At least -50% in next 2 years - Michael Burry and David Wright

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
Topic Author
Isabela
Posts: 7
Joined: Thu Jun 23, 2022 10:17 pm

At least -50% in next 2 years - Michael Burry and David Wright

Post by Isabela »

I'm currently all invested as true bogleheads, always buying when I get cash on hand right away. I'm expecting a large windfall in next 1-2 months.
Above investors say that they expect one of the biggest crashes in history and they are waiting on side line until market crashes at least 50%.
I'm thinking to do the same, waiting until it crashes at least 40% and then slowly deploying new dry powder in my passive etfs.
I think we saw to much enthusiasm last few years, everybody happily investing and now the inflation much bigger than they report in news and consumers starting to slowly choose what items in store they can afford. Salaries in our country do not go up as fast as reported inflation rate and I believe it is more to come. People will pull out stock market more money that they can survive, and go through this cycle.
I'm crazy for thinking like this because I see it as opportunity for deploying dry powder when the blood will finally hit the news and market will award us with superior awards?
I'm mid 30s, still long way to go until I win the game. :)
User avatar
LadyGeek
Site Admin
Posts: 95703
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by LadyGeek »

Welcome! I moved your question to the Non-US Investing forum. What is your home country?
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
KlangFool
Posts: 31529
Joined: Sat Oct 11, 2008 12:35 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by KlangFool »

OP,

Unless you are 100% stock, an AA in the range of 70/30 to 30/70 with 5/25 band based rebalancing would accomplish the same goal. And, you could had earned this rebalancing bonus in March 2020 crash. Why do you need to do anything else?

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
chicagoan23
Posts: 584
Joined: Thu Jan 29, 2015 3:34 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by chicagoan23 »

Isabela wrote: Thu Jun 23, 2022 10:38 pm Above investors say that they expect one of the biggest crashes in history and they are waiting on side line until market crashes at least 50%.
Those are two smart people with good track records and they might be right. Then again, they might be wrong.
I'm thinking to do the same, waiting until it crashes at least 40% and then slowly deploying new dry powder in my passive etfs.
I think we saw to much enthusiasm last few years, everybody happily investing and now the inflation much bigger than they report in news and consumers starting to slowly choose what items in store they can afford. Salaries in our country do not go up as fast as reported inflation rate and I believe it is more to come. People will pull out stock market more money that they can survive, and go through this cycle.
That’s an interesting theory about where the markets and the economy stand. It seems logical and it may be right. Then again, it may be wrong.
"The Basic Choices for Investors and the One We Strongly Prefer" | | https://www.berkshirehathaway.com/letters/2011ltr.pdf
KlangFool
Posts: 31529
Joined: Sat Oct 11, 2008 12:35 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by KlangFool »

OP,

Check this out.

viewtopic.php?t=335902
"PSA: Fixed AA with 5/25 rebalancing works!"

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
User avatar
arcticpineapplecorp.
Posts: 15081
Joined: Tue Mar 06, 2012 8:22 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by arcticpineapplecorp. »

Isabela wrote: Thu Jun 23, 2022 10:38 pm I'm crazy for thinking like this because I see it as opportunity for deploying dry powder when the blood will finally hit the news and market will award us with superior awards?
I'm mid 30s, still long way to go until I win the game. :)
welcome to the forum.

you may not win the game if you keep money on the sidelines that could be invested.

i've seen this too many times to count. people wait for the 50% crash and then either:

1. it doesn't happen (stocks fell around 40% in 2000-2002. You wouldn't have deployed your cash for another 7 years when the 50% decline actually happened in March 2009 (-50% between 2007-2009. Coronovirus shaved 32% off the market. You wouldn't have deployed your cash and the market would have recovered in three months or so; beginning of July).

2. you think you will deploy your cash if/when the market falls 50% but you either:
a. don't have the nerve you thought you had because you're being pummeled with bad news moment by moment and/or in fear for your job so you hold on to that cash in case you become redundant.
b. you think the market will keep falling (and 50% loss is not really the bottom) and don't invest.

whatever you decide to do, write down your plan...in writing.

that way you can see how it worked out (or didn't) and if you stuck to your plan if you could have.

go read the numerous posts of people who have been on the sidelines since 2008.
Last edited by arcticpineapplecorp. on Fri Jun 24, 2022 7:28 am, edited 1 time in total.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
User avatar
nisiprius
Advisory Board
Posts: 52219
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by nisiprius »

I (try to) tune out articles whose content is "celebrity investing figure X said Y." Michael Burry said some I-thought-stupid things about passive investing. It is almost impossible not to latch on to the people who are saying the things that resonate with you, so the whole thing becomes a self-defeating exercise in confirmation bias. Furthermore, it is always biased toward whomever makes the most dramatic, extreme, self-confident statements.

"Expert XYZ says he does not know what will happen" does not grab headlines.

"Jerome Powell says recession is possible but not inevitable" sounds like a credible opinion!

