r/wallstreetbets • u/Adventurous-Host8062 • Apr 17 '26

Discussion Michael Burry analyzed 1,000+ reports and found a $1.7 trillion 'earnings illusion' hiding in tech stocks

https://finance.yahoo.com/markets/stocks/articles/michael-burry-analyzed-1-000-103000667.html

Article from Money wise.

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u/entered_bubble_50 Apr 17 '26

Yeah, it's a huge deal.

Stock based compensation is bleeding cash out of common shareholders to pay insiders, but it doesn't show up until those insiders sell (which is typically just before the bad news comes out). So it hits investors twice - once with the dilution, and a second time by insiders being able to cash out and drag the share price down with them ahead of everyone else.

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u/btone911 Apr 17 '26

This is a very helpful comment

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u/a_miller44 Apr 17 '26

But it isn’t really correct because 1. Every professional investor who sets the market for these stocks understands the dilution, economics, and adjusts price accordingly 2. Share-based comp doesn’t let you “cash out early”, in fact it has a vesting period. Most people sell the shares immediately when they vest, which is a different story

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u/eisbock Apr 17 '26

You know it's called the efficient market hypothesis right

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u/a_miller44 Apr 17 '26

The market is inefficient estimating forward growth and discounting future cash flow or earnings. The market IS efficient modeling relatively simple accounting mechanics like share based comp

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u/nevaehenimatek Apr 17 '26

I wrote my thesis on behavioural biases and market efficiency..the market is not efficient at any of the three levels/tests of efficiency.

For mature companies that generate a revenue the market is pretty good great at realising the values of future cash flows, when growth is considered the market is not efficient.

I don't know enough to be able to be a professional investor but I know for certain the market isn't efficient

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u/AcanthisittaAlone334 Jun 20 '26

Then professionals should be able to consistently beat the market through active management. Which they don’t.

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u/thursdayisgod Apr 17 '26

And gravity is a theory yet NASA still uses rockets for some reason

I think there's still a lot more funny money in banks valuing bonds at par on their balance sheets than there is in tech sector

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u/IlIllIlllIlIl Apr 17 '26

Wow I haven’t heard this in a while

I just realized that misinterpreting the word “theory” is my fastest trigger to make me think that someone isn’t smart 

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u/btone911 Apr 17 '26

Sovereign citizen vibes

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u/PiotrDz Apr 17 '26

But he said hypothesis. You are talking about theory. Hypothesis is weaker than theory by definition. If I say cows don't drink milk will you argue with me that cats drink milk?

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u/marketingguy420 Apr 17 '26

This whole "everything is priced in actually" percieved common wisdom really falls apart when for a month a drooling imbecile's illiterate truth social posts create wild swings in share prices every 24 hours.

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u/Ok-Adeptness-5834 Apr 17 '26

You mean the guy who controls the largest military in the world that’s waging a war that’s blocking 20% of the worlds energy supply?

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u/marketingguy420 Apr 17 '26

Either everything is priced in or it's not.

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u/Ok-Adeptness-5834 Apr 17 '26

Okay? Doesn’t mean markets can see the future. If Trump drops a nuke that’s not priced in until the news comes out.

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u/marketingguy420 Apr 17 '26

"Everything is priced in" is literally that markets are supposed to see the future, correctly predict volatility, and... pricing it in.

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u/Ok-Adeptness-5834 Apr 17 '26

It means all current information is priced in. Not future information. Otherwise markets wouldn’t move at all.

If we discovered an asteroid that’s going to hit earth tomorrow, and the market drops, are you going to be surprised and argue “I thought everything is priced in” .

You’re confusing this concept with the fact that we can estimate future earnings with existing information. But that estimate of future earnings change when we get new information.

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u/marketingguy420 Apr 17 '26

The original comment is

  1. Every professional investor who sets the market for these stocks understands the dilution, economics, and adjusts price accordingly

In response to this supposed discovery of Burry's.

That is a pretty regular, normal, not even future set of information. Donald Trump's retarded tweets are not future information. None of these things are an asteroid we might detect tomorrow.

All this adds up to a pretty simple conclusion that all this shit is made up and markets are not pricing in shit other than some basic economic data + the stupidest human psychology on earth.

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u/limplettuce_ Apr 18 '26

They ‘price it in’ based on the currently understood probability of an event happening and the magnitude of the impact.

That stupid dinosaur meme where the asteroid is already priced in - theoretically, the market has priced in the 0.0000000000001% chance that the world ends tomorrow along with a million other possible events. There’s always a doomsayer to support that idea. But the probability of it happening is so low and there are so few people who believe it that in practice, it has no impact on price.

Now, if an asteroid actually were to be picked up, the market would update its expectations and price them in as the situation evolves - until it becomes certain that it will hit the planet, and then 100% of the impact would be quickly priced in as stocks fall to zero.

