a friend are at a carnival and spot a game where you can win stuffed animals you see a cute teddy bear that will become more popular and its price might increase you're still determining if you'll have the money next week but you want that teddy bear now here's where the call option comes in you approach the game owner and say hey I'll give you $10 next week if you promise to sell me that teddy bear for $10 no no matter how much the price goes up the game owner agrees now let's see what happens if the teddy bears price goes up to $15 you can still buy it for the agreed upon $10 saving you $5 if the price stays the same at $10 you may choose not to exercise your option since there is no financial advantage to doing so you've already agree to buy it for $10 so there is neither a gain nor a loss in this case if if the price drops $5 you are not obligated to buy the teddy bear at the higher price of $10 you can simply choose not to exercise the option and you don't incur any additional cost you've lost the opportunity to buy it at $10 but there is no monetary loss beyond the initial agreement in this scenario the call option is like reserving the right to buy the teddy bear at a fixed price even if its market price increases it's like making a reservation for a popular restaurant but for a teddy bear at a carnival game now here's what a put option is using that same analogy this is what Michael bur did well we had a giant bet for us and and I was extremely confident in the outcome were your investors as confident uh I think a few investors were some of them thought you were crazy some of them thought you probably thought you'd lost your mind I think I think I know for sure that some of them thought I lost my mind so you made a ton of money made a ton of money imagine you're playing a card game with your friend and have a card that you think will lose value soon it's a rare Trading Card currently worth $20 but you have a hunch its value might drop to $10 next week here's where the put option comes into play you approach your friend and say I'll give you $2 today and you promise to buy this trading card from me for $20 next week no matter how much its price Falls your friend agrees to the deal now let's see what happens if the trading card's value drops to $10 you can still sell it to your friend for the agreed upon $20 making an $18 profit minus the $2 you paid for the option if the car's value remains at $20 you might not exercise your option but only lose the $2 you spent on securing the deal if against your hunch the card's value goes up to $30 you're not obligated to sell it at the lower price you just lose the $2 you paid for the option in this scenario the put option is like having the choice to sell your trading card at a fixed price even if its market value drops it's similar to booking a guaranteed Hotel room rate but for trading cards value let's go back to the michaelb BET here's where the media got it wrong they looked at his recent papers known as 13f filings and found two remarkable things put options remember those are like bets on things going down and the two things he's betting on going down are spy and triple Q spy remember is a mutual fund One stock one ETF that respects something called the S&P 500 the top 500 companies in the US which people call the stock market and the other one is triple Q which is also an ETF that represents the highfly tech sector the paper said that he had 2 million shares each making it seem like he put a lot of money against the top 500 us companies and tech companies so if it shows these numbers which are effectively $1.6 billion but there's a problem why is that number wrong here's what happened the media mixed up notional and actual values the real value represents the substantial amount of money that Michael bu paid for his options contract and the notional value represents the hypothetical value of all the stocks inside said contract I know it sounds confusing let's explain the difference between notional value and actual value imagine you're trading baseball cards you and a friend decide to change your favorite cards you each agree to sell 10 cards now the notional value here is the total value of those 10 cards let's say $100 that's the pretend value assuming each card is worth $10 but the real value might be different maybe your cards are rare and valuable so their real value is $200 that's what they're worth now let's bring this back to the stock market and options notional value is like the pretend value of the cards the total value of what's in the deal in the case of options it's the value of all the stocks the option controls even if you didn't pay that much on the other hand real value is what you spend or what something is worth in the stock market it's the actual cost of the option contract not the entire value of all the stocks it's tied to so in the Michael bur situation the media got confused because they mixed up the notional value which is the pretend worth with the real deal which is the actual ual money he spent the main idea is that Michael bur's solid bet against the stock market is likely one to 2% of his stock portfolio it might have cost him maybe a couple of million dollars to create the hedge or insurance against the stock market going down it's important to note that this amount is far less than the mentioned $1.6 billion recently there has been a lot of speculation about Michael bur's Market predictions in 200 5 Michael bur Buffett predicted a Global Financial meltdown and shorted the mortgage bonds although it took 2 years for his prediction to be realized he was eventually successful and made $800 million in profits from this bet much more than I ever imagined you know I'd ever have were your clients grateful I think a lot of clients were just glad to be done with it at the end you know we we even though they doubled their money well we we made 725 million I think on the funds in 2007 and in the first 6 months of 2008 there was about 730 million in withdrawals perhaps I had made the trade too big for the fund by 2015 Michael bur Buffett had acquired a large following on Twitter and began making more frequent predictions about the stock market in December 2015 he warned of an imminent crash within months but there was only a 10% drop that lasted briefly 2 years later later in May 2017 he predicted another Global Financial meltdown which again did not come true as the market kept Rising then in September 2019 he predicted that index ETFs would collapse the whole market yet again no such thing happened as the markets continued to rise afterwards in February 2021 he started shorting Telsa predicting that a speculative bubble could lead to a crash yet again nothing significant occurred until March 2020 when Michael bur revealed his big massive short bet on the market later in September 2022 when warning of failures in the stock market bur said that the bottom was not near yet and in August 2023 he took significant short positions across different stocks including S&P 500 and triple Q indices for an eventual recession or bearish Trend none of of which have come true so far since 2015 Mr bur has made many other predictions but none have materialized so far these include forecasting stock markets crashing within months and predicting higher gold prices coming up next year both of which did not happen at the time scales given by Mr buray nevertheless while no one can guarantee an accurate prediction of what will happen with stock markets or other financial investments in general analysts like Michael bu provide us insight into possible scenarios and help us think more critically about the investing decisions we make especially when they involve large amounts of capital such as his $1.6 billion short position on the market recently revealed through his 13f filing therefore investors need to pay attention when renowned investors like Michael bur are making forecast as there may be some truth behind them even though they don't always prove accurate every single time however my main point is that people recall successful predictions and Overlook failures making more predictions increases the chances of success just like flipping a coin if you keep guessing eventually you'll get it right by luck saying the market will go up or down is just the start we need to know how much it will change to decide if the prediction is accurate predictions usually have a time limit if someone predicts something will happen but doesn't say when it might happen someday the timing might be way off even though people study it there's no sure way to predict everything many factors affect the market and lots of them are hard to predict this is important to consider when we look at predictions made by famous investors like Michael bur it's hard to deny that Michael bur is one of history's most accurate investors in predicting future market trends worldwide even if his most recent predictions haven't entirely panned out yet his advice is always worth considering before investing your money after all who knows what will happen next and hey if you enjoyed this content so far and found it helpful remember to like share and comment below your support means the world and helps us create more engaging and informative videos like this thanks for joining remember to click on the pinned video to expand your knowledge on invest in and economics your journey to financial literacy starts now enjoy the video
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