Personally I find the reporting of underlying value more useful than the price paid in puts, since it reflects the asset itself rather than an arbitrary price for an option that could be any of many different strikes or expirations. The option price itself is not that meaningful.
Except it's literally what determines how much money is at risk in the trade. If you buy puts the actual underlying asset value doesn't matter as much as the value of the option itself (which is based on several factors such as time, strike price, etc)
It is the most meaningful thing. It's the exact amount of money you are risking. It's the exact amount you lose if it doesn't strike. If I buy a put for $2, the most I can lose is $2. It's meaningful even with no other information.
13F notional value, on the other hand, is meaningless without more info.
> Personally I find the reporting of underlying value more useful than the price paid in puts
How so?
If I buy TSLA puts at a $10 strike or a $500 strike they show up the exact same on the 13F as both have to be reported as if they are delta 1 when showing a share count.
One is a very meaningful bet and one is throwing money away.
One thing to remember with 13F filings is that funds are required to report the full value of their option positions as if they were delta 1.
Some outlets then took this and wrote the story that Burry has a short bet of billions on NVIDA and Palentir.
His put's are most likely well out of the money so their delta is no where near 1 so his bet is far smaller than places are reporting just due to how the SEC requries funds to report their holdings on 13F filings.
He's not clearly right on Nvidia. People have been saying "it's clearly overvalued" for years now. And it just keeps growing at an insane pace and quite frankly their position in the market isn't really being eroded by anyone. There are hopes and dreams, but little real competition.
Cisco's earnings weren't growing at the same rate as Nvidia's. There is actual underlying sales and profit growth at the same rate as the stock price growth in NVDA's case.
Especially if you take the view that AI is the new compute. There so many chips that need to get upgraded Thats maybe one of the largest TAMs of all time that hasn't even been touched at this point.
Given how fucked it’s competition is and how the delta between CUDA/NCCL and everything else like rocm/zulda has only grown yeah, Nvidia will own the whole thing for minimum 10 years.
Everyone who tried to compete failed hard because no one has the money, and raw talent or ability to get that talent needed to beat Nvidia at the software game.
Can you provide an alternative prediction that you believe is more accurate?
> This game is far from over
Do you think a company like AMD or Intel is going to make massive gains in taking market share away from Nvidia? Or do you think it will be another company? Or something else entirely?
They always say "no, it'll be GOOGLE!" and try to bring up TPUsv6 (you still can't even play with ironwood/TPUv7 yet) as though they're competitive with blackwell let alone Reuben, as though anyone except google internal engineers get real value from them, and as though GCP doesn't have well over 1 million+ haswell/blackwell GPUs.
These same people unironically believe that Gemini was trained with zero GPUs for any part of the process (including all experiments), and it was all done on TPUs. They cite this as evidence that CUDA/Nvidia is dead.
It's stupid, it's wrong, but it's what they claim.
I'm going to be a lot wealthier than the Nvidia bears.
And if you don't believe this, just take one look at TPU pricing (remember, Trillium is TPUv6) and tell me this is competitive with Nvidia/Oracle/any neocloud with a straight face.
I'd argue the Nvidia moat is the most difficult moat to understand unless one is really in the weeds using GPUs. "all you need to do is design a similar chip" seems to fit in peoples heads nicely when they are even a little ways removed from the details.
People have been talking about competing and trying to compete with the nvidia GPU/Cuda stack for almost 20 years (since the start). There have been various efforts. They have all fallen flat. Nvidia isn't standing still, the target keeps moving forward.
To suggest Nvidia will have the game to themselves for another 10 years might turn out to be wrong, but it isn't naive. You are the naive one here.
That's sort of Taleb's whole thing: most successful investors just happened to be riding a wave and cannot claim any sort of genius. The Black Swan event is always explained away as some kind of environmental blip and investment success explained as the inevitable outcome of hard work- when in fact it is Black Swans that are inevitable and hard-working investors are just a background constant.
While what you are saying is almost certainly true, I'm actually talking about something else - people who did good work and then stop doing good work in fields where good work = good decisions. It's easy to stop doing the work and keep making the decisions and no one is the wiser for years.
This is a correct and at the same time rather misleading article. Sure, in principle it would be prudent to investigate literally everything every time. And he makes it sounds like not doing so makes a person literally 100% useless and dysfunctional. But he "forgets" to mention that investigation is non-free. And depending on the topic, the amount of such investigations and the length of each one can vary dramatically. Up to the point where whole life and all of the resources could be spent doing it.
Heuristics That Almost Always Work have a helpful hint right there in the name. They do work, and they do it almost every time. And depending on the topic that 99.99% may be even 100%, but we just can't reliably prove it. Stuff that works 99.99% of the time is very valuable and helps humans free resources and time for the less reliable or more severe problems. Or just for leisure. Personally, I invite author to go disprove every single idea on the internet and do it in careful and deep detail, let's see how long he would last without heuristics. :)
Before Burry's bets were disclosed, Palantir's trailing price-earnings ratio (P/E) peaked at 486x. What does that mean?
I like to think about it this way: Absent growth, had a private investor purchased the business at 486x earnings, it would have taken the investor 486 years to recoup the investment.
Only crazy-fast future growth could justify that multiple.
