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If stocks are so over priced, can anyone show an example of an fund that's making a killing off of these mispricings? Why would active management have failed t

If stocks are so over priced, can anyone show an example of an fund that's making a killing off of these mispricings? Why would active management have failed to find and exploit these mispricings before? Not saying these don't exist but it seems like this is a broad statement that is proven "right" if the market continues to dip and "the market remains irrational" if the market rises. Any claim that can't be disproven should be looked at with a lot of suspicion.

andrewmcwatters 4y ago
If all the homes in your neighborhood are overpriced people will simply not buy them, and others who are less price sensitive will. It’s very difficult to “make a killing” off overpriced equities. Even lay analysts who read financial reports know most marketable securities in the US are overpriced. The ones that aren’t simply aren’t attractive investments. Go peruse a few hundred US companies and read their financials. Tons of unattractive investments available today.
- kqr 4y ago
  Alternatives for dealing with overpriced stocks are abundant: shorting, options, index futures, etc.
  - cj 4y ago
    In the parent's example, "shorting" the overpriced neighborhood may never produce a return since overpriced houses can remain overpriced for a very long time (decades).
    - kqr 4y ago
      This is basically saying "it's not overpriced if enough people believe it to be the correct price" which yeah, sure. In that case it's impossible to make money on most overpriced asset classes (other than those you can make yourself).
    - jandrese 4y ago
      Seems like they can stay overpriced for as long as there is no better place to put the money.
      - glofish 4y ago
        then it wasn't overpriced no? Overpriced means that you can get it for cheaper.
  - csa 4y ago
    > Alternatives for dealing with overpriced stocks are abundant: shorting, options, index futures, etc. All of these either have a timing component or some sort of a penalty for holding them when the market increases, even if just temporarily. There is no downside equivalent of blindly DCA buying and holding a broad basket of stocks (like index funds).
- losteric 4y ago
  What can a (US) layperson invest in if all marketable securities are overpriced?
  - throw0101a 4y ago
    > What can a (US) layperson invest in if all marketable securities are overpriced? Just buy the S&P 500 or a total market (Russell 3000) fund and let The Market™ sort it out. Putting a little away every month will generally work out over the long-term (at least of retirement goals): * https://ofdollarsanddata.com/just-keep-buying/ https://ofdollarsanddata.com/just-keep-buying/
    - dadoge 4y ago
      The literal point of the article is that too many people dollar cost averaging is why we have a bubble
      - throw0101c 4y ago
        > The literal point of the article is that too many people dollar cost averaging is why we have a bubble Yes, I know. I've been hearing Burry make rumblings on this since 2019. But if Burry is wrong and there is no bubble (with no eventual popping), then by sitting on the sidelines waiting for the (never-to-come pop) you're costing yourself returns: * https://ofdollarsanddata.com/the-cost-of-waiting/ https://ofdollarsanddata.com/the-cost-of-waiting/ * https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-cost-averaging/ https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co... And even if there is a bubble, investing and staying invested, will also generally work out fine over the long term: * https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/ https://awealthofcommonsense.com/2014/02/worlds-worst-market...
  - csa 4y ago
    The options have decreased dramatically since 2008, since cheap money has pretty much caused all asset classes to have inflated prices. The best course is/was to start your own business and sell it, since the investment market has/had deep pockets and is looking for alpha above a relatively low benchmark anywhere it can find it. Real estate was really good for a while (until 2011-2012 or so), but that is back to not being so good today. Note that PE started getting into residential real estate, so that squeezed out a lot of opportunities in that market that used to be easier to access. My tack has been: 1. Invest in things into which I have unique insights. These aren’t that common, and they are not always easy to access, but they exist. 2. I am holding a lot of cash and waiting for things to correct. 3. I am also building businesses and funding others to do so. I am not a financial advisor, I am not your financial advisor, and this is not financial advice.
kqr 4y ago
I feel like every crash you hear later about a few places that made a killing. So I'm not sure I understand where you're going with your rhetorical question. I'm sure there are people betting against the market now, too. Maybe they will make a killing. We can't tell until later. You can never prove statements about the future right or wrong. The closest thing we get is putting your money where your mouth is. If someone does that, I may look on their statements with surprise, but not suspicion.
- TedDoesntTalk 4y ago
  > The closest thing we get is putting your money where your mouth is. If someone does that, I may look on their statements Burry certainly is: “Michael Burry has exited all his positions which as of March 31st, 2022 had a value of +$200 million. Private jail operator GEO Group was the only stock he held as of the end of the second quarter of 2022. This position brought his portfolio exposure down to only $3.3 million” … “He is calling for a huge economic recession and market crash that will bring stocks back down to real intrinsic values in the coming year. He’s not bullish on the stock market or current valuation levels.”