I don't want to bother finding prominent experts with directly contrary opinions, but there are certain to be some. Probably Jeremy Siegel.

There is, quite honestly, nothing sensible to do about it anyway. The stock market crashes from time to time, stocks are risky. There are two main opinions to hold.

1) I can predict them and avoid the crashes, so although the stock market is risky for everyone else, it is not risky for me.

2) Crashes suck, but they happen, and the last three have all taken me by surprise, so I just accept that they happen, accept that I need to be risk-tolerant (not risk-denying), accept that crashes are going to happen--to me--and affect my portfolio and my emotions, and plan accordingly.

I hold opinion 2.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
User avatar
climber2020
Posts: 2709
Joined: Sun Mar 25, 2012 8:06 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by climber2020 »

Here's an excellent read for you on this topic:

viewtopic.php?t=203792
User avatar
Cheez-It Guy
Posts: 4007
Joined: Sun Mar 03, 2019 3:20 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by Cheez-It Guy »

Tired of hearing about / from Michael Burry.

I get my apocalyptic investment advice from Nostradamus.
gtrplayer
Posts: 860
Joined: Sat Dec 08, 2018 3:13 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by gtrplayer »

I used to think higher of Burry but the more I’ve followed him, the more I see him as someone who is always saying there will be a crash and then says “I was right” when it inevitably happens, no matter how far off his timing was.

Will there be a bigger crash than we’ve seen so far. Probably eventually… if it happens five years from now, I predict Burry would say, “I was right, I was just early.” If it happens a decade from now, he’d say, “I predicted this in 2022.” Or earlier since he’s been saying the market will crash for quite a while.

Is he a genius? Perhaps. He predicted the housing market crash. But he is always predicting crashes. The fact is crashes are inevitable now and again. If he gave a date on a crash and then accurately called it, I’d be more apt for genius. As it is, if I said, the market will crash 20%… would you call me a genius whether it crashes tomorrow or a decade from now?

Also, as another poster noted, Burry has made some comments about passive investing that I wouldn’t agree with and, while he deletes all his tweets which makes it hard to see what he has said in the past, a study of what he has said the past few years on a range of issues may make some people question his analysis.
Wanderingwheelz
Posts: 3145
Joined: Mon Mar 04, 2019 8:52 am

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by Wanderingwheelz »

You’ll have stress in your life whether you go all-in or if you decide to sit it out. Ask yourself which kind of stress you prefer and choose that route to riches.

Odds are you won’t be right, so proceed accordingly.
Being wrong compounds forever.
mary1492
Posts: 716
Joined: Thu Oct 17, 2019 3:02 am

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by mary1492 »

.....
Last edited by mary1492 on Thu Sep 29, 2022 2:32 pm, edited 1 time in total.
dcabler
Posts: 4544
Joined: Wed Feb 19, 2014 10:30 am
Location: TX

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by dcabler »

KlangFool wrote: Fri Jun 24, 2022 7:23 am OP,

Check this out.

viewtopic.php?t=335902
"PSA: Fixed AA with 5/25 rebalancing works!"

KlangFool
I'd advise folks to check out Siamond's series on Rebalancing and the Elusive Rebalancing bonus.
Part 1: https://www.bogleheads.org/blog/2020/08 ... us-part-1/
Part 2: https://www.bogleheads.org/blog/2020/08 ... us-part-2/
Part 3: https://www.bogleheads.org/blog/2020/08 ... us-part-3/

Cheers
minimalistmarc
Posts: 1636
Joined: Fri Jul 24, 2015 4:38 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by minimalistmarc »

Bear arguments always sound very smart, but they are usually wrong or at best not helpful to building long term wealth. I chose to ignore them completely.
User avatar
andrew99999
Posts: 1021
Joined: Fri Jul 13, 2018 8:14 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by andrew99999 »

Isabela wrote: Thu Jun 23, 2022 10:38 pm Above investors say that they expect one of the biggest crashes in history and they are waiting on side line until market crashes at least 50%.
The same thing was being said 2 years ago.
Isabela wrote: Thu Jun 23, 2022 10:38 pm I'm thinking to do the same, waiting until it crashes at least 40% and then slowly deploying new dry powder in my passive etfs.
2 years ago, the market fell 35% and those waiting for a 40% fall missed out on all of the recovery of a 50% increase as well as another equivalent increase on top of that making it a 100% return missed.
User avatar
arcticpineapplecorp.
Posts: 15081
Joined: Tue Mar 06, 2012 8:22 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by arcticpineapplecorp. »

never heard of David Wright.

That being said did both Michael Burry and David Wright go 100% to cash in anticipation of the crash and if not, why not?

Have Michael Burry and David Wright shorted the market in anticipation of the crash and if not, why not?

Is it possible they have said one thing, but have done another?