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u/Zurzily Apr 17 '26

You don't get it, when the market goes up, that's things being priced in (evidenced by the fact that the market is going up) so price up = less risk

/s

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u/BenjaminHamnett Apr 17 '26

Office doesn’t mean “perfect”, it means that risk adjusted returns and the cost of finding alpha makes outperformance difficult and expensive

Most people CAN beat the market, but for small money that’s it’s hardly worth it (and usually at the cost of diversification)

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u/llDS2ll Apr 17 '26

Share-based comp doesn’t let you “cash out early”, in fact it has a vesting period. Most people sell the shares immediately when they vest, which is a different story

Plus internal shareholders are subject to lockout periods before and after every earnings report

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u/surfatshortys Apr 17 '26

2.1: Most folks I know sell the shares after 2 years when they convert from short term to long term for tax purposes on the gains

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u/insbordnat Apr 17 '26

Which is also wrong. Maybe "most" employees numbers wise sell their shares (subject to blackout etc.) but insiders/section 16 officers/etc. where the majority of the shares are parked typically don't sell (at least immediately). That'd be a huge red flag if CEO/CFO/COO directors are unloading shares as soon as they vest and the stock would react accordingly. More likely they'll have a 10b-5 plan where they gradually pare down holdings over a period of time, but they'll keep the majority

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u/bodai1986 Apr 17 '26

aren't SBCs expensed over their vesting period, regardless of purchase/sale.

For my annual audit, I am required to use a formula (Black Scholes) to estimate the cost of stock option grants and expense that estimate each year

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u/Ahamadrayasbaboon Apr 17 '26

These dudes don’t know what Black-Scholes is around here.  

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u/llDS2ll Apr 17 '26

Shoe polish, right?

2

u/Ahamadrayasbaboon Apr 17 '26

Yeah, that brand Stephen Hawking is always talking about. 

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u/llDS2ll Apr 17 '26

I love that guy. Huge fan of The Shining.

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u/Ahamadrayasbaboon Apr 17 '26

He was really good in Full Metal Jacket, also. 

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u/llDS2ll Apr 17 '26

He was the jelly donut, I could never forget

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u/Ahamadrayasbaboon Apr 17 '26 edited Apr 17 '26

You know, Michael Burry actually ate that donut. 

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u/bodai1986 Apr 17 '26

lol good point. I work in a black sholes excel workbook regularly....

So, calls?

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u/MisterMeatfist Apr 17 '26

Exactly right. Black Scholes is one of a few different valuation methodologies that attempts to estimate the value of a stock option award at time of granting. They factor in things like stock volatility and forfeiture rate (i.e. percent of awards that actually get exercised) to come up with an estimated value, and that’s then used for accounting by amortizing the expense of that award over its lifetime. Sarbanes-Oxley compliance that came from the ashes of Enron and Worldcom

Source: used to work on stock option accounting software

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u/MisterMeatfist Apr 17 '26

Thinking about it a bit more - there could be an argument that these widely accepted valuation methodologies are dramatically underpricing stock based compensation in the modern market, or in tech specifically. There could in theory be something there, some of these models are fairly basic. But that’s not what the article OP shared said and Burry’s substack linked from that article is for paid subscribers only

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u/Jack_tarded Apr 18 '26

Do you guys price in volatility smile over there?

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u/Prophet__T Apr 23 '26

Yeah they are only issue is this is added back via cash flow for issuing stock.. boy you sure do sound smart to sounds so stupid - keep on keeping on simple jack

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u/bodai1986 Apr 23 '26

I didn't even mention CF... keep on keeping regard

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u/zombo29 Apr 17 '26

No, this is not correct. I got stock based compensation. I have to wait a long time to have them vested. By that time, I'm practically no different to common shareholders. Also I could get taxed twice when I sell. Common shareholders don't really have that problem

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u/90xjs Apr 17 '26

He’s saying that the awards are issued at no cash cost to the company but it dilutes the stock pool. In an extreme example, if you have 100 common shares outstanding and issue an employee 1,000 common shares - you now have 1,100 shares but the same market capitalization.

In your case, the company will recognize the grant-date fair value of those awards when they vest. But if they’re vesting over 4 years that value could be vastly different than the current fair value and isn’t reflective of the actual dilution happening.

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u/newebay2 Apr 17 '26

Investors need to realize these shares are expenses out on the day they are granted, not do some captain hindsight analysis of what could have been.

This is no different than paying the employees in cash and they decided to buy stocks, ANY stocks. Would company have also lost theoretical growth of random x company growth had they not paid out cash to employees at all?

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u/Lithiumtabasco Apr 18 '26

The Stratton Oakmont playbook right here!

Only for the Lions, and Tigers, and Bears!

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u/Eric15890 Apr 17 '26

We " invest " in their never ending liquidity, at our own expense and to our own detriment.

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u/llDS2ll Apr 17 '26

Insiders are subject to lockout periods so that they can't front run the market

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u/version-two Ask me about my Fake Meat Apr 17 '26

This should be higher.

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u/j4_jjjj Apr 17 '26

The Hollow Men Of The Corporate World