I estimate earnings/share would have to grow 30-fold within a foreseeable time frame, like 5-7 years, to justify the peak price per share.[a]
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[a] Back-of-the-envelope math: 486x peak / 15x long-term average P/E = 32-fold increase to justify valuation. I rounded it to 30-fold.
If a company has 1 billion in revenue and 999 million in costs, they are doing 1 million in earnings. It's trivially easy for them to grow earnings 30x, they can just decide to do it in most cases.
You have to look at the cost structure now v what it should be in a "steady state" situation, perhaps 10 years out.
This math doesn't always hold up to common sense, as these ratios will explode when E hovers around zero, but it has a very small effect on the business itself.
Burry nailing real estate - good for him! Burry nailing tech valuations? That one is a more finicky beast - super high risk almost infinite growth going forward - best of luck!
I could see the case for Palantir purely from the ridiculous P/E ratio. On the other hand hey, so does Tesla and it's stayed irrational longer than many shorters have stayed solvent.
But Nvidia seems highly risky to bet against. Also a very high P/E ratio, but not too crazy. And the demand is extremely real and keeps growing.
Until the latest earnings, all the hyperscalers were basically telling us quarter after quarter that they were capacity constrained and backlogged largely due to AI workloads. And capacity generally translated to GPUs. Only now has MSFT reported being constrained on power, which might signal a shift.
But that doesn't mean lower demand, it just means folks lower down the totem pole can finally get their hands on GPUs. Large sovereign nations, including US and China, are jockeying over these things.
Even if this bubble pops, I still don't see demand going down. If you look honestly for indicators, there is tons of data showing rocketing usage which is translating into real productivity wins. In a capitalistic world, that dependency is going to be impossible to wean off of.
I also don't see any real competition on the horizon yet. I kinda understand NVDA's moat is more than just their chips, it's also the ecosystem. I don't claim to deeply understand this (as another comment points out: https://news.ycombinator.com/item?id=45826309), but there are other signs I see:
1. Huawei was forced to train their models on non-Nvidia hardware, and they couldn't get a single training run completed, AIUI due to showstopping bugs and other issues in the stack.
2. Anecdotally I hear AWS has been unsuccessfully trying to get customers to use Trainium. They all prefer Nvidia.
3. Google announced OpenAI would use TPUs on GCP and now is leasing Nvidia capacity from Coreweave to support the deal.
With everyone locked in a Red Queen's race to train the most powerful models ASAP, they can't afford any delays inevitably introduced by new platforms.
The real threat right now is that behind all the smiling partnership announcements, everyone is trying desperately to diversify away from this monopsony. They will eventually succeed, but doesn't seem it will happen anytime soon.
"the market will stay irrational longer than you can stay solvent"
He's a clever man, and maybe the bubble will burst, and when it does there will inevitably be some hugely profitable short positions held by a new generation of Michael Burrys who will lose capital and reputation taking a premature short position on the subsequent major bubble.
You don't just need to decide that Nvidia is overvalued by the market and will crash in price to make money on a short position.
You need to time the crash. If you're off, it could still crash and you could spend more money sustaining the position than you'd make. Or you could end up getting margin called, not just by semi-impotent private investors as Michael Burry was, but by the platform you're trading on itself. "You've lost too much money so far based on the current valuation, so we're going to seize this option and you'll owe us the balance". Trading at high leverages with Daddy's money, people on /r/wallstreetbets sometimes get margin called and end up owing much, much more money than they put in.
Before putting any money in, make damn sure you're able to write at least a 101-level summary of the different types of trades.
I did this in February 2020, and then bet a modest amount on the proposition "People keep saying that COVID isn't going to be a big deal, and I think they're very wrong". I still managed to lose out because I didn't foresee the Federal Reserve bombing the market with freshly printed cash. I lost it all. But what I didn't do, is end up owing millions of dollars I don't have to the brokerage, because I stuck to buying put options rather than selling call options or shorting stocks outright.
Timing aside? To what extent the Federal Reserve would intervene in an NVDA price collapse is an open question, because at this point a collapse in AI investment would threaten the solvency of entirely unrelated financial institutions.
These are puts, you buy them, they have a fixed expiration date at which point they will be worthless if the price is above the strike price.
Fixed down side, upside is $100 per contract per dollar the stock is below the strike at expiry. You can also sell them before then, and price depends on time to expiry, volatility, and distance to the strike price. See Black-Scholes model for more info.
> If you're off, it could still crash and you could spend more money sustaining the position than you'd make.
And in Black Scholes this is called Theta Decay. In any form of short, there are maintenance costs, and maintenance costs roughly scale with the risk-free interest rate (usually assumed to be roughly the Federal Reserve's overnight lending rate)
Theta Decay is above-and-beyond the risk-free rate because you're also losing time-value. So you must always factor in the amount of time before a predicted crash: the longer it takes the more money you lose.
> So you must always factor in the amount of time before a predicted crash: the longer it takes the more money you lose.
I think the idea is, as a put buyer (market taker), this has already been baked into the option premium. The only "maintenance cost" in the sense of a cost that adds to an open position is from interest on margin loans.
There would be a maintenance cost from rolling the position into a later expiry, but I think the impression is that this is a precise single bet.
EDIT: You're spot on about opening a position being a sort of cost too, due to missing out on risk-free returns. This is especially important for hedging. Less so for a directional bet.
If you want to minimize loss of time value, you buy 2 year LEAPs, and then as their 1-year approaches, you sell the LEAPs and roll them back into 2-year LEAPs. Theta rapidly changes as you grow closer to expiration.