Nisiprius posted a couple days ago of I believe Bill Gross who was saying one thing in the media and doing something very different with his portfolio.

when you see that, it makes you not want to listen/follow to any of these self-declared gurus.

but if you're interested in following gurus...perhaps you should be keeping track of their long term track records:
https://www.cxoadvisory.com/gurus/

most would have done better tossing a coin to decide what to do.

things that make you go hmmm.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
MathWizard
Posts: 6561
Joined: Tue Jul 26, 2011 1:35 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by MathWizard »

If you are just beginning your investing, focus more on how much you put away rather than short term
gains/losses. A correction is good for you, since you are buying for the long term. You want stocks to be cheap.

I am much older.

I have been planning using a 50% drop in stocks from Jan 1, 2022.
That does not mean that I do not own stocks, I now have 55% stocks 45% bonds.
I am just making sure that I can withstand that much of a drop and still retire.

In my 30's I was nearly 100% stocks, and stayed that way through the 2000's and midway
through the 2010's until I could see the light at the end of the tunnel, and backed off
because I could not have afforded a large portion of a million dollars that close to retirement.
magicrat
Posts: 1191
Joined: Sat Nov 29, 2014 6:04 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by magicrat »

What will you do if the market never "crashes" 40% from current levels? Please be specific.
jjj_22
Posts: 315
Joined: Sun Dec 08, 2019 2:07 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by jjj_22 »

Terrible idea. You could end up waiting for the rest of your life. Potentially sitting on your remaining lifetime's savings in cash is not going to help you fund a retirement.
Axelrod
Posts: 44
Joined: Fri Mar 05, 2021 3:37 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by Axelrod »

Isabela wrote: Thu Jun 23, 2022 10:38 pm ...waiting until it crashes at least 40% and then slowly deploying new dry powder in my passive etfs.
So not only waiting until it crashes another 40% but then only slowly deploying funds?

Counter proposal - consider investing 50% the week you receive your windfall and then setup an automated purchasing schedule that buys monthly from that point forward with the remainder? This is very conservative but if the market never crashes at least you are able to accumulate some wealth with half of the windfall from day one.
gougou
Posts: 1317
Joined: Thu Sep 28, 2017 7:42 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by gougou »

I think the bottom is behind us. Recession is canceled. Oil price is dropping. Fed is OK with a 5% inflation and it will save the stock market if necessary. Stock valuations are low and you especially don’t want to be in cash during inflationary economic expansion.

Betting on a stock market crash is going to lose you money more often than not. Nobody knows where market will head to in the short term. It’s best to have some discipline and keep buying when market is dropping.
The sillier the market’s behavior, the greater the opportunity for the business like investor.
User avatar
9-5 Suited
Posts: 1307
Joined: Thu Jun 23, 2016 12:14 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by 9-5 Suited »

Pessimism is popular. It appears to people’s inate fears. I seems like wisdom - like a warning. It’s not. It’s a bad idea to go to cash based on celebrity statements that match your own biases.
Normchad
Posts: 5648
Joined: Thu Mar 03, 2011 6:20 am

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by Normchad »

They don’t know anything useful.
Fallible
Posts: 8798
Joined: Fri Nov 27, 2009 3:44 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by Fallible »

Isabela wrote: Thu Jun 23, 2022 10:38 pm I'm currently all invested as true bogleheads, always buying when I get cash on hand right away. I'm expecting a large windfall in next 1-2 months.
...
I'm mid 30s, still long way to go until I win the game. :)
Welcome to the forum.

Can you be more specific on how you are "all invested as true Bogleheads" (other than your cash plans)? For example, in case you haven't seen it, here's the Bogleheads' philosophy and principles:

The Bogleheads® Philosophy

Prepare to invest
Live below your means
Develop a workable plan
Never bear too much or too little risk
Invest early and often

Create a portfolio
Diversify
Invest with simplicity
Use index funds when possible
Minimize costs
Minimize taxes

Maintain discipline
Never try to time the market
Stay the course

https://www.bogleheads.org/wiki/Boglehe ... philosophy

And remember that Burry and Wright (also not heard of him) will do what is right for them while you want to do what is right for you and your own unique needs. That means you'll want to understand risk in general and your own personal risk tolerance. Author Larry Swedroe has written a guide to determining risk:

https://www.cbsnews.com/news/asset-allo ... -you-take/

https://www.cbsnews.com/news/asset-allo ... tolerance/

https://www.cbsnews.com/news/asset-allo ... -you-need/

https://www.cbsnews.com/news/asset-allo ... ing-goals/


As for that large windfall coming, this may be helpfull from the wiki on "Managing a windfall":

https://www.bogleheads.org/wiki/Managing_a_windfall
Last edited by Fallible on Fri Jun 24, 2022 6:36 pm, edited 1 time in total.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
BogleWogle
Posts: 81
Joined: Tue Sep 26, 2017 9:40 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by BogleWogle »

Personally, I would lump sum all of it as soon as possible. I Generally follow the belief that No one knows nothing when it comes to predicting the future of the markets.

If it’s a really large lump sum (like you’ve won the game lump sum) and If you want to try and get the best of both worlds, drop half of the amount in the market ASAP and then hold the other half on the sidelines, compare results periodically 🙂 to see which one is right. You’ll never really know until it’s too late as some of the other comments have illuminated.