- 0x445442 4y ago
  Yeah I got a really big kick out of The Big Short. I don’t know how anyone who was a home owner or potential home owner in 2005/2006 could not see what was happening. We sold our home in San Diego in 2006 because it was obvious to me the real estate market was a mirage. I wasn’t some high flying hedge fund manager, just some shlub that could do basic math.
  - isthisthingon99 4y ago
    And prices today?
    - Scoundreller 4y ago
      especially in Canada…
candiddevmike 4y ago
I don't think there are short selling ETFs, or how that would even work.
- kqr 4y ago
  There are. I would assume they simply hedge with real shorts.
  - dragontamer 4y ago
    I'm not aware of any "simply short" ETF. It kind of doesn't make sense. Lets say you've got the underlying asset at $100, what price should the "short" asset be? $100? Well, what happens when the underlying goes to $200, or $300, or $400? The short can't just go to $0, -$100, -$200, -$300. Negative-priced ETFs just don't work (no one will pay up!!) Instead, "short ETFs" are composed of futures and/or options that move "as if" they were short against the stock. In cases of a rising bull market, the short position is "regularly wiped out" (hits $0), and the assets can rebalance to the new value of the underlying.
- dragontamer 4y ago
  SARK is the fun one this year. https://finance.yahoo.com/quote/SARK?p=SARK&.tsrc=fin-srch https://finance.yahoo.com/quote/SARK?p=SARK&.tsrc=fin-srch SARK is short-ARKK, designed to move equally-and-opposite to Cathie Wood's ARKK etf. ------ There's also SQQQ (Short Nasdaq ETF).
- elteto 4y ago
  You can buy negatively leveraged ETFs.
dragontamer 4y ago
He's right in the long sense... but I still think he's probably wrong today. But my problem with Burry's logic here, is that there's no "obvious" reason why index funds are unsustainable at 20% of the market. What if the instability point is 40%? 50%? 60%? 80%? ------- When only 20% of the market is buying-and-holding with index funds, it means that you're still facing 80% of active investors. (That is to say: 80% of your buys, and/or sells, are "against" an active investor). Even then, I'm personally largely a passive investor. Still, I've moved my money to cash and bonds more heavily, as interest rates have risen. Its not like I've checked out my brain entirely. I still make decisions, just with index-funds as my instrument.
- Raidion 4y ago
  The higher index funds gets as a % of market the more money (smart) active investing will earn you. So not only is there a balancing point, but (in theory) it should also be self balancing as the rewards increase as the balance gets more out of wack.
  - andsoitis 4y ago
    > more money (smart) active investing will earn you. One problem is: which index fund and which active fund (which changes managers every couple of years anyhow) would you compare?
    - TheCoelacanth 4y ago
      If they could answer that, they would be making a killing in the market, not handing out free investment advice on the Internet.
smilebot 4y ago
I'm guessing that's exactly what burry is doing. Let's assume that he is right, and the S&P 500 index is over valued. A big reason why it keeps staying that way is because for the past 10-20 years, there has been a lot of marketing selling these index funds. At this point, most people agree that investment for retirement generally involves putting money in an index fund and that's what people are doing. A percentage of their paycheck goes here. So, for burry to win, he needs to inform the world of the situation. And when enough people act by stopping contributions to index funds and/or sell their positions, burry is gonna make a killing.
- World177 4y ago
  > At this point, most people agree that investment for retirement generally involves putting money in an index fund and that's what people are doing. A percentage of their paycheck goes here. Withdrawing at retirement does create sell pressure though. The market has to continue attracting new investors for cash out all of the people who are withdrawing later at retirement.
  - TedDoesntTalk 4y ago
    There is a constant stream of people retiring and entering the workforce. There are no cliffs in either, even though people who espouse “boomers!” and “gen z!” would have you believe there ARE cliffs.
throw0101a 4y ago
> Why would active management have failed to find and exploit these mispricings before? It should also be noted that idea of taking advantage of mispricings is not new. From 1980: * http://www.dklevine.com/archive/refs41908.pdf http://www.dklevine.com/archive/refs41908.pdf * https://en.wikipedia.org/wiki/Grossman-Stiglitz_Paradox https://en.wikipedia.org/wiki/Grossman-Stiglitz_Paradox
0x445442 4y ago
> If stocks are so over priced, can anyone show an example of an fund that's making a killing off of these mispricings? Are we talking 2022? If so then yes… PSQ, SH or for a more targeted approach FNGD.
csa 4y ago
> If stocks are so over priced, can anyone show an example of a fund that's making a killing off of these mispricings? You won’t find them until the market crashes. The ones who make a killing will simply be the ones who timed the crash correctly. The road is already littered with funds/managers who have timed the crash incorrectly. > Why would active management have failed to find and exploit these mispricings before? There is no efficient “buy and hold” way to short the market. The ways to invest/bet on the market going down are either time-limited or have the potential for margin calls. Most downside market bets are most efficiently used as balanced hedges rather than pure bets against the market (at least imho).

