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Michael Berry recently published his analysis of the craziest week the market has seen this year. IBM's worst one-day stock plunge since at least 1968, PayPal's $53 billion buyout offer . But the most important thing he said is missing from the article itself. This is in response to a comment, 17 likes , which are easy to scroll past.
A subscriber asked him a simple question: what should those who invest only in index funds , supporters of the "VTI and chill" strategy, do? Should they continue to buy now? Berry's answer: Advise them to wait for the next 30% pullback, even if it takes two or three years. Read this again . The man who predicted the 2008 crash just advised ordinary index investors to stop buying and hold onto cash, possibly for years.
In the next 15 minutes, you'll learn why he said that, that he's buying with his own money instead, and, since he could be wrong, one mathematical calculation that advises you to ignore him completely. Let's deal with this. To understand this warning, you need to understand the week that triggered it.
On July 7, IBM shares were trading at $312. A week later, on the morning of July 14, the price fell to $213. At the lows of that day, IBM lost 26%—the biggest one-day drop in the company's history. Bigger than Black Monday of 1987. Bigger than anything during the dot-com crash. A $67 billion hole formed in one session.
Then, before anyone could catch their breath, the next headline appeared. Stripe, the privately held payments giant, has teamed up with investment firm Advent to offer $60.50 per share for PayPal. This values the company at over $53 billion . A premium of 28% to the previous day's closing price. Berry owns PayPal.
Berry wrote about IBM. So when he posted his response the next day, tens of thousands of investors read it and flooded the comments section with questions. He answered an impressive number of them. The article shows what he thinks, and the comments show what he would actually do with your money. Let's consider everything in order.
PayPal, IBM, the hospital shares he bought that same day, and then—a hidden piece of advice that changes how you should perceive it all. Let's start with PayPal, because this is where the entire Berry method is demonstrated. PayPal closed at $47.37. The offer came in at $60.50. For most shareholders, a 28% overnight bonus is like Christmas.
Berry's reaction ? Too low. He doesn't sell. Here is his logic in plain language. Berry values companies based on what he calls owner's return— the cash a business actually generates for its owners, minus accounting " noise." Based on this, he builds his own estimate of intrinsic value . His baseline figure for PayPal, the price a retail investor would be willing to pay, is around $50 per share.
The proposed price is only 1.2 of this amount. But, and this is the main thing, an acquisition is not a minority investment. Whoever buys all of PayPal gets control. Control over money, strategy, and personnel. The control is worth the extra price. Berry calculates that a fair takeover price should be somewhere between $75 and $115 per share, and he believes the final offer should be around $100.
100 versus the $ 60.50 offer. That's why he called it just the first move. And when a follower asked if regulators would block such a deal, he answered with one word. Yes, it will pass. In the comments section, he was mostly supported. One subscriber, who has been involved in privatizing companies for years in a private equity fund, said this first step follows a predictable script and the price is too low.
Leaking information about the offer is a way for bankers to attract competitive bids. Another user quickly calculated the leveraged buyout model and found that buyers could pay up to $70 and still get a 20% annual interest rate. In other words, the smart money in the comments believes that the smart money betting is trying to bring down the price.
But your job is to hear both sides. So, here's the pessimistic scenario, also straight from the comments. One commentator cautiously hinted at hidden problems with PayPal's largest customer, which he said the company has not yet publicly disclosed. Another asked a simple question in a childish way. Why does PayPal have 23,000 employees when Twitter operates with about 2,000?
And a third noted that PayPal's customer ratings are terrible: less than two out of five on Trustpilot , with stories of accounts taking hours of phone calls to close. So, an honest summary: the numbers say PayPal is cheap, and a buyer willing to spend $53 billion has just agreed to it. But sometimes stocks are cheap because a business is quietly losing customers.
Both statements may be true, and the final offer price will show which is more important. Now for the crash everyone is talking about. IBM has been publicly humiliated before. It fell 41% when the market crashed in the late 1960s. It fell 58% during the brutal bear market of 1973–74, along with the so- called “Nifty 50” —stocks that people thought could be bought at any price.
Xerox fell 71% during that crash. Avon — by 86%. Polaroid—91%. IBM fell 23% on Black Monday 1987. And none of those days were as horrific as July 14, 2026. So, what really happened? Two stories: one boring, the other terrible. What you believe determines whether IBM stock is a good buy. A boring story is the demand cycle for equipment.
Inside IBM is the IBM Z division— mainframes that still process a huge share of the world's bank cards and money transfers. This is only about 8% of revenue, and this figure has always fluctuated greatly. Growth of 15% in one quarter, a drop of seven in the next. It was this fluctuation that caused the warning.
From this perspective, a $ 700 million swing in the cyclical segment just wiped out $67 billion in market value—a historically massive exaggeration. The scary story is that this is not a cycle at all. This is the beginning of the end. In February, Anthropic released an AI tool to modernize COBOL, a 60- year-old programming language that keeps customers hooked on IBM mainframes.
IBM shares fell 13% that day. Last week, reports emerged that Starbucks wants to replace IBM software and services with AI solutions. If artificial intelligence gives corporations a way out of mainframes, IBM's deepest moat of defense will dry up. From this perspective, the market did not panic. He saw the future.