No one should be buying and holding just one option. Anyone who understands Black Scholes will be selling/buying and exchanging options as time goes on.
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Buying puts is a bull-bet on Volatility and bear-trade on the underlying stock, while losing Theta (largely based on expectation date. Longer means less Theta decay).
Selling calls is a bear bet on volatility, bear bet on underlying while gaining Theta in value each day.
And then there are the many combination trades that are available.
In any case, I don't think any sophisticated trader does the strategy you are assuming here. The sophisticated strategies involve selling and renewing your options as time moves forward / and or the stock price changes (to keep Delta withing appropriate levels).
You are right about timing being key when buying put options but...
> Or you could end up getting margin called
Completely false
Buying puts is a short position and does not require any further maintenance costs
Yes, theta decay is a thing but stating you can get margin called or there is any level of maintenance required is completely wrong and shows a total lack of understanding of the very basics of options
No, but everybody here is some random guy, being tempted to mirror trades by the superhero investor they saw in that movie. And that movie depicts Burry trying to outlast the market in this sort of situation, resorting to quasi-fraudulent ideas like taking the phone off the hook; Those ideas are not available to us at all, because the online broker would just seize the account.
You can make a lot of money on options even if the price doesn't collapse completely. Options dramatically amplify movements of the underlying price. Even if the market swoons a little bit, he can cash out for a big profit, as long as it happens before his positions expire, even if it doesn't hit his strike price.
“When I hear short sellers attacking what I believe is clearly the most important software company in America, therefore in the world, in terms of our impact, … it just is super triggering,” Karp said.
Now, now. Palantir received social security from In-Q-Tel during its incubation. Alan Wade was the CIO of the CIA and had previously founded Chiliad with Christine Maxwell (sister of that Maxwell).
On the other hand, Karp knows Lutnick (who lived next to Epstein) from Haverford College. It's a small world. So with this administration bets against Palantir might be risky.
But "the most important software company in America"? Please, many here have said that it started out as a database search company (like Chiliad).
“I love the idea of getting a drone and having light fentanyl-laced urine spraying on analysts that tried to screw us,” he said during a talk in New York to promote his new book in February."
What does Palantir actually do? I feel like every earnings discussion is vague and goes on about things like “Ontology” without sharing trustworthy details. As far as I can tell they are more like a consulting firm. Why are they not viewed like another IBM?
In East Germany, the Stasi had 90,000 full-time staff deciphering reports from maybe 400,000 regular informants and around 1/6th of the population as occasional informants. They used this to run a totalitarian surveillance state which abducted 250,000 supposed dissidents.
This is a horrendously inefficient system. 90,000? 400,000? In a population of 16 million? The expense! The time! The sensitivity to data irregularities! The friction which the non-dissidents must feel! This is a worse imposition than an occupying army. How many of those 250,000 were actually conspiring against the state in a meaningfully threatening way? 1/10th? 1/100th? How many actual dissidents make it through the sieve, because the security service was unable to cross-reference suspicious entries on three pages in files occupying different filing cabinets in different buildings in the complex?
The US, despite its military might, rapidly hit a manpower limit in the occupation of Afghanistan & Iraq, and was largely unable to effectively fight a collection of counterinsurgencies and "sympathizers".
In the 2020's we have much greater capability to surveil. We have electronics tracking everything, we have phones that listen all the time, we have cameras at every streetcorner, data brokers know more about us than our diary does. But manually checking these things in untargeted surveillance would be almost impossible. It would take our entire population spying on ourselves.
Enter Palantir. Proposition: "We would like to explore if we could make this possible & efficient, using modern database & machine learning techniques. We will collect, categorize, transcribe and cross-reference all the data, of every type, we will generate suspicious activity reports autonomously, we will make follow-up trivial".
This was literally George Orwell's nightmare in 1984 - that looking back at the long history of repression and rebellion, the cycle of violence and freedom, of authority and abuse of authority, that perhaps at some point, eventually, technology gives so much power to the authority that it's simply impossible to overthrow them.
That said I'm not convinced with these famous investors. I worry the big short kind of broke his brain, he's obsessed with these landfall cases now and I'm not sure they're really going to pan out. His last big one was water and I can't imagine he's doing much better than just farmers renting the land he owns.
Eisman, Burry and Paulson all got their brain broken by that.
With Burry I think the redeeming part is that he is mostly, AFAIK, running his own capital since that time so there's no point criticizing him for his weird picks.
Paulson spent the last decade burning investor capital using the reputation, good for him I guess.
Eisman didn't do so well the last decade either, but at least his Youtube / podcast is light years ahead of the garbage that rich VCs are doing in terms of education.
I definitely think that he thinks he's smarter than the market and sees bubbles everywhere, and I also definitely think that there's a gigantic AI bubble, or at least extreme 'frothiness' with all this circular investing to prop stock prices up.
Actually turning a bubble into money is another question entirely, however, especially since he himself popularized shouting the emperor has no clothes at every turn. When the market will believe someone is a different story.
Even with obviously ridiculous valuations, being a short means thinking you're smarter than the market, and you can time it, and you are smarter enough that a structurally disadvantaged investment is a good idea.