Another credo to consider, be fearful when others are greedy and greedy when others are fearful. I think we’re approaching the fearful stage!
User avatar
whodidntante
Posts: 13118
Joined: Thu Jan 21, 2016 10:11 pm
Location: outside the echo chamber

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by whodidntante »

Oh man, I love a good doom story!
Hoosier CPA
Posts: 512
Joined: Tue Nov 22, 2016 8:43 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by Hoosier CPA »

I'd guess Michael Burry can afford to make big bets like this but most of us can't.
User avatar
HomerJ
Posts: 21282
Joined: Fri Jun 06, 2008 12:50 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by HomerJ »

https://www.reddit.com/r/wallstreetbets ... es_to_see/
There was a long gap of 9 years after the 2008 crash where Burry stayed out of the public view and did not make any warnings or predictions about the market.

His first verifiable prediction after the 2008 crisis came in May 2017 where he warned that we can expect a global financial meltdown and World War 3. In his exact words:
I didn’t go out looking for this, I just did the math. Every bit of my logic is telling me the global financial system is going to collapse
In May 2017, SP500 was at 2400
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
HKexpat
Posts: 142
Joined: Thu Dec 24, 2020 4:21 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by HKexpat »

The first question to ask is what would those people know that thousands of other institutional investors don't know? The second question is why would they share that information freely with random people on the internet?

https://www.bbva.ch/en/news/michael-bur ... ent-style/
After retiring in 2008, Burry devoted himself to managing only his own capital, however, in 2013 he opened a new investment fund, Scion Management in which he makes heavy bets towards gold, small technologies and agricultural land.
From January 2013 to 2022, gold went from $1,700 to $1,800 -- or +6%. The S&P 500 with dividends reinvested is +215% over the same time period. The S&P 500 could crash another 50% on Monday and it would still have been a poor decision to go with Burry's fund.
arajeshn
Posts: 19
Joined: Fri Jun 04, 2021 9:50 am

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by arajeshn »

arcticpineapplecorp. wrote: Fri Jun 24, 2022 8:28 am but if you're interested in following gurus...perhaps you should be keeping track of their long term track records:
https://www.cxoadvisory.com/gurus/

most would have done better tossing a coin to decide what to do.

things that make you go hmmm.
Always knew this was true....but it is still shocking to see it proved.
User avatar
arcticpineapplecorp.
Posts: 15081
Joined: Tue Mar 06, 2012 8:22 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by arcticpineapplecorp. »

it's been said you should only predict what or when, but never both.

by the way, because I don't care much for hearsay...to the OP, can we see an actual article(s) where these two people (Burry and Wright) actually predicted 50%+ decline in the next 2 years??
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
User avatar
HomerJ
Posts: 21282
Joined: Fri Jun 06, 2008 12:50 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by HomerJ »

Isabela... welcome to the forum.

The point we are trying to make is that no one appears able to consistently predict the future when it comes to the markets.

So you shouldn't make moves based on what the "experts" are predicting.

Market is already down quite a bit from all-time-highs.

If you get a windfall, I'd probably invest 50% of it right away (since we're already at a 20% discount from all-time highs), and then invest another chunk every 2 months until you are fully invested at your target Asset Allocation (AA).

That might be 100% stocks, or it could 60/40 stocks/bonds... I don't know what your situation is.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
smitcat
Posts: 13308
Joined: Mon Nov 07, 2016 9:51 am

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by smitcat »

KlangFool wrote: Fri Jun 24, 2022 7:23 am OP,

Check this out.

viewtopic.php?t=335902
"PSA: Fixed AA with 5/25 rebalancing works!"

KlangFool
In that link you will find this numerical model that tells us that it does not work overtime even without consideration for potential tax issues, post #74 within that link is pasted below....


Re: PSA: Fixed AA with 5/25 rebalancing works!
Post by csh » Sun Jan 24, 2021 5:37 pm

KlangFool wrote: ↑Sun Jan 10, 2021 11:56 am

1) My SCV bought in March 2020 is up 95%. Almost double.

2) My international bought in March 2020 is up 63%.

3) My US stock index bought in March 2020 is up 66%.
You seem to be implying that there is a rebalancing bonus with this strategy. In the near term I think you are correct, but this does not hold out in the long term. Remember that while you managed to buy into an asset at a discount in a crash, as those assets appreciate you begin to sell out of them. If you have an asset that out performs over an extended period then you are continually rebalancing from you best performing asset into your worst performing assets. The way I look at it is that it all comes out in the wash over an extended period of time.

The value I see in regular rebalancing is that it maintains your risk profile without giving up much in terms of total gains. This is compared to someone that does not rebalance and allows their asset allocation to drift with the associated increase in risk.