andrewmcwatters 4y ago

If all the homes in your neighborhood are overpriced people will simply not buy them, and others who are less price sensitive will. It’s very difficult to “make a killing” off overpriced equities. Even lay analysts who read financial reports know most marketable securities in the US are overpriced. The ones that aren’t simply aren’t attractive investments. Go peruse a few hundred US companies and read their financials. Tons of unattractive investments available today.

kqr 4y ago
Alternatives for dealing with overpriced stocks are abundant: shorting, options, index futures, etc.
- cj 4y ago
  In the parent's example, "shorting" the overpriced neighborhood may never produce a return since overpriced houses can remain overpriced for a very long time (decades).
  - kqr 4y ago
    This is basically saying "it's not overpriced if enough people believe it to be the correct price" which yeah, sure. In that case it's impossible to make money on most overpriced asset classes (other than those you can make yourself).
  - jandrese 4y ago
    Seems like they can stay overpriced for as long as there is no better place to put the money.
    - glofish 4y ago
      then it wasn't overpriced no? Overpriced means that you can get it for cheaper.
- csa 4y ago
  > Alternatives for dealing with overpriced stocks are abundant: shorting, options, index futures, etc. All of these either have a timing component or some sort of a penalty for holding them when the market increases, even if just temporarily. There is no downside equivalent of blindly DCA buying and holding a broad basket of stocks (like index funds).
losteric 4y ago
What can a (US) layperson invest in if all marketable securities are overpriced?
- throw0101a 4y ago
  > What can a (US) layperson invest in if all marketable securities are overpriced? Just buy the S&P 500 or a total market (Russell 3000) fund and let The Market™ sort it out. Putting a little away every month will generally work out over the long-term (at least of retirement goals): * https://ofdollarsanddata.com/just-keep-buying/ https://ofdollarsanddata.com/just-keep-buying/
  - dadoge 4y ago
    The literal point of the article is that too many people dollar cost averaging is why we have a bubble
    - throw0101c 4y ago
      > The literal point of the article is that too many people dollar cost averaging is why we have a bubble Yes, I know. I've been hearing Burry make rumblings on this since 2019. But if Burry is wrong and there is no bubble (with no eventual popping), then by sitting on the sidelines waiting for the (never-to-come pop) you're costing yourself returns: * https://ofdollarsanddata.com/the-cost-of-waiting/ https://ofdollarsanddata.com/the-cost-of-waiting/ * https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-cost-averaging/ https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co... And even if there is a bubble, investing and staying invested, will also generally work out fine over the long term: * https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/ https://awealthofcommonsense.com/2014/02/worlds-worst-market...
- csa 4y ago
  The options have decreased dramatically since 2008, since cheap money has pretty much caused all asset classes to have inflated prices. The best course is/was to start your own business and sell it, since the investment market has/had deep pockets and is looking for alpha above a relatively low benchmark anywhere it can find it. Real estate was really good for a while (until 2011-2012 or so), but that is back to not being so good today. Note that PE started getting into residential real estate, so that squeezed out a lot of opportunities in that market that used to be easier to access. My tack has been: 1. Invest in things into which I have unique insights. These aren’t that common, and they are not always easy to access, but they exist. 2. I am holding a lot of cash and waiting for things to correct. 3. I am also building businesses and funding others to do so. I am not a financial advisor, I am not your financial advisor, and this is not financial advice.

kqr 4y ago

I feel like every crash you hear later about a few places that made a killing. So I'm not sure I understand where you're going with your rhetorical question. I'm sure there are people betting against the market now, too. Maybe they will make a killing. We can't tell until later. You can never prove statements about the future right or wrong. The closest thing we get is putting your money where your mouth is. If someone does that, I may look on their statements with surprise, but not suspicion.

TedDoesntTalk 4y ago
> The closest thing we get is putting your money where your mouth is. If someone does that, I may look on their statements Burry certainly is: “Michael Burry has exited all his positions which as of March 31st, 2022 had a value of +$200 million. Private jail operator GEO Group was the only stock he held as of the end of the second quarter of 2022. This position brought his portfolio exposure down to only $3.3 million” … “He is calling for a huge economic recession and market crash that will bring stocks back down to real intrinsic values in the coming year. He’s not bullish on the stock market or current valuation levels.”
0x445442 4y ago
Yeah I got a really big kick out of The Big Short. I don’t know how anyone who was a home owner or potential home owner in 2005/2006 could not see what was happening. We sold our home in San Diego in 2006 because it was obvious to me the real estate market was a mirage. I wasn’t some high flying hedge fund manager, just some shlub that could do basic math.
- isthisthingon99 4y ago
  And prices today?
  - Scoundreller 4y ago
    especially in Canada…

candiddevmike 4y ago

I don't think there are short selling ETFs, or how that would even work.