His track record since “the big short” has been horrific. That’s the problem with being a perma-bear, eventually the market dips but you missed out on extraordinary gains vastly out weighing your negative thesis. It’s a hellva lot easier to be bullish American companies then try and time draw downs. Doesn’t make any sense.
Yes, but I haven't seen anything from AI technology to suggest it's going to live up to the hype in the short term. I'm not saying Burry is completely accurate in this case, but the draw down could be quite big.
GPT-4 was released in early 2023. Back then AI maximalists were saying AGI is near. We're approaching early 2026 and we obviously aren't anywhere close to anything any reasonable person would consider AGI. But what do we have? "Agents" that are mostly useless. Image and video clip content generators that are pretty much only good for social media memes and spam. We do have better software development tools, but that's not a life changing advancement.
It seems like in order for all this speculation and all these massive build-outs to pay off we're going to need AI to redefine how we work and live within the next 3-5 years. Even if we AI development doubles or triples what it's been able to do in the last 3-5 years, I don't see this happening.
So, when this does not happen, when the AI hype does not live up to the promises, by a longshot, what will happen to the markets?
Have you tried claude code? I despise AI to my bones but even I can’t say claude code is not impressive.
If any anthropic reps read this, I think you guys, while probably better than open AI and meta, possibly Google, are delusional and are more likely to destroy the world than create infinite human life.
I have and it is. But I did acknowledge that in the previous post. I just don't think software development tools like Claude Code, while great, and I wouldn't want to back to life without them, are going to recoup all this investment. We need like 10 Claude Codes for different aspects of work and life. Then we're getting somewhere...
- In late 2020, Scion sold its entire stake in GameStop. Scion missed out of the GameStop short squeeze which occurred only a few months later. Its 5.3% stake would have been worth over $1.5 billion at its height.
- In May 2021, Scion disclosed it acquired put options on Tesla shares.
- In August 2023, it was reported Scion anticipated a stock market crash and acquired $1.6 billion worth of put options to bet against the ETFs that tracked the S&P 500 and the Nasdaq-100.
- Scion also was noted to have held a large put option against the iShares Semiconductor ETF.
However, nothing about any of those points indicate his performance has been horrific.
All that matters are his returns against his reference index. That's the only relevant measure.
EDIT I did manage to find his returns via chatgpt and the OP is correct that they haven't been great in some periods, but his last 5 year average is +85% which isn't bad, not great, but not bad.
He is also up about 10% over the past year, so not great and not terrible, he's mid as the kids say.
A crisis is when money flow stops in the market. In The Big Short, he bet on the fact that cash flow would stop, and they won. The stock market works in a similar way to a company’s cash flow. When money is pumped into a stock, its value increases; when money is pulled out, the value drops.
The news is essentially about making a bet, as the title suggests, with no real evidence or information on who will pull the money out or how it will happen. Just because the price is high doesn’t necessarily mean there will be an outflow. It’s more like gambling, based on speculation rather than solid facts.
> His track record since “the big short” has been horrific.
You would expect that with low probability, highly leveraged bets, which shorts largely are. You are wrong most of the time and then make a giant pile of money when you are right. People definitely should understand that strategy though and not just follow him blindly into investments without the expectation that you will probably lose your money almost every time.
Article is misleading/wrong on the sizing:
> Scion bought roughly $187.6 million in puts on Nvidia and $912 million in puts on Palantir, according to Securities and Exchange Commission filings.
But 13F reports the market value of the underlying shares for options, not the premium paid for the options
All we know is at time of filing he has 10k NVDA puts and 50k PLTR puts. We don't know the strike price or the duration or how much he paid
I can find extreme Nvidia puts on robinhood for 2 cents right now. So risking ~$2 of actual money gets you ~$20,000 notional 13F value.
So the claim "$187.6 million in puts on Nvidia" potentially means "Burry risked a total of $18,760 betting against Nvidia" in reality.
Personally I find the reporting of underlying value more useful than the price paid in puts, since it reflects the asset itself rather than an arbitrary price for an option that could be any of many different strikes or expirations. The option price itself is not that meaningful.
> The option price itself is not that meaningful.
Except it's literally what determines how much money is at risk in the trade. If you buy puts the actual underlying asset value doesn't matter as much as the value of the option itself (which is based on several factors such as time, strike price, etc)
>The option price itself is not that meaningful.
It is the most meaningful thing. It's the exact amount of money you are risking. It's the exact amount you lose if it doesn't strike. If I buy a put for $2, the most I can lose is $2. It's meaningful even with no other information.
13F notional value, on the other hand, is meaningless without more info.
> Personally I find the reporting of underlying value more useful than the price paid in puts
How so?
If I buy TSLA puts at a $10 strike or a $500 strike they show up the exact same on the 13F as both have to be reported as if they are delta 1 when showing a share count.
One is a very meaningful bet and one is throwing money away.
That’s exactly correct, which is why I find the actual option price not so relevant. Presumably that’s why it’s also reported in the way that it is.
I find this comment non-sequitur. We may have a mismatched understanding of how options work.
One thing to remember with 13F filings is that funds are required to report the full value of their option positions as if they were delta 1.
Some outlets then took this and wrote the story that Burry has a short bet of billions on NVIDA and Palentir.
His put's are most likely well out of the money so their delta is no where near 1 so his bet is far smaller than places are reporting just due to how the SEC requries funds to report their holdings on 13F filings.