Backtesting the Core Four 60/40 portfolio (Total Stock 36%, Intl 18%, REIT 6%, Total Bond 40%) with different rebalancing 1996-2020
I chose to compare No Rebalancing (AKA set and forget), vs. Annual Rebalancing vs. 5/25 Rebalance Bands
CODE: SELECT ALL

Rebalancing Initial Balance Final Balance CAGR TWRR MWRR Stdev Best Year Worst Year Max. Drawdown
None $10,000 $1,433,076 20.19% 7.88% 7.89% 10.25% 24.24% -25.38% -37.50%
Annual $10,000 $1,354,149 19.94% 7.74% 7.53% 8.88% 21.98% -20.96% -33.23%
5/25 $10,000 $1,361,982 19.96% 7.72% 7.57% 9.04% 21.47% -21.75% -34.02%
No Rebalancing
https://www.portfoliovisualizer.com/bac ... tion4_1=40

Annual Rebalancing
https://www.portfoliovisualizer.com/bac ... tion4_1=40

5/25 Rebalancing
https://www.portfoliovisualizer.com/bac ... tion4_1=40

Notes: I really wanted to backtest over a 30 year period to factor out any recency bias, but was limited to 26 years due to limited data REIT. I'm sure that you could probably cherry pick a particular time frame where one strategy out performed the others. Also, I think it would be worth pointing out that the No Rebalancing drifted to 80/20 and international down to 9%
Top
KlangFool
Posts: 31529
Joined: Sat Oct 11, 2008 12:35 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by KlangFool »

smitcat wrote: Sat Jun 25, 2022 3:35 pm
KlangFool wrote: Fri Jun 24, 2022 7:23 am OP,

Check this out.

viewtopic.php?t=335902
"PSA: Fixed AA with 5/25 rebalancing works!"

KlangFool
In that link you will find this numerical model that tells us that it does not work overtime even without consideration for potential tax issues, post #74 within that link is pasted below....


Re: PSA: Fixed AA with 5/25 rebalancing works!
Post by csh » Sun Jan 24, 2021 5:37 pm

KlangFool wrote: ↑Sun Jan 10, 2021 11:56 am

1) My SCV bought in March 2020 is up 95%. Almost double.

2) My international bought in March 2020 is up 63%.

3) My US stock index bought in March 2020 is up 66%.
You seem to be implying that there is a rebalancing bonus with this strategy. In the near term I think you are correct, but this does not hold out in the long term. Remember that while you managed to buy into an asset at a discount in a crash, as those assets appreciate you begin to sell out of them. If you have an asset that out performs over an extended period then you are continually rebalancing from you best performing asset into your worst performing assets. The way I look at it is that it all comes out in the wash over an extended period of time.

The value I see in regular rebalancing is that it maintains your risk profile without giving up much in terms of total gains. This is compared to someone that does not rebalance and allows their asset allocation to drift with the associated increase in risk.

Backtesting the Core Four 60/40 portfolio (Total Stock 36%, Intl 18%, REIT 6%, Total Bond 40%) with different rebalancing 1996-2020
I chose to compare No Rebalancing (AKA set and forget), vs. Annual Rebalancing vs. 5/25 Rebalance Bands
CODE: SELECT ALL

Rebalancing Initial Balance Final Balance CAGR TWRR MWRR Stdev Best Year Worst Year Max. Drawdown
None $10,000 $1,433,076 20.19% 7.88% 7.89% 10.25% 24.24% -25.38% -37.50%
Annual $10,000 $1,354,149 19.94% 7.74% 7.53% 8.88% 21.98% -20.96% -33.23%
5/25 $10,000 $1,361,982 19.96% 7.72% 7.57% 9.04% 21.47% -21.75% -34.02%
No Rebalancing
https://www.portfoliovisualizer.com/bac ... tion4_1=40

Annual Rebalancing
https://www.portfoliovisualizer.com/bac ... tion4_1=40

5/25 Rebalancing
https://www.portfoliovisualizer.com/bac ... tion4_1=40

Notes: I really wanted to backtest over a 30 year period to factor out any recency bias, but was limited to 26 years due to limited data REIT. I'm sure that you could probably cherry pick a particular time frame where one strategy out performed the others. Also, I think it would be worth pointing out that the No Rebalancing drifted to 80/20 and international down to 9%
Top
smitcat,

" If you have an asset that out performs over an extended period"

That is a prediction. The stock market could be going side way for the next 10 years.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
User avatar
nedsaid
Posts: 19275
Joined: Fri Nov 23, 2012 11:33 am

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by nedsaid »

I have reposted this a couple of times when I get annoyed at some guru's prediction of doom in the markets. A lot of these people are broken records, they make the same prediction year after year and eventually they are right. Remember that a broken clock is right twice a day.
Re: Bill Bonner: what's your take?
Post by nedsaid » Sat Apr 21, 2018 6:13 pm

