Legendary American hedge fund manager Michael Burry has recommended that investors reduce their exposure to technology stocks, which have surged in an artificial intelligence (AI)-driven rally he compared to the last stages of the dot-com market bubble.
Burry, best known for predicting the 2008 United States housing market collapse portrayed in The Big Short film, reportedly said stock prices were rising simply because “they have been going straight up”.
“An easier way for most is to simply reduce exposure to stocks, to tech stocks in particular. For any stocks going parabolic, reduce positions almost entirely,” Burry wrote in a post on the Substack online platform.
He warned that stocks may be about to crash, according to this Reuters article, which quotes him writing: "The market has jumped the shark.”
The founder of Scion Asset Management said investors should “reject greed” as enthusiasm about AI and momentum-driven trading lifted company valuations, according to this CNBC article.
Burry said he had "a significant leveraged short position" against a portfolio he viewed as depressed and cheap.
But betting against the rally through short selling was risky and impractical for most investors, particularly as bearish trades have become increasingly expensive.
“Shorting is not the answer. It is not something most people should ever do,” he wrote.
“Right now it is expensive, in general, to buy put options and directly shorting stocks can still cause significant pain.”
The Philadelphia Semiconductor Index has surged dramatically in recent months in a pattern reminiscent of the parabolic moves seen before the collapse of internet-related stocks in 2000.
“The idea is to raise cash, and prepare to put it to work when it makes more sense to do so,” Burry wrote.
“History tells us that even if the party goes on for another week, month, three months or year, the resolution will be to much lower prices.”