He’s clearly right, but shares could take a really long time before they actually come back to reality.
He's not clearly right on Nvidia. People have been saying "it's clearly overvalued" for years now. And it just keeps growing at an insane pace and quite frankly their position in the market isn't really being eroded by anyone. There are hopes and dreams, but little real competition.
A good time to remember that Cisco was briefly the most valued company in the world: https://www.nytimes.com/2000/03/24/technology/cisco-briefly-...
I met a traveller from an antique land, // Who said—“Two vast and trunkless legs of stone // Stand in the desert…
Cisco's earnings weren't growing at the same rate as Nvidia's. There is actual underlying sales and profit growth at the same rate as the stock price growth in NVDA's case.
Especially if you take the view that AI is the new compute. There so many chips that need to get upgraded Thats maybe one of the largest TAMs of all time that hasn't even been touched at this point.
And Nvidia is going to own the whole thing, forever?
Given how fucked it’s competition is and how the delta between CUDA/NCCL and everything else like rocm/zulda has only grown yeah, Nvidia will own the whole thing for minimum 10 years.
Everyone who tried to compete failed hard because no one has the money, and raw talent or ability to get that talent needed to beat Nvidia at the software game.
This game is far from over and I find your prediction almost naive.
Can you provide an alternative prediction that you believe is more accurate?
> This game is far from over
Do you think a company like AMD or Intel is going to make massive gains in taking market share away from Nvidia? Or do you think it will be another company? Or something else entirely?
They always say "no, it'll be GOOGLE!" and try to bring up TPUsv6 (you still can't even play with ironwood/TPUv7 yet) as though they're competitive with blackwell let alone Reuben, as though anyone except google internal engineers get real value from them, and as though GCP doesn't have well over 1 million+ haswell/blackwell GPUs.
These same people unironically believe that Gemini was trained with zero GPUs for any part of the process (including all experiments), and it was all done on TPUs. They cite this as evidence that CUDA/Nvidia is dead.
It's stupid, it's wrong, but it's what they claim.
I'm going to be a lot wealthier than the Nvidia bears.
And if you don't believe this, just take one look at TPU pricing (remember, Trillium is TPUv6) and tell me this is competitive with Nvidia/Oracle/any neocloud with a straight face.
https://cloud.google.com/tpu/pricing?hl=en
I'd argue the Nvidia moat is the most difficult moat to understand unless one is really in the weeds using GPUs. "all you need to do is design a similar chip" seems to fit in peoples heads nicely when they are even a little ways removed from the details.
People have been talking about competing and trying to compete with the nvidia GPU/Cuda stack for almost 20 years (since the start). There have been various efforts. They have all fallen flat. Nvidia isn't standing still, the target keeps moving forward.
To suggest Nvidia will have the game to themselves for another 10 years might turn out to be wrong, but it isn't naive. You are the naive one here.
How short-term of a thinker do you have to be to consider Nvidia's run a long time? I blame TikTok.
Nvidia has been crushing it for 30 years.
You are the one who needs to zoom out on the stock price graph lol
I periodically read this ACT post to degauss my brain so I can think about these matters from a fresh perspective: https://www.astralcodexten.com/p/heuristics-that-almost-alwa...
This kind of thing happens with investors... they work their butt off for years, do well, then think it's them rather than the work.
That's sort of Taleb's whole thing: most successful investors just happened to be riding a wave and cannot claim any sort of genius. The Black Swan event is always explained away as some kind of environmental blip and investment success explained as the inevitable outcome of hard work- when in fact it is Black Swans that are inevitable and hard-working investors are just a background constant.
While what you are saying is almost certainly true, I'm actually talking about something else - people who did good work and then stop doing good work in fields where good work = good decisions. It's easy to stop doing the work and keep making the decisions and no one is the wiser for years.
This is a correct and at the same time rather misleading article. Sure, in principle it would be prudent to investigate literally everything every time. And he makes it sounds like not doing so makes a person literally 100% useless and dysfunctional. But he "forgets" to mention that investigation is non-free. And depending on the topic, the amount of such investigations and the length of each one can vary dramatically. Up to the point where whole life and all of the resources could be spent doing it.
Heuristics That Almost Always Work have a helpful hint right there in the name. They do work, and they do it almost every time. And depending on the topic that 99.99% may be even 100%, but we just can't reliably prove it. Stuff that works 99.99% of the time is very valuable and helps humans free resources and time for the less reliable or more severe problems. Or just for leisure. Personally, I invite author to go disprove every single idea on the internet and do it in careful and deep detail, let's see how long he would last without heuristics. :)
Before Burry's bets were disclosed, Palantir's trailing price-earnings ratio (P/E) peaked at 486x. What does that mean?
I like to think about it this way: Absent growth, had a private investor purchased the business at 486x earnings, it would have taken the investor 486 years to recoup the investment.
Only crazy-fast future growth could justify that multiple.
I estimate earnings/share would have to grow 30-fold within a foreseeable time frame, like 5-7 years, to justify the peak price per share.[a]
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[a] Back-of-the-envelope math: 486x peak / 15x long-term average P/E = 32-fold increase to justify valuation. I rounded it to 30-fold.
If a company has 1 billion in revenue and 999 million in costs, they are doing 1 million in earnings. It's trivially easy for them to grow earnings 30x, they can just decide to do it in most cases.
You have to look at the cost structure now v what it should be in a "steady state" situation, perhaps 10 years out.
