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How Michael Burry Could Be Right About Apple Stock

"The Big Short" celebrity investor Michael Burry recently disclosed that he is short Apple stock. Could he be right about AAPL dipping even further from here?

Famous hedge fund manager Michael Burry, the real-life character in "The Big Short", became famous for his short position on subprime CDOs ahead of the 2008 crash. This time, he is shorting Apple stock. The bombshell news has come recently via a 13F filing released by Burry's hedge fund.

Figure 1: How Michael Burry Could Be Right About Apple Stock

Figure 1: How Michael Burry Could Be Right About Apple Stock

(Read more from Apple Maven: Apple Stock: What Analysts Think Of This Market Correction)

Michael Burry Is Shorting Apple

Hedge fund Scion Asset Management owned 206,000 put options on Apple shares as of the end of Q1. Down more than 22% this year, Apple is no longer the world's most valuable company, as it has recently lost its top position to oil giant Saudi Aramco. At the same time that it bet against the Cupertino company, Mr. Burry's hedge fund has also added long positions in Alphabet, Meta Platforms, and Discovery.

Last year, the “Big Short” protagonist made the news for disclosing a $530 million short position in Tesla. At the time, the hedge fund manager said that it had been a quick trade in which he thought that "the options bets were extremely asymmetric, and the media was off by orders of magnitude."

Why Is Burry Bearish Apple?

No additional insight has been offered about Mr. Burry’s ideas behind the Apple short. The most likely reason is his belief that the market is in "the biggest speculative bubble of all time and of all things”.

Figure 2: Michael Burry former Twitter account

Figure 2: Michael Burry former Twitter account

According to a tweet by Mr. Burry that was later deleted, the investor seemed to believe that the S&P 500 rebounded too strongly and too early from the COVID-19 crash in 2020. Now,Mr. Burry thinks that the index could plummet 54% to 1,862 points in the years to come.

This is where Apple may come into play. The Cupertino company is a major component of the S&P 500 and the tech-rich Nasdaq 100. It accounts for around 7% and 13% of both indices, respectively. It is hard to imagine the market correcting and Apple sidestepping the plunge.

Not only that, but Apple tends to be quite sensitive to broad market movements. Considering a historic beta of +1.2, Apple stock price could be 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 dips, Apple often sinks along with it — but digs even deeper. Take a look at the last four bear and quasi-bear markets since the 2000s.

  • Early 2000s: the S&P 500 dipped as much as 47%, while AAPL sank 82%.
  • 2008-09 financial crisis: the S&P 500 dipped 55%, while AAPL dropped 61%.
  • Quasi-bear of Q4'18: the S&P 500 dipped 19.8%, while AAPL shrunk 38%.
  • 2020 COVID bear: the S&P 500 dipped 34%, and AAPL did better at 31%.

So, Could Burry Be Right?

Michael Burry has a respectable track record in anticipating major crashes. According to Burry, "epic dead cat bounces" could happen in the US market today, but they should be short-lived.

Burry believes that the last 10 years in the S&P 500 have been similar to the decade leading up to the major bubble crash in the early 2000s and to the Dow Jones 10 years before the 1929 meltdown.

On the other hand, regarding Apple specifically, Burry is betting against a tech giant that has managed to stand out despite the challenges — and this could be dangerous. In the latest earnings report, Apple displayed solid growth on top of last year's already extraordinary results.

According to Wedbush analyst Dan Ives, one of the main Apple bulls on Wall Street, a 2.0 version of the bubble is not necessarily lurking around the corner. He believes instead that this year's tech-driven bear market should split the sector into clear haves and have-nots. Apple, in his view, features among the winners.

Ives further added that the strongest tech companies should emerge even stronger from the current cycle, with Apple being his top pick. "These are the times you've got to just stress test, look at the fundamentals and pick your winners," says Dan Ives.

Warren Buffett may share a similar opinion. Berkshire Hathaway, which has 42% of its portfolio allocated to Apple, remains at least as bullish as it has ever been. Maybe the Oracle of Omaha, not the Big Short celebrity investor, may have the last laugh.

Ask Twitter

Michael Burry, who became famous for his historic bet against sub-prime in the 2000s, has placed a bet against Apple. At the same time, Warren Buffett’s Berkshire Hathaway bought even more AAPL in Q1. Who do you think will be proven right by the end of 2022?

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Apple Maven)