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Hello everyone, welcome to a new video. Is the stock market going to crash? That is the question occupying investors right now. And why? Michael Berry, the investor who became famous with the movie The Big Short, has taken a huge gamble on a stock market crash. In 2023, he bought over 1.6 billion in put options against the S&P 500 and the NASDAQ 100, the two most important US stock exchanges in December.
This means he profits if the prices of these indices fall. But why is he so pessimistic about the future of the stock market, and what does it mean for you as an investor? In this video, I explain Michael Berry's motivations, the risks and opportunities of his strategy, and how you can prepare for a possible stock market crash in 2023.
Who is Michael Berry actually? And what did he do in the Big Short? Michael Berry is actually an American hatch fund manager and founder of Zion Acid Management. He is known for his focus and value investing style, in which he seeks out undervalued and unpopular stocks. He has also built a reputation as a brilliant and idiosyncratic analyst who often sees trends and opportunities that others overlook.
He achieved his greatest success in 2008 when he anticipated the collapse of the American housing market and the subsequent events. He saw that many mortgages granted to people with low incomes and poor creditworthiness were being bundled and sold as safe investments. He realized that these mortgages carried a high default risk and that this would lead to enormous losses for the banks and investors who owned them.
He therefore decided to go short on these mortgages by means of credit default swaps. These are financial instruments that pay out if a loan or bond is not repaid. Berry invested more than 1 billion in these credit default swaps against the wishes and advice of his investors and colleagues, and he had to withstand a lot of criticism and pressure.
Because his fund initially lost a lot of money due to rising house prices, but when the housing market began to turn in 2007, it became apparent that there were more than... his Fund ultimately made more than two billion in profit, of which he himself... His story of earning 100 million was known to the general public through the book and film The Big Short, in which René was played by Christian Bale.
He was seen as one of the few heroes of the crisis who had not only made money but also exposed the system. Why then did Michael Berry actually go into the stock market now? Besides a success, in 2008 Michael Berry remained active as a financial Marie, largely keeping aloof from the media. He focused primarily on finding undervalued stocks in sectors such as water, agricultural energy, and technology, and also occasionally took controversial positions, such as buying shares of GameStop, the company that began in 2021 as the center of the battle between retail investors and hedge funds.
But in August 23, he surprised everyone by announcing that he had bought more than 1.6 billion in Put options against the S&P 500 and the NASDAQ 100. In detail, via his Fund, you would see an Acid management that, according to the latest data, had dedicated more than 90% of his portfolio to these mountain bets, and Put option is it.
The right to sell a certain quantity of an underlying asset, such as a stock or an index, at a predetermined price and within a certain period. It is a way to speculate on a decline in the price of the underlying asset or to protect against potential losses; the lower the price falls, the more valuable the put option becomes.
Michael Burry has not explicitly explained why he is so negative about the stock market, but he has posted some comments on his Twitter account, which he regularly deletes and restarts. Among other things, he has warned about the high valuations of stocks, rising inflation, the increasing debt burden, the vulnerability of the financial system, and climate change.
He has also criticized the monetary and fiscal policies of the US government and Federer, who, according to him, are right about an artificial bubble in the economy and the stock market. He has even said that we are in an all-encompassing bubble that could burst at any moment. Now, sort-going on the stock market: what is that actually, and how does it work?
Sort-going on the stock market means profiting from a decline in the price of a stock or other asset. It is a strategy that should only be employed by experienced investors and traders. Because investing in the stock market entails significant risks, you must first borrow shares from a broker or another party that charges you interest or commission for this.
Subsequently, you sell these borrowed shares on the market at the current price. You hope that the price itself will fall so that you can later buy back the same shares more cheaply and return them to the borrower. The difference between the selling price and the buyback price is desired. For example, suppose you borrow 100 Apple shares that are currently worth €150 each.
You sell them for 15,000 on the market; after a week, the Apple share price drops to 140 per share. You then buy back 100 shares for 14,000 and return them to the borrower. You have then made a profit of 1,000 dollars. Minoes, the costs of borrowing... but what are the risks and opportunities of shorting on the stock market?
This type of trading on the stock market can be lucrative if you can accurately assess which stocks or values will fall. You can profit this way from micro-movements, crises, scandals, or other negative factors that have an influence. Regarding the prices, you can also go short as a way to protect against the loss of your long positions and similar or related values, but going short on the stock market also entails many dangers.
Firstly, the potential loss is unlimited because there is very little left of how high a price can rise. If you go short on a stock worth €150, you can earn a maximum of €150 worth of the share if it goes to 0, but if the stock rises to $200 or more, you can lose much more than you have earned. Secondly, you must take into account extra costs and requirements when going short on the stock market.
You have to pay interest or commission to the borrower of the shares, who can also demand that you return them at any time. You must also meet the Margin requirement of Jebroer, which determines how much money or collateral you must hold to maintain your short position. If your Margin account drops below a certain level, you must deposit more money or close your position.
Thirdly, you run the risk of becoming the victim of a short squeeze, which happens when many shorts have to close their positions, even simultaneously, due to a sudden rise in the price. of the stock they went Shout on. This can be caused by positive news about the company and a takeover bid, or a coordinated action by other investors buying the stock to drive up the price.
A kind of squeeze can lead to huge losses for short sellers who are forced to buy back shares at a much higher price than they sold for. How can you prepare for a possible stock market crash in 2023? If you think that Michael has and that there is a high chance that the stock market will crash on the 23rd, then there are several ways to prepare for this.
Some of these are: reduced exposure to risky assets such as stocks, bonds, crypto, or commodities; selling part of these assets or all of them and holding more cash or investing in safe assets such as gold, silver, or government bonds; diversifying your portfolio across different sectors, regions, and investment classes; avoiding being dependent on 1 market or one type of asset that could have been affected by a crash; protecting your portfolio against a drop in prices by using hedge strategies such as buying Put options, selling Call options, or shorting stocks or in the six so can you limit your potential loss or even make a profit if the market falls?
Be careful with the use of leverage, or borrowing money to be able to invest more; it can increase your return if the market rises but also increase your loss if the market falls. Ensure that you have sufficient capital to absorb any price fluctuations and be prepared to close your position if the market moves against you.
Stay informed of market developments and the economic factors influencing the stock market. Follow the news, advice, and recommendations from experts and reliable investors, but be critical and always do your own research before making decisions. We can therefore actually conclude that Michael Burrie, who is one of the most respected and successful investors in the world, is known for his ability to see great opportunities and risks that others have placed a huge bet on the stock market in 2023 based on his analysis of the current situation and future scenarios.
Whether he will be right or not remains to be seen, but it is certainly wise to take his vision seriously and evaluate your own portfolio and, if necessary, adjust it to the possible outcomes. This way you can protect yourself against potential Crash or profiting from resels? What do you think of Michael Burrie's vision?
Thanks also for the fact that a stock market crash is coming, and 2023 or not, feel free to let me know what you think about that in the comments, and I will definitely take a look at it and let you know what my personal take on it as well.
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