This math doesn't always hold up to common sense, as these ratios will explode when E hovers around zero, but it has a very small effect on the business itself.
Expenses can be reduced too. It's not solely about earnings growth.
Burry nailing real estate - good for him! Burry nailing tech valuations? That one is a more finicky beast - super high risk almost infinite growth going forward - best of luck!
Betting against Palantir is interesting. I guess he saw the margins on that Mamdani victory and decided it means that the table is turning.
The positions: https://www.sec.gov/Archives/edgar/data/1649339/000164933925...
Right. He also went long on Lulu Lemon. Where’s the undervaluation thesis on yoga pants?
Lululemon benefits humanity just as much as AI. For different reasons, of course.
Makes me wonder how much of a self-fulfilling prophecy this can be.
It might become the modern Tulip Mania of our time.
Tulips didn't largely replace the most popular search engine. They didn't replace employees. Tulips were a meme stock, AI is a breakthrough.
Could be overvalued, but it is not vaporware.
Tulips almost can replace employees, just like AI
I could see the case for Palantir purely from the ridiculous P/E ratio. On the other hand hey, so does Tesla and it's stayed irrational longer than many shorters have stayed solvent.
But Nvidia seems highly risky to bet against. Also a very high P/E ratio, but not too crazy. And the demand is extremely real and keeps growing.
Until the latest earnings, all the hyperscalers were basically telling us quarter after quarter that they were capacity constrained and backlogged largely due to AI workloads. And capacity generally translated to GPUs. Only now has MSFT reported being constrained on power, which might signal a shift.
But that doesn't mean lower demand, it just means folks lower down the totem pole can finally get their hands on GPUs. Large sovereign nations, including US and China, are jockeying over these things.
Even if this bubble pops, I still don't see demand going down. If you look honestly for indicators, there is tons of data showing rocketing usage which is translating into real productivity wins. In a capitalistic world, that dependency is going to be impossible to wean off of.
I also don't see any real competition on the horizon yet. I kinda understand NVDA's moat is more than just their chips, it's also the ecosystem. I don't claim to deeply understand this (as another comment points out: https://news.ycombinator.com/item?id=45826309), but there are other signs I see:
1. Huawei was forced to train their models on non-Nvidia hardware, and they couldn't get a single training run completed, AIUI due to showstopping bugs and other issues in the stack.
2. Anecdotally I hear AWS has been unsuccessfully trying to get customers to use Trainium. They all prefer Nvidia.
3. Google announced OpenAI would use TPUs on GCP and now is leasing Nvidia capacity from Coreweave to support the deal.
With everyone locked in a Red Queen's race to train the most powerful models ASAP, they can't afford any delays inevitably introduced by new platforms.
The real threat right now is that behind all the smiling partnership announcements, everyone is trying desperately to diversify away from this monopsony. They will eventually succeed, but doesn't seem it will happen anytime soon.
Pretty sure they are reporting on the option deltas as if he spent $900m in premium.
Which is wrong.
"the market will stay irrational longer than you can stay solvent" He's a clever man, and maybe the bubble will burst, and when it does there will inevitably be some hugely profitable short positions held by a new generation of Michael Burrys who will lose capital and reputation taking a premature short position on the subsequent major bubble.
You don't just need to decide that Nvidia is overvalued by the market and will crash in price to make money on a short position.
You need to time the crash. If you're off, it could still crash and you could spend more money sustaining the position than you'd make. Or you could end up getting margin called, not just by semi-impotent private investors as Michael Burry was, but by the platform you're trading on itself. "You've lost too much money so far based on the current valuation, so we're going to seize this option and you'll owe us the balance". Trading at high leverages with Daddy's money, people on /r/wallstreetbets sometimes get margin called and end up owing much, much more money than they put in.
Before putting any money in, make damn sure you're able to write at least a 101-level summary of the different types of trades.
I did this in February 2020, and then bet a modest amount on the proposition "People keep saying that COVID isn't going to be a big deal, and I think they're very wrong". I still managed to lose out because I didn't foresee the Federal Reserve bombing the market with freshly printed cash. I lost it all. But what I didn't do, is end up owing millions of dollars I don't have to the brokerage, because I stuck to buying put options rather than selling call options or shorting stocks outright.
Timing aside? To what extent the Federal Reserve would intervene in an NVDA price collapse is an open question, because at this point a collapse in AI investment would threaten the solvency of entirely unrelated financial institutions.
These are puts, you buy them, they have a fixed expiration date at which point they will be worthless if the price is above the strike price.
Fixed down side, upside is $100 per contract per dollar the stock is below the strike at expiry. You can also sell them before then, and price depends on time to expiry, volatility, and distance to the strike price. See Black-Scholes model for more info.
Are you actually disagreeing with this?
> If you're off, it could still crash and you could spend more money sustaining the position than you'd make.
And in Black Scholes this is called Theta Decay. In any form of short, there are maintenance costs, and maintenance costs roughly scale with the risk-free interest rate (usually assumed to be roughly the Federal Reserve's overnight lending rate)
Theta Decay is above-and-beyond the risk-free rate because you're also losing time-value. So you must always factor in the amount of time before a predicted crash: the longer it takes the more money you lose.
> So you must always factor in the amount of time before a predicted crash: the longer it takes the more money you lose.