Here's the part to pay attention to. Berry, a man known for buying what everyone else was getting rid of, looked at the worst collapse in IBM history and walked away. He estimates that, after adjusting for stock compensation, IBM earns approximately $9.3 billion for its owners. Its intrinsic value estimate is around $120 per share.
Even after the crash, the stock is trading around 218. According to his model, IBM has to fall almost 50% more before it becomes truly cheap. He also left a " roadmap" for checking who is right, and you can follow it in real time. IBM accused clients of diverting costs to AI development . If this is true, other major companies should confirm it in the current reporting season.
SAP reports on July 22, the same day as IBM with its full results . ServiceNow—July 29. Microsoft around the same time. If these companies support this story, the boring explanation will become more compelling. If IBM is left alone, it will become what Berry calls a “prove it to me” story. And such stories in this market are valued with single-digit profit ratios.
While the market was obsessed with IBM, Berry was buying something completely different. HCA Healthcare, the largest hospital chain in America, fell $28 that day on a downgraded forecast. His opinion? This doesn't mean anything. Some patients lost insurance coverage on the exchanges. The composition of payers has changed.
Revenue will take a hit of about $400 million, and none of this changes the long-term mechanism. HCA, he believes, is a ruthlessly efficient operator, generating significant returns on capital, and it's this news cycle that makes the stock more affordable every few years. He bought them at a price of 362 .
The most popular comment on the entire article called it the " fattest of the fattest" possibilities. But the most compelling criticism in the entire discussion came from right here, from the doctors. One doctor in the comments argued that Berry was wrong, and that HCA's famed effectiveness was partly due to training doctors in their own internships and then keeping them at below- market salaries.
That accounting is as masterfully designed as anything in artificial intelligence, just with less transparency and better lobbyists. And he concluded with a phrase that was supposed to sting. To bet on HCA is to bet on the survival of America's healthcare system. And in 2005, no one took the housing market into account either.
Using Michael Berry's most notable deal as an argument against Michael Berry himself. Whichever side you take, that's what the debate is about. A time-tested asset at a discount or a systemic risk hidden within one efficient company. For the record: Berry wasn't just buying HCA that day. He also increased stakes in Sprouts Farmers Market, Fiserv and Zoetis.
Quality businesses trading near or below their intrinsic value estimates . Which brings us back to the comments section. Because this is where Berry said things that affect you directly. Number one, the main thesis. When asked directly about broad index funds like VT and VTI, with historically high valuations and profits concentrated in the hands of a few giants, Berry said: For those who can only invest in indexes, his advice is to wait for the next 30% drop.
Even if it takes two or three years, he argued , you're unlikely to lose much. Number two, the reason. In a podcast earlier this year, Berry described a market dominated by passive funds and short-term traders. A structure where a real collapse drags down almost everything at the same time, both good stocks and bad ones.
He confirmed this in the comments. He had already seen this happen once in his life, after 2000. And this time, he warned, if funding for AI development is cut, the consequences could be much more far-reaching . Number three, Netflix. A follower asked if it had caught his eye after the stock fell due to the earnings report.
His answer: he sees him, but it's not time yet. In his opinion, streaming is simply not the source of income that investors were hoping for, and what really matters is long-lasting content that does not lose its relevance . And number four, for portfolio investing fans: he will continue to add to positions he already considers full.
" Full" is the range, and around 8% of the portfolio is the level where he calls the position overweight. He does not sell naked put options, although that possibility exists. And one asset, VIV , disappeared from his latest table for the most human reason imaginable. He forgot to mention it. This is still a big position.
Oh, and when someone asked when he was sleeping on the night of the PayPal news, his answer was: definitely not tonight. So what to actually do with such a warning? Arguments in favor of listening. Berry's model identified PayPal as cheap before the $53 billion buyer agreed to the deal. He has identified specific, verifiable risks , passive concentration, contagion through AI funding, and he invests in cheap, sustainable businesses, not just screaming about failure.
And now the reverse math, because you deserve it. Expecting a 30% pullback is an attempt to time the market, and the statistics for such attempts are disappointing. If the market goes up, say , 30% over the next 2 years and then falls 30%, the bottom of the crash will be about where prices are now. You waited for years, made nothing, and bought at the same level.
Historical research consistently shows that stable automated investing outperforms waiting for corrections over most multi-year periods, as the market spends much more time rising than falling. And note the accuracy of Berry himself. He gave this advice specifically for people who can only buy indices.
His own money is not waiting in cash. He's buying individual companies right now. Both sides have real weight. The warning is real . The cost of waiting is real. It's up to you. That's what makes this story incomplete . The arbitrator will appear on July 22. That's when IBM reports full results, and SAP reports on the same day.
If other corporate giants confirm the redirection of spending on AI, the boring story will win out, and it will be the exaggeration of the decade. If IBM is left alone, Berry's caution will look pathetic. Stay tuned, because when these numbers come out, we'll analyze them. Both sides, complete math, no hype.
And if you want to see a breakdown of the short positions on AI that Berry holds against all of this, that video is already on your screen.
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