Chicken Little 1990: The sky is falling.
Nothing happens.
Chicken Little 1991: The sky is falling.
Nothing happens.
Chicken Little 1992: The sky is falling.
Nothing happens..
Chicken Little 1993: The sky is falling.
Nothing happens.
Chicken Little 1994: The sky is falling.
Nothing happens.
Chicken Little 1995: The sky is falling.
Nothing happens.
Chicken Little 1996: The sky is falling.
Nothing happens.
Chicken Little 1997: The sky is falling.
Nothing happens.
Chicken Little 1998: The sky is falling.
Nothing happens.
Chicken Little 1999: The sky is falling.
Nothing happens.
Chicken Little 2000: The sky is falling.
Tech crash, start of 2000-2002 bear market. Economy chugs along.
Chicken Little 2001: The sky is falling.
Still in bear market, mild recession.
Chicken Little 2002: The sky is falling.
Bear market ends, economic recovery in full swing.
Chicken Little 2003: The sky is falling.
Nothing happens.
Chicken Little 2004: The sky is falling.
Nothing happens.
Chicken Little 2005: The sky is falling.
Nothing happens
Chicken Little 2006: The sky is falling.
Nothing happens.
Chicken Little 2007: The sky is falling.
Nothing happens, stock market and real estate market boom.
Chicken Little 2008: The sky is falling.
Sky falls, financial crisis, bear market, the Great Recession.
Chicken Little 2009: The sky fell, I told you so. Buy my newsletter.
Financial crisis subsides, stock market begins a new powerful bull market, economy starts to recover.
Chicken Little 2010: I was right about 2008. The sky is falling.
Economy and markets continue recovery.
Chicken Little 2011. The sky will fall in 2012. Buy my newsletter. I predicted 2008.
Economy and markets continue recovery.
Chicken Little 2012. The sky is falling.
Economy and markets continue recovery.
Chicken Little 2013: The sky is falling.
Nothing happens really, the taper tantrum causes a ripple in the markets.
Chicken Little 2014: The sky is falling.
Nothing happens.
Chicken Little 2015: The sky is falling.
Nothing happens.
Chicken Little 2016: The sky is falling.
Nothing happens.
Chicken Little 2017: The sky is falling. Buy my book on how I predicted the 2008-2009 financial crisis.
Nothing happens.
A fool and his money are good for business.
Afty
Posts: 2390
Joined: Sun Sep 07, 2014 5:31 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by Afty »

When these kinds of predictions by famous investors pop up in the news, I like to play a game. Go to your favorite search engine and search for "Michael Burry 2020", "Michael Burry 2019", and so on. See how often these people make predictions that turn out to be wrong. Then consider how your own investments would have gone had you listened to this person every time they made a prediction.
User avatar
ClevrChico
Posts: 3259
Joined: Tue Apr 03, 2012 8:24 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by ClevrChico »

I will continue to follow my asset allocation and rebalance when needed. Even if there is a bloodbath with equities and high inflation continues:

- My bond funds will recover given time.
- My i-bonds will continue to do well in an inflationary environment.
- My house is appreciating and will likely continue to do so.
- Holding international at least helps diversify things in equities.
- Labor shortage = little worry about unemployment = new investments being purchased on sale.
Normchad
Posts: 5648
Joined: Thu Mar 03, 2011 6:20 am

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by Normchad »

Afty wrote: Sat Jun 25, 2022 3:50 pm When these kinds of predictions by famous investors pop up in the news, I like to play a game. Go to your favorite search engine and search for "Michael Burry 2020", "Michael Burry 2019", and so on. See how often these people make predictions that turn out to be wrong. Then consider how your own investments would have gone had you listened to this person every time they made a prediction.
This is the way.
smitcat
Posts: 13308
Joined: Mon Nov 07, 2016 9:51 am

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by smitcat »

KlangFool wrote: Sat Jun 25, 2022 3:45 pm
smitcat wrote: Sat Jun 25, 2022 3:35 pm
KlangFool wrote: Fri Jun 24, 2022 7:23 am OP,

Check this out.

viewtopic.php?t=335902
"PSA: Fixed AA with 5/25 rebalancing works!"

KlangFool
In that link you will find this numerical model that tells us that it does not work overtime even without consideration for potential tax issues, post #74 within that link is pasted below....


Re: PSA: Fixed AA with 5/25 rebalancing works!
Post by csh » Sun Jan 24, 2021 5:37 pm

KlangFool wrote: ↑Sun Jan 10, 2021 11:56 am

1) My SCV bought in March 2020 is up 95%. Almost double.

2) My international bought in March 2020 is up 63%.

3) My US stock index bought in March 2020 is up 66%.
You seem to be implying that there is a rebalancing bonus with this strategy. In the near term I think you are correct, but this does not hold out in the long term. Remember that while you managed to buy into an asset at a discount in a crash, as those assets appreciate you begin to sell out of them. If you have an asset that out performs over an extended period then you are continually rebalancing from you best performing asset into your worst performing assets. The way I look at it is that it all comes out in the wash over an extended period of time.

The value I see in regular rebalancing is that it maintains your risk profile without giving up much in terms of total gains. This is compared to someone that does not rebalance and allows their asset allocation to drift with the associated increase in risk.