I think the idea is, as a put buyer (market taker), this has already been baked into the option premium. The only "maintenance cost" in the sense of a cost that adds to an open position is from interest on margin loans.
There would be a maintenance cost from rolling the position into a later expiry, but I think the impression is that this is a precise single bet.
EDIT: You're spot on about opening a position being a sort of cost too, due to missing out on risk-free returns. This is especially important for hedging. Less so for a directional bet.
Theta changes with time.
If you want to minimize loss of time value, you buy 2 year LEAPs, and then as their 1-year approaches, you sell the LEAPs and roll them back into 2-year LEAPs. Theta rapidly changes as you grow closer to expiration.
No one should be buying and holding just one option. Anyone who understands Black Scholes will be selling/buying and exchanging options as time goes on.
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Buying puts is a bull-bet on Volatility and bear-trade on the underlying stock, while losing Theta (largely based on expectation date. Longer means less Theta decay).
Selling calls is a bear bet on volatility, bear bet on underlying while gaining Theta in value each day.
And then there are the many combination trades that are available.
In any case, I don't think any sophisticated trader does the strategy you are assuming here. The sophisticated strategies involve selling and renewing your options as time moves forward / and or the stock price changes (to keep Delta withing appropriate levels).
Why do you have to come with facts to ruin his fan fiction porn about Burry getting margin called?
You are right about timing being key when buying put options but...
> Or you could end up getting margin called
Completely false
Buying puts is a short position and does not require any further maintenance costs
Yes, theta decay is a thing but stating you can get margin called or there is any level of maintenance required is completely wrong and shows a total lack of understanding of the very basics of options
There's no way he gets margin called, these surely are puts, not pure stock shorting. This isn't some random guy.
No, but everybody here is some random guy, being tempted to mirror trades by the superhero investor they saw in that movie. And that movie depicts Burry trying to outlast the market in this sort of situation, resorting to quasi-fraudulent ideas like taking the phone off the hook; Those ideas are not available to us at all, because the online broker would just seize the account.
Investors can & do make mistakes.
“Markets can remain irrational longer than you can remain solvent.” ― John Maynard Keynes
Speaking of mistakes, that quote is from A. Gary Schilling rather than Keynes.
https://quoteinvestigator.com/2011/08/09/remain-solvent/
yeah the article is clear they are puts
Hence the famous warning: “the market can remain irrational much longer than you can remain solvent ”
You can make a lot of money on options even if the price doesn't collapse completely. Options dramatically amplify movements of the underlying price. Even if the market swoons a little bit, he can cash out for a big profit, as long as it happens before his positions expire, even if it doesn't hit his strike price.
“When I hear short sellers attacking what I believe is clearly the most important software company in America, therefore in the world, in terms of our impact, … it just is super triggering,” Karp said.
Now, now. Palantir received social security from In-Q-Tel during its incubation. Alan Wade was the CIO of the CIA and had previously founded Chiliad with Christine Maxwell (sister of that Maxwell).
On the other hand, Karp knows Lutnick (who lived next to Epstein) from Haverford College. It's a small world. So with this administration bets against Palantir might be risky.
But "the most important software company in America"? Please, many here have said that it started out as a database search company (like Chiliad).
Come on, Karp is such a nice guy:
“I love the idea of getting a drone and having light fentanyl-laced urine spraying on analysts that tried to screw us,” he said during a talk in New York to promote his new book in February."
https://www.ft.com/content/64a2345e-3961-4d5d-ae04-82d933fa5...
[dupe] https://news.ycombinator.com/item?id=45813734
What does Palantir actually do? I feel like every earnings discussion is vague and goes on about things like “Ontology” without sharing trustworthy details. As far as I can tell they are more like a consulting firm. Why are they not viewed like another IBM?
In East Germany, the Stasi had 90,000 full-time staff deciphering reports from maybe 400,000 regular informants and around 1/6th of the population as occasional informants. They used this to run a totalitarian surveillance state which abducted 250,000 supposed dissidents.
This is a horrendously inefficient system. 90,000? 400,000? In a population of 16 million? The expense! The time! The sensitivity to data irregularities! The friction which the non-dissidents must feel! This is a worse imposition than an occupying army. How many of those 250,000 were actually conspiring against the state in a meaningfully threatening way? 1/10th? 1/100th? How many actual dissidents make it through the sieve, because the security service was unable to cross-reference suspicious entries on three pages in files occupying different filing cabinets in different buildings in the complex?
The US, despite its military might, rapidly hit a manpower limit in the occupation of Afghanistan & Iraq, and was largely unable to effectively fight a collection of counterinsurgencies and "sympathizers".
In the 2020's we have much greater capability to surveil. We have electronics tracking everything, we have phones that listen all the time, we have cameras at every streetcorner, data brokers know more about us than our diary does. But manually checking these things in untargeted surveillance would be almost impossible. It would take our entire population spying on ourselves.
Enter Palantir. Proposition: "We would like to explore if we could make this possible & efficient, using modern database & machine learning techniques. We will collect, categorize, transcribe and cross-reference all the data, of every type, we will generate suspicious activity reports autonomously, we will make follow-up trivial".
This was literally George Orwell's nightmare in 1984 - that looking back at the long history of repression and rebellion, the cycle of violence and freedom, of authority and abuse of authority, that perhaps at some point, eventually, technology gives so much power to the authority that it's simply impossible to overthrow them.
