Michael Burry a.k.a. "Big Short",discloses $1.1B bet against Nvidia&Palantir

It might become the modern Tulip Mania of our time.

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.

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.

> 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.

And Nvidia is going to own the whole thing, forever?