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When Warren Buffett reveals he’s buying something, other investors usually follow suit. His reputation alone can push a share price higher. People call that the “Buffett effect.”
Michael Burry may have the opposite effect, though he doesn’t buy that idea.
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The investor, known for predicting the 2008 housing crash, now writes about his trades on Substack.
And last week one pattern stood out.
He revealed bets against six stocks, and most of them fell in value within days. Business Insider asked him if he thought his calls were moving those stocks, and he pushed back in an email: “I do not believe there is a Burry effect (1).”
Burry ranks second on Substack’s “Bestsellers in Finance” list (2) and has almost 2 million followers on X (3). When someone with that kind of audience says he’s shorting a stock, some people are going to copy him. But you shouldn’t do it just because he did — at least not without understanding why.
What Burry actually bet against
First, the mechanics. Shorting a stock is a bet that the stock will fall — you borrow shares, sell them now and plan to buy them back cheaper later, keeping the difference. If the stock climbs instead, you lose.
On June 30, Burry disclosed shorts against Nvidia, Applied Materials, Caterpillar, Tesla and the iShares Semiconductor ETF (SOXX), a fund that holds Nvidia, Micron and other microchip stocks. The next day he added Micron Technology, posting (4) that it “defines cyclical like no other.” He argues that Micron has taken 34 drops of more than 30% in 42 years, and its long-run returns on capital are “frankly terrible (5).”
Did he cause the drop, or just call it?
Then the chips fell. Micron dropped 15% over two days, the SOXX and Applied Materials fell 12% and 17% while Tesla slipped 6% even after reporting more than 480,000 second-quarter deliveries (6). In Seoul on Thursday alone, Samsung fell about 9% and SK Hynix about 15% (7).