They are of the industry formerly known as “Big Data” or “data science.”
They think hard about how to collect and make use of, what most would describe as, grains of sand.
A common use case for their data is figuring out for a government who they should kill that week.
They're basically IBM + Oracle but sexy because tech is different this time around for some reason?
Previous similar posts https://news.ycombinator.com/item?id=45813734 and https://news.ycombinator.com/item?id=45815852
That said I'm not convinced with these famous investors. I worry the big short kind of broke his brain, he's obsessed with these landfall cases now and I'm not sure they're really going to pan out. His last big one was water and I can't imagine he's doing much better than just farmers renting the land he owns.
Eisman, Burry and Paulson all got their brain broken by that.
With Burry I think the redeeming part is that he is mostly, AFAIK, running his own capital since that time so there's no point criticizing him for his weird picks.
Paulson spent the last decade burning investor capital using the reputation, good for him I guess.
Eisman didn't do so well the last decade either, but at least his Youtube / podcast is light years ahead of the garbage that rich VCs are doing in terms of education.
I definitely think that he thinks he's smarter than the market and sees bubbles everywhere, and I also definitely think that there's a gigantic AI bubble, or at least extreme 'frothiness' with all this circular investing to prop stock prices up.
Actually turning a bubble into money is another question entirely, however, especially since he himself popularized shouting the emperor has no clothes at every turn. When the market will believe someone is a different story.
Even with obviously ridiculous valuations, being a short means thinking you're smarter than the market, and you can time it, and you are smarter enough that a structurally disadvantaged investment is a good idea.
Smarter has nothing to do with it, see e.g. tragedy of the commons.
His track record since “the big short” has been horrific. That’s the problem with being a perma-bear, eventually the market dips but you missed out on extraordinary gains vastly out weighing your negative thesis. It’s a hellva lot easier to be bullish American companies then try and time draw downs. Doesn’t make any sense.
Yes, but I haven't seen anything from AI technology to suggest it's going to live up to the hype in the short term. I'm not saying Burry is completely accurate in this case, but the draw down could be quite big.
GPT-4 was released in early 2023. Back then AI maximalists were saying AGI is near. We're approaching early 2026 and we obviously aren't anywhere close to anything any reasonable person would consider AGI. But what do we have? "Agents" that are mostly useless. Image and video clip content generators that are pretty much only good for social media memes and spam. We do have better software development tools, but that's not a life changing advancement.
It seems like in order for all this speculation and all these massive build-outs to pay off we're going to need AI to redefine how we work and live within the next 3-5 years. Even if we AI development doubles or triples what it's been able to do in the last 3-5 years, I don't see this happening.
So, when this does not happen, when the AI hype does not live up to the promises, by a longshot, what will happen to the markets?
Have you tried claude code? I despise AI to my bones but even I can’t say claude code is not impressive.
If any anthropic reps read this, I think you guys, while probably better than open AI and meta, possibly Google, are delusional and are more likely to destroy the world than create infinite human life.
I have and it is. But I did acknowledge that in the previous post. I just don't think software development tools like Claude Code, while great, and I wouldn't want to back to life without them, are going to recoup all this investment. We need like 10 Claude Codes for different aspects of work and life. Then we're getting somewhere...
So you’re not buying the idea that with increased productivity those tools will quickly follow?
Nothing happens as quick as greed demands.
> His track record since “the big short” has been horrific.
Has it? I couldn't find the returns for his fund. Since you have them can you post them and highlight what about them are horrific?
- In late 2020, Scion sold its entire stake in GameStop. Scion missed out of the GameStop short squeeze which occurred only a few months later. Its 5.3% stake would have been worth over $1.5 billion at its height.
- In May 2021, Scion disclosed it acquired put options on Tesla shares.
- In August 2023, it was reported Scion anticipated a stock market crash and acquired $1.6 billion worth of put options to bet against the ETFs that tracked the S&P 500 and the Nasdaq-100.
- Scion also was noted to have held a large put option against the iShares Semiconductor ETF.
First, I appreciate the response.
However, nothing about any of those points indicate his performance has been horrific.
All that matters are his returns against his reference index. That's the only relevant measure.
EDIT I did manage to find his returns via chatgpt and the OP is correct that they haven't been great in some periods, but his last 5 year average is +85% which isn't bad, not great, but not bad.
He is also up about 10% over the past year, so not great and not terrible, he's mid as the kids say.
A crisis is when money flow stops in the market. In The Big Short, he bet on the fact that cash flow would stop, and they won. The stock market works in a similar way to a company’s cash flow. When money is pumped into a stock, its value increases; when money is pulled out, the value drops.
The news is essentially about making a bet, as the title suggests, with no real evidence or information on who will pull the money out or how it will happen. Just because the price is high doesn’t necessarily mean there will be an outflow. It’s more like gambling, based on speculation rather than solid facts.
I am interested in quantitative / probabilistic analysis on your thesis. Where should I go look?
nice prompt
troll
> His track record since “the big short” has been horrific.
You would expect that with low probability, highly leveraged bets, which shorts largely are. You are wrong most of the time and then make a giant pile of money when you are right. People definitely should understand that strategy though and not just follow him blindly into investments without the expectation that you will probably lose your money almost every time.
Yeah I believe this is basically Taleb's investment strategy (or at least, what he seemed to claim in his books)