kqr 4y ago
There are. I would assume they simply hedge with real shorts.
- dragontamer 4y ago
  I'm not aware of any "simply short" ETF. It kind of doesn't make sense. Lets say you've got the underlying asset at $100, what price should the "short" asset be? $100? Well, what happens when the underlying goes to $200, or $300, or $400? The short can't just go to $0, -$100, -$200, -$300. Negative-priced ETFs just don't work (no one will pay up!!) Instead, "short ETFs" are composed of futures and/or options that move "as if" they were short against the stock. In cases of a rising bull market, the short position is "regularly wiped out" (hits $0), and the assets can rebalance to the new value of the underlying.
dragontamer 4y ago
SARK is the fun one this year. https://finance.yahoo.com/quote/SARK?p=SARK&.tsrc=fin-srch https://finance.yahoo.com/quote/SARK?p=SARK&.tsrc=fin-srch SARK is short-ARKK, designed to move equally-and-opposite to Cathie Wood's ARKK etf. ------ There's also SQQQ (Short Nasdaq ETF).
elteto 4y ago
You can buy negatively leveraged ETFs.

dragontamer 4y ago

He's right in the long sense... but I still think he's probably wrong today. But my problem with Burry's logic here, is that there's no "obvious" reason why index funds are unsustainable at 20% of the market. What if the instability point is 40%? 50%? 60%? 80%? ------- When only 20% of the market is buying-and-holding with index funds, it means that you're still facing 80% of active investors. (That is to say: 80% of your buys, and/or sells, are "against" an active investor). Even then, I'm personally largely a passive investor. Still, I've moved my money to cash and bonds more heavily, as interest rates have risen. Its not like I've checked out my brain entirely. I still make decisions, just with index-funds as my instrument.

Raidion 4y ago
The higher index funds gets as a % of market the more money (smart) active investing will earn you. So not only is there a balancing point, but (in theory) it should also be self balancing as the rewards increase as the balance gets more out of wack.
- andsoitis 4y ago
  > more money (smart) active investing will earn you. One problem is: which index fund and which active fund (which changes managers every couple of years anyhow) would you compare?
  - TheCoelacanth 4y ago
    If they could answer that, they would be making a killing in the market, not handing out free investment advice on the Internet.

smilebot 4y ago

I'm guessing that's exactly what burry is doing. Let's assume that he is right, and the S&P 500 index is over valued. A big reason why it keeps staying that way is because for the past 10-20 years, there has been a lot of marketing selling these index funds. At this point, most people agree that investment for retirement generally involves putting money in an index fund and that's what people are doing. A percentage of their paycheck goes here. So, for burry to win, he needs to inform the world of the situation. And when enough people act by stopping contributions to index funds and/or sell their positions, burry is gonna make a killing.

World177 4y ago
> At this point, most people agree that investment for retirement generally involves putting money in an index fund and that's what people are doing. A percentage of their paycheck goes here. Withdrawing at retirement does create sell pressure though. The market has to continue attracting new investors for cash out all of the people who are withdrawing later at retirement.
- TedDoesntTalk 4y ago
  There is a constant stream of people retiring and entering the workforce. There are no cliffs in either, even though people who espouse “boomers!” and “gen z!” would have you believe there ARE cliffs.

throw0101a 4y ago

> Why would active management have failed to find and exploit these mispricings before? It should also be noted that idea of taking advantage of mispricings is not new. From 1980: * http://www.dklevine.com/archive/refs41908.pdf http://www.dklevine.com/archive/refs41908.pdf * https://en.wikipedia.org/wiki/Grossman-Stiglitz_Paradox https://en.wikipedia.org/wiki/Grossman-Stiglitz_Paradox

0x445442 4y ago

> If stocks are so over priced, can anyone show an example of an fund that's making a killing off of these mispricings? Are we talking 2022? If so then yes… PSQ, SH or for a more targeted approach FNGD.

csa 4y ago

> If stocks are so over priced, can anyone show an example of a fund that's making a killing off of these mispricings? You won’t find them until the market crashes. The ones who make a killing will simply be the ones who timed the crash correctly. The road is already littered with funds/managers who have timed the crash incorrectly. > Why would active management have failed to find and exploit these mispricings before? There is no efficient “buy and hold” way to short the market. The ways to invest/bet on the market going down are either time-limited or have the potential for margin calls. Most downside market bets are most efficiently used as balanced hedges rather than pure bets against the market (at least imho).