With the S & P, 500 dropping over of 11 % in the past five days. This leaves us wondering well, the stock market dropped further, or is it time to buy now? One famous investor Michael burry, believes it's time for a stock market bubble in this video. I'm gon na cover why Michael burry believes we're in a similar situation to the 2008 recession, to give a little background information for those of you who don't know Michael burry, he was part of the Big Short a group of people who correctly predicted the recession he Made hundreds of millions dollars doing this Michael burry believes that passive investments are inflating the stock and bond prices in a similar way that collateralized debt obligations did for subprime mortgages more than ten years ago, Michael burry also talked about the longer the bull run, the bigger The crash will be over the past 12 years, we've seen a huge increase in the stock market. It was clear that Michael burry does believe this crash will be bigger than the 2008 recession first, in order to get a clear understanding of what Michael burry is predicting for us right now.

We need to cover the 2008 recession. Essentially, before the 2008 crash, people were lending out money to buy homes, and these loans were called mortgages. These mortgages were loaned from banks and banks sold these loans to other investors. The banks got greedy and started giving terrible loans to people with no reliability, after that they sold these risky mortgages and overrated.

Their safety of these mortgages mortgages are extremely risky, were wrongly rated triple-a, and although this is illegal, the banks still continue to do it because they are greedy for money. This created a bubble in the housing market, because people were constantly buying houses with these awful loans that the bank was giving, but, like all bubbles, it popped. The housing market crashed and investors, like Michael burry, took advantage of the crash. These mortgage-backed securities that investors are buying were seen as extremely passive.

They were easy money and this is what people think of index funds. Many unknowledgeable investors are buying it to index funds. Like S & P hundred and as result, we're seeing a huge bull market to index funds like the S & P 500, the problem is index. Funds like the S & P 500, contain many stocks.

However, these investors don't take a look at what stocks are actually inside the S & P 500, and this portion of this segment is extremely similar to what happened in 2008 with mortgage-backed securities. No one took a look at what mortgages were actually inside. This huge bundle of mortgages, so what's going on right now, is that S & P 500 has all these different stocks and companies all bundled into one index fund. But many investors don't read: what's actually inside these index funds and as a result, no one really values.

The companies inside these funds - and this is exactly seen in what Barry says - Michael burry, stated that this is very much like a bubble in synthetic asset-backed CDOs before the great financial crisis. In that price. Setting in that market was not done by fundamental security level analysis, but by massive capital flows based on noble, approved models of risk. That proved to be untrue.

Essentially, what he's saying is that no one's doing analysis on the stocks inside the S & P 500, but nonetheless, they're still investing into S & P 500, putting in massive capital flows, and this is based off the sentiment that these index funds are safe and big Companies are telling investors that these index funds are lower risk. However, microbrewery believes this is not true, and index funds actually have more risk than what investors think, and this leads us to the looming question. How can we take advantage of this situation, or can we even avoid this stock market crash? One way Michael burry is avoiding. This situation is investing into smaller cap stocks.

These dogs have much lower liquidity than these larger cap stocks, because the larger cap stocks are the ones that go inside these index funds. The large cap stocks are the ones that get pumped the smaller caps, don't as a result. They won't be affected by supposed index fund bubble and those invest in small cap stocks, we'll be able to avoid a stock market crash. However, personally, I don't like my kober's approach when it comes to smaller cap stocks.

Another method of approaching these stocks is by constructing an all other portfolio, and this is what Ray Dalio has done, where, essentially even in the bull market, his all-weather portfolio goes up, but in a recession his portfolio actually won't go down. Instead of going down like all these other investors do raid, I lose all other portfolio still increases in value, as the recession continues. To give you guys a little bit of background information on Ray Dalio. He is the co chief investment officer of the investment firm called Bridgewater associates, which is one of the world's largest hedge funds.

Let's go ahead and take a look at what rate value has in this portfolio. First off. We can clearly see that most of his ETF is into bonds. These are fixed income and therefore, no matter what happens to the market, this portion of Ray Dali's all other portfolio will continue getting this fixed income.

15 percent of this portfolio is an intermediate term bonds and 40 percent is in long-term bonds. Another huge portion of this portfolio is the SPDR Gold Trust. This is a great move against inflation and market downturns and, last but not least, 30 % into stocks. This is a huge criticism.

Many people have a radio that he just doesn't have enough stocks and it's all water their portfolio. But, of course this is the sacrifice of being an all-weather portfolio. You're gon na have less gains in a bullish market, but then again we're going to have to go back to the purpose of this portfolio and that's the protective against economic downturns. This approach is great, but it's not ideal for many investors.

Let's take a look at microbreweries approach with smaller cap stocks by law, Michael burry has disclose his bullish positions and his fund, but he doesn't have to disclose his short positions as a result. We can only take a look at the stocks he owns currently and how he's using these stocks to prepare for a stock market. Michael buries largest position right now is Gamestop and he actually cut 21 percent of his shares, but it still makes up 17 percent of his total portfolio and the stock is actually down 38 % from his average cost basis. Personally - and I know many of you guys would agree - GameStop is just a dying company.

However, Michael burry wants an investment gamestop likely because of its extremely low value, with this person sales ratio of just 0.05. Nonetheless, I don't agree with microbreweries decision to buy in the GameStop stock, but let me know what you think in the comment section below Michael burry. Second largest, investment in his portfolio is taylor band, and this is a position he's actually continued to increase. He recently increased his position by 14 %.

This position is worth sixteen point: six percent of microbreweries total portfolio and he's actually down thirty percent from his average cost basis, similar with gamestop. This is an extremely undervalued company, but it's also a declining company. What sales expected to decrease five percent year-over-year - it's price to sales ratio - is currently only 0.05 and has a trailing p/e of just three Taylor branch is a stock that used to be trading at the sixty to sixty-five dollar range, but now it's trading for only three Dollars a share: we can see that Michael burries approach to the upcoming recession. He thinks that Roby is to invest in smaller cap value opportunities in the market and Taylor Bands is a great example of one of these stocks.

Another stock, Michael burry, is investing heavily into. Is max are technologies, this is actually a relatively new buy, and this is a space technology company in Colorado, United States and essentially what they do is service, satellites and satellite products to places like the US Army, Michael burry, is actually already up. 45 percent, from average cost basis on master technologies, and this makes up of around 12 percent of his total portfolio max our technologies used to be an extremely fast growing company. Its sales in 2018 grew 37 %.

However, this growth started to slow down in 2019. Their sales only view 1 percent year-over-year and in 2020 now their sales is actually decreasing. 10 percent year-over-year. However, things are starting to get better for master technologies and the next 12 months, they're actually expected to grow 4 percent year-over-year in sales and as a result of this huge panic, investors were having with master technologies.

Their price to sales ratio is only a 0.45, so we can basically get a gist of what Michael burry is doing with his current portfolio he's buying into these riskier small cap stocks, and these are investments to have very low value. They're opportunistic - and these are companies that have been through lots of struggle lately, for example, gamestop. This is a stock that everyone thinks will crash in the long term. But again we just don't know his short positions, which was definitely the majority was portfolio and after the recent crash in the market, he's definitely made a nice profit out of those short positions.

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