Berkshire Hathaway’s moves just added weight to this prediction.

Michael Burry, the trader who accurately predicted the housing market collapse in the US in 2008, is staking his assets on yet another looming financial catastrophe: he has bet 1.6 billion dollars on a forthcoming Wall Street meltdown before the conclusion of this year. 

Being far from a stock market magician – Burry on several occasions has been wrong in his forecasts – the investor’s hedge fund Scion Asset Management has placed more than 90% of its portfolio to support his anticipation of a market downturn, according to Security Exchange Commission filings made public earlier this week. 

His strategy involves acquiring negative options – called “out options” – tied to the S&P 500 and the Nasdaq 100, both of which serve as indicators of the broader US economy. Put options grant the holder the right to sell an asset at a predetermined price.

To elaborate, Burry has procured 866-million-dollar worth of put options against an S&P 500-tracking fund, along with 739 million in put options against a fund mirroring the Nasdaq 100. Interestingly, this wager comes in a year where the S&P 500 has already surged by 16%, and the Nasdaq 100 by an impressive 38%.

Michael Burry rose to prominence for his strategic moves in the mid-2000s, notably his bet against the housing market that ultimately contributed to the global recession.

However, his predictions haven't always been spot-on. Last January, for example, he tweeted the single word "Sell" to his 1.4 million followers pm Twitter, only to retract in March by admitting "I was wrong to say sell."

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Burry’s investing intelligence was captured in a bestselling book by Michael Lewis, “The Big Short”, which later evolved into a 2015 movie directed by Adam McKay, with British actor Christian Bale starring as Burry and casting Steve Carell, Ryan Gosling, and Brad Pitt among others.

Buffett, you too?

Interestingly, Michael Burry is not the only big profile individual who things the Wall Street will screw up.

Warren Buffett’s Berkshire Hathaway has sold nearly 8 billion dollars more in equities than it bought in the second quarter of this year, a significant reduction in its market position. More importantly, it has also reported 18 billion dollars in net equity security sales in the first half of 2023. 

Buffett is commonly hailed as one of the most brilliant business minds in history. As a result, numerous investors meticulously monitor Berkshire Hathaway's quarterly stock purchases and sales, aspiring to replicate his tactics and attain a fraction of his accomplishments. However, the recent submission of the quarterly Form 13F to the SEC carries a subtle warning. 

Along with his fellow investment managers Todd Combs and Ted Weschler, Buffett seems to share an opinion that stocks are currently overpriced.

At the very least, they appear to have encountered limited compelling opportunities to tap into the substantial 147 billion dollars held in cash and short-term investments at Berkshire's disposal.

Berkshire added to a few positions in the first half of the year, including Apple and Bank of America, despite being a net seller. And Scion bought several stocks in the second quarter, including Expedia Group and Charter Communications, although hedging against the broader market. 

Defensive actions taken by these esteemed investors imply both are worried about a stock market drawdown, at least in the short term.

Sources: CNN, The Independent, BusinessPost