Analyzing Michael Burry's Stock Market Predictions: Successes and Failures

Michael Burry has become synonymous with bold stock market predictions, from calling the 2008 housing crash to warning of modern inflation waves. But how often do his forecasts hit the mark, and what can investors learn from his hits and misses?

The Test of Time: Burry's Predictions in Context

One of Burry's most discussed claims came on June 13, 2022, when he likened the stock market to a crowded theater that took more than a decade to overstuff. He predicted a long, drawn-out market crash rather than a swift collapse. At that point, inflation hovered around 9%, the Federal Reserve had just begun raising rates, and stocks had already plunged roughly 15% in six months.

Since that tweet, the market first fell another 8% but then embarked on a strong rally, climbing 29% above the level at his warning. Does this mean Burry was flat-out wrong? It may be premature to conclude. However, the divergence highlights how critical timing can be for macro predictions.

Another message from the same day encapsulated his broader track record. Burry wrote:

“Getting one thing right is hard 1999 Tech bubble 01 to 05 value Revival 2005 housing bubble 2009 Armond Farms 2020 Co bottom 2020 lockdown Horrors 2021 meme stocks 2021 crypto leverage 2021 inflation 2022 not done yet late 2022 question mark.”

This list underscores his claim of forecasting major market cycles, both bear and bull phases.

Historical Insights: The Lessons of Burry's Past Predictions

Reviewing Burry's earlier calls shows a pattern of identifying large financial shifts. During the 1999 Tech bubble, he deployed a strategy to minimize price risk rather than predict the exact pop. When the NASDAQ tumbled nearly 23%, his fund still delivered a positive return. He then shifted into small-cap value after the Internet crash, anticipating an extended downturn that saw large-cap indexes drop over 40% through 2002.

These successes bolster his reputation, yet not all forecasts stand the test of time. For instance, while he expected a market downturn by late 2022, the high-profile collapse of FTX and arrest of Sam Bankman-Fried diverged from the broad-market correction he envisioned. Assigning him credit for that specific event, however, feels more like happenstance than prediction.

The Mechanics of his Predictions: Earnings Compression and Market Valuation

Burry’s mid-2022 insight into “earnings compression” is illustrative. He pointed out that the S&P 500 declined 25–26% in the first half, and earnings fell from $192 per share to $181—a 6% drop matching his forecast. Yet, despite lower profits, stock prices rebounded sharply.

The key lies in earnings multiples. When corporate profits contract, stocks can still rally if the price-to-earnings ratio expands. From mid-2022 onward, the S&P 500’s multiple climbed from about 20 back toward 26, offsetting the profit decline. Thus, while Burry’s prediction on earnings was precise, the broader market outcome diverged due to valuation shifts investors often overlook.

A Prediction for the Ages: Evaluating Current Expectations

In early 2023, Burry drew parallels to the 2000–2003 bear market cycle, forecasting an initial relief rally followed by deeper losses. He even placed a bet against the S&P 500 and NASDAQ. Instead, the market surged about 21% through 2023. This sharp rebound poses questions: Are we in a temporary upswing before a true crash, or has the worst passed?

Burry also warned of another inflation wave, predicting potential declines in the Consumer Price Index in late 2023 and a looming recession. Yet U.S. GDP grew at a 5.2% annualized pace, and CPI has not turned negative. His macro view remains compelling, but these mismatches underscore how global forces can overturn even the most data-driven outlooks.

The Bottom Line on Burry's Predictions

Michael Burry has earned acclaim for insightful, research-backed forecasts, but his greatest challenge has been nailing the timing. Investors can draw two key lessons from his record:

• Diversify your strategy to ride market waves instead of betting everything on a single forecast.

Which aspects of Burry’s predictions resonate with you? Do you favor other approaches to manage uncertainty in volatile markets?