Popular hedge fund manager Michael Perry, real-life character in The Big Short, became famous for his short position on mortgage-backed debt obligations before the 2008 crash. This time, he’s short selling Apple shares. The killer news recently came with a 13F file released by Burry’s hedge fund.
(Read more from Apple Maven: Apple stock: What Analysts Think of This Market Correction)
Michael Perry cuts the price of apples
Hedge fund Scion Asset Management owns 206,000 Apple stock options as of the end of the first quarter. After declining more than 22% this year, Apple is no longer the most valuable company in the world, having recently lost its number one position to oil giant Saudi Aramco. At the same time that he bet against Cupertino, Mr. Burry’s hedge fund also added long positions in Alphabet, Meta Platforms and Discovery.
Last year, the “Big Short” protagonist made the news for his disclosure of a $530 million short deal in Tesla. At the time, the hedge fund manager said it was a quick deal in which he believed “option bets were very uneven, and the media was off in droves.”
Why is Burry Bearish Apple?
No additional thoughts on Mr. Perry’s thoughts behind the Apple short story are provided. The most likely reason is that he thinks the market is in the “biggest speculative bubble ever and of all things”.
According to a later deleted tweet by Mr. Burry, the investor appeared to believe the S&P 500 had bounced back strong and too early from the COVID-19 crash in 2020. Now, Mr. Berry believes the index could drop 54% to 1,862 points in the coming years.
This is where Apple might come into play. The Cupertino company is a major component of the technology-rich S&P 500 and Nasdaq 100 index. They represent about 7% and 13% of both indicators, respectively. It’s hard to imagine a market correction and Apple avoiding the plunge.
Not only that, but Apple tends to be very sensitive to broad market movements. Given the +1.2 historical beta, Apple’s stock price is reasonably expected to move 20% (or 0.2 times) more than the S&P 500 in either direction.
As mentioned in a previous Apple Maven article, if the broad index drops, Apple often sinks with it — but digs deeper. Take a look at the last four bear and semi-bear markets since the 2000s.
- Early 2000s: The S&P 500 is down 47%, while the AAPL is down 82%.
- 2008-2009 financial crisis: The S&P 500 is down 55%, while the AAPL is down 61%.
- Almost bear in Q4 2018: The S&P 500 is down 19.8%, while the AAPL is down 38%.
- 2020 COVID bear: The S&P 500 is down 34%, and AAPL is doing better at 31%.
So, could Berry be right?
Michael Bury has a proven track record of predicting major accidents. According to Barry, “epic dead cat bounce” can happen in the US market today, but it should be short-lived.
Bury believes that the past 10 years in the S&P 500 have been similar to the decade that led to the collapse of the dot.com major bubble in the early 2000s and to the Dow Jones Index 10 years before the collapse in 1929.
On the other hand, with regard to Apple specifically, Burry is betting on the tech giant who has managed to stand out despite challenges – and that could be dangerous. In its latest earnings report, Apple showed solid growth on top of last year’s already extraordinary results.
According to Wedbush analyst Dan Ives, one of Apple’s major Wall Street speculators, the 2.0 dot.com bubble is not lurking around the corner necessarily. He believes instead that this year’s tech-driven bear market should divide the sector into haves and have-nots. Apple, in his opinion, is among the winners.
Ives also added that the strongest tech companies should emerge stronger from the current cycle, with Apple being his top pick. “These are the times when you just have to test the endurance, look at the basics and pick the winners,” says Dan Ives.
Warren Buffett might share a similar opinion. Berkshire Hathaway, which dedicates 42% of its portfolio to Apple, remains at least as optimistic as ever. Perhaps it’s the Oracle of Omaha, and not the famous Big Short investor, that has the last laugh.
Michael Burry, best known for his historic bet on subprime mortgages in the 2000s, placed a bet on Apple. Meanwhile, Berkshire Hathaway bought more AAPL from Warren Buffett in the first quarter. Who do you think will prove correct by the end of 2022?
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