Backtesting the Core Four 60/40 portfolio (Total Stock 36%, Intl 18%, REIT 6%, Total Bond 40%) with different rebalancing 1996-2020
I chose to compare No Rebalancing (AKA set and forget), vs. Annual Rebalancing vs. 5/25 Rebalance Bands
CODE: SELECT ALL

Rebalancing Initial Balance Final Balance CAGR TWRR MWRR Stdev Best Year Worst Year Max. Drawdown
None $10,000 $1,433,076 20.19% 7.88% 7.89% 10.25% 24.24% -25.38% -37.50%
Annual $10,000 $1,354,149 19.94% 7.74% 7.53% 8.88% 21.98% -20.96% -33.23%
5/25 $10,000 $1,361,982 19.96% 7.72% 7.57% 9.04% 21.47% -21.75% -34.02%
No Rebalancing
https://www.portfoliovisualizer.com/bac ... tion4_1=40

Annual Rebalancing
https://www.portfoliovisualizer.com/bac ... tion4_1=40

5/25 Rebalancing
https://www.portfoliovisualizer.com/bac ... tion4_1=40

Notes: I really wanted to backtest over a 30 year period to factor out any recency bias, but was limited to 26 years due to limited data REIT. I'm sure that you could probably cherry pick a particular time frame where one strategy out performed the others. Also, I think it would be worth pointing out that the No Rebalancing drifted to 80/20 and international down to 9%
Top
smitcat,

" If you have an asset that out performs over an extended period"

That is a prediction. The stock market could be going side way for the next 10 years.

KlangFool
It is not a prediction, it is a backtest comparing portfolios with and without various rebalancing methods.

Please provide a model similar to the ones above with the market going 'sideways' for an extended period of time demonstrating the advantage/disadvantage to the rebalancing.
UpperNwGuy
Posts: 9479
Joined: Sun Oct 08, 2017 7:16 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by UpperNwGuy »

Isabela wrote: Thu Jun 23, 2022 10:38 pm Above investors say that they expect one of the biggest crashes in history and they are waiting on side line until market crashes at least 50%.
Ahem.... Watch what they do, not what they say. Michael Burry is not waiting on the side line until the market crashes at least 50%. According to Market Watch he has recently done some serious buying of Meta, Alphabet, Booking.com, and Warner Brothers Discovery.

Who is David Wright?
User avatar
Vulcan
Posts: 2996
Joined: Sat Apr 05, 2014 11:43 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by Vulcan »

KlangFool wrote: Fri Jun 24, 2022 6:28 am rebalancing bonus
There is no rebalancing bonus.
If you torture the data long enough, it will confess to anything. ~Ronald Coase
KlangFool
Posts: 31529
Joined: Sat Oct 11, 2008 12:35 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by KlangFool »

Vulcan wrote: Sat Jun 25, 2022 4:18 pm
KlangFool wrote: Fri Jun 24, 2022 6:28 am rebalancing bonus
There is no rebalancing bonus.
You are making a prediction that the stock market could not oscillate and go side way for the the next 10 years.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Fremdon Ferndock
Posts: 1181
Joined: Fri Dec 24, 2021 11:26 am

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by Fremdon Ferndock »

Unless you need to take equity risk -- don't take it. As the esteemed Dr. Bernstein has said: "if you've won the game, quit playing." That's for folks who can get by without playing. For all others -- you've got the play the game, risky as it seems. Hopefully, you have some hefty human capital to fill in the gaps.
"Risk is what’s left over when you think you’ve thought of everything." ~ Morgan Housel
User avatar
Vulcan
Posts: 2996
Joined: Sat Apr 05, 2014 11:43 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by Vulcan »

KlangFool wrote: Sat Jun 25, 2022 4:47 pm
Vulcan wrote: Sat Jun 25, 2022 4:18 pm
KlangFool wrote: Fri Jun 24, 2022 6:28 am rebalancing bonus
There is no rebalancing bonus.
You are making a prediction that the stock market could not oscillate and go side way for the the next 10 years.
I am making no predictions whatsoever - just pointing out that the much-vaunted "rebalancing bonus" is a behavioral perception, not a mathematical fact.

I see the links to Siamond's analysis were already provided upthread, so I will just leave it there.
If you torture the data long enough, it will confess to anything. ~Ronald Coase
KlangFool
Posts: 31529
Joined: Sat Oct 11, 2008 12:35 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by KlangFool »

Vulcan wrote: Sat Jun 25, 2022 5:28 pm
KlangFool wrote: Sat Jun 25, 2022 4:47 pm
Vulcan wrote: Sat Jun 25, 2022 4:18 pm
KlangFool wrote: Fri Jun 24, 2022 6:28 am rebalancing bonus
There is no rebalancing bonus.
You are making a prediction that the stock market could not oscillate and go side way for the the next 10 years.
I am making no predictions whatsoever - just pointing out that the much-vaunted "rebalancing bonus" is a behavioral perception, not a mathematical fact.

