Michael Burry screams big market crash ahead! Why legendary investor Peter Lynch ignored such predictions

ETMarkets.com

Michael Burry, popular for correctly predicting the 2008 housing crisis, has been ramping up his warnings over the excessive optimism about AI. Recently, he said that the market is currently in a 'denial' mood, a phase that could last six to nine months, as seen during the previous 2000 and 2008 crises.

Also read | AI bubble to burst sooner than expected? Michael Burry believes it would take only one season of revenue disappointment

Billionaire Ray Dalio also echoed similar views, warning that artificial intelligence is a “classic bubble” that is nearing a bursting point. “We’re in the part of the cycle that is before that but approaching that,” the Bridgewater founder said at the Forbes Global CEO Conference in Singapore recently. “I think we’re close to that.”

Why Peter Lynch ignored market crash predictions

However, legendary investor Peter Lynch, who popularised the concept of finding tenbaggers, once famously said people often end up losing more money anticipating a crash than during the crash itself. “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves,” he said in an essay back in 1995.

According to Peter Lynch, the key to making money in stocks is not letting fear drive you out of them. "Markets go down, sometimes they go down a lot. If you are not ready for this, you shouldn't own stocks,” he once said.

Lynch believed that an investor should make a decision with their brain and have the stomach to stand by it, as decisions taken based on emotions can be a real performance killer.

He believed that predicting the stock market is a total waste of time. “People get too carried away. They try to predict the stock market. That is a total waste of time,” he said, adding that people spend an unbelievable amount of mental energy trying to pick what the market's going to do, what time of the year to buy it. “It's just not worth it,” according to the market veteran.

How to find tenbaggers?

Amid the noise, Peter Lynch advocated focusing on finding potential 'tenbaggers', which are stocks that can grow tenfold, instead of making excessive trades. As Peter Lynch puts it in his book, "All you need for a lifetime of successful investing is a few big winners."

Peter Lynch has consistently advocated that investors must have a proper understanding of what the companies do before investing in them. It is, in fact, one of the core principles of his popular book 'One Up on Wall Street'. "I have this expression: 'Know what you own'. If you don't understand what you own, you are toast," he said.

Also read | Top 5 stock market lessons from legendary investor Peter Lynch that you should follow

While Peter Lynch advocated for buying shares of companies that one knows well, he warned that this should be done only after proper research. One should not just buy the shares of her neighbourhood restaurant or her favourite clothing brand just because she sees a long list of customers there every day.

This should only mean that the company should be added to her research list, and she should invest only after properly knowing about the company’s financials, growth prospects and more, according to Lynch.