I see the links to Siamond's analysis were already provided upthread, so I will just leave it there.
Please do not confuse a back test as a mathematical fact.

What happened to rebalancing bonus if the stock market is oscillating and going side way or down for the next 10 years?

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
UpperNwGuy
Posts: 9479
Joined: Sun Oct 08, 2017 7:16 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by UpperNwGuy »

Fremdon Ferndock wrote: Sat Jun 25, 2022 5:13 pm Unless you need to take equity risk -- don't take it.
What are you calling "need to take equity risk" in this admonition? Here's what OP says about their situation:
I'm mid 30s, still long way to go until I win the game.
smitcat
Posts: 13308
Joined: Mon Nov 07, 2016 9:51 am

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by smitcat »

KlangFool wrote: Sat Jun 25, 2022 6:36 pm
Vulcan wrote: Sat Jun 25, 2022 5:28 pm
KlangFool wrote: Sat Jun 25, 2022 4:47 pm
Vulcan wrote: Sat Jun 25, 2022 4:18 pm
KlangFool wrote: Fri Jun 24, 2022 6:28 am rebalancing bonus
There is no rebalancing bonus.
You are making a prediction that the stock market could not oscillate and go side way for the the next 10 years.
I am making no predictions whatsoever - just pointing out that the much-vaunted "rebalancing bonus" is a behavioral perception, not a mathematical fact.

I see the links to Siamond's analysis were already provided upthread, so I will just leave it there.
Please do not confuse a back test as a mathematical fact.

What happened to rebalancing bonus if the stock market is oscillating and going side way or down for the next 10 years?

KlangFool
Please tell us what happens by....
Please provide a model similar to the ones above with the market going 'sideways' for an extended period of time demonstrating the advantage/disadvantage to the rebalancing.
billaster
Posts: 2932
Joined: Wed Apr 27, 2022 2:21 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by billaster »

Michael Burry never demonstrated any particular skill in market predictions. After all, there were lots of prominent economists who observed and predicted exactly the same housing meltdown. But for most of us who saw it coming, the best we could do was avoid losing money in the doomed real estate market. What Michael Burry did was figure out a way not just to avoid losing money like the rest of us but make a profit off of it using complicated derivatives and credit swaps.

So not so much market prediction skill but more financial engineering skill. I wouldn't put a lot of stock in his prediction ability.
KlangFool
Posts: 31529
Joined: Sat Oct 11, 2008 12:35 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by KlangFool »

smitcat wrote: Sat Jun 25, 2022 6:53 pm
KlangFool wrote: Sat Jun 25, 2022 6:36 pm
Vulcan wrote: Sat Jun 25, 2022 5:28 pm
KlangFool wrote: Sat Jun 25, 2022 4:47 pm
Vulcan wrote: Sat Jun 25, 2022 4:18 pm
There is no rebalancing bonus.
You are making a prediction that the stock market could not oscillate and go side way for the the next 10 years.
I am making no predictions whatsoever - just pointing out that the much-vaunted "rebalancing bonus" is a behavioral perception, not a mathematical fact.

I see the links to Siamond's analysis were already provided upthread, so I will just leave it there.
Please do not confuse a back test as a mathematical fact.

What happened to rebalancing bonus if the stock market is oscillating and going side way or down for the next 10 years?

KlangFool
Please tell us what happens by....
Please provide a model similar to the ones above with the market going 'sideways' for an extended period of time demonstrating the advantage/disadvantage to the rebalancing.
AA = 60/40, Portfolio = 100K, 60K stock and 40K bond.

The stock market drops 30% and then went up by 30% -> Side way . The bond did nothing.

A) No rebalancing.

60K * 0.7 * 1.3 = 54.6K + 40K = 94.6K

B) With rebalancing

60K stock drop to 42K stock (60K * 0.7)

Rebalance to

49.2K stock and 32.8K bond

Stock goes up 30 % -> 49.2K * 1.3 = 63.96K

Bond = 32.8K

Total = 96.76K

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: At least -50% in next 2 years - Michael Burry and David Wright

Post by Marseille07 »

billaster wrote: Sat Jun 25, 2022 7:25 pm Michael Burry never demonstrated any particular skill in market predictions. After all, there were lots of prominent economists who observed and predicted exactly the same housing meltdown. But for most of us who saw it coming, the best we could do was avoid losing money in the doomed real estate market. What Michael Burry did was figure out a way not just to avoid losing money like the rest of us but make a profit off of it using complicated derivatives and credit swaps.

So not so much market prediction skill but more financial engineering skill. I wouldn't put a lot of stock in his prediction ability.
Are you kidding me? Give him credit. Economists may have predicted this and that but they didn't put their money on it. Burry did, and it wasn't easy (tell me on top of your head how to short the housing market if you were to do it today).

He also held GME at $3.90 a share (hit as high as $300), he also shorted bonds which was too early but his direction was correct.

I'm not suggesting Burry is correct on -50% in next 2 years, but his track record is definitely there.
Post Reply