Michael Burry Says Stocks Can Fall So Far They Break From Reality — This Stock Proved Him Right

Famed ‘Big Short’ investor Michael Burry used Warner Bros. Discovery Inc (NASDAQ:WBD) as an example of a stock that continued falling after becoming undervalued before later recovering

A Stock Can Fall Even After Becoming Cheap

In a post on X, Burry said Warner Bros. followed a familiar pattern in value investing, where a stock continues to decline even after investors believe it has become undervalued.

In an example he shared, a stock that falls from 10 to 5 before recovering to 30 ultimately delivers a sixfold gain from the bottom, though many investors exit before that recovery occurs.

Burry said the stock had fallen so much that it became detached from the underlying business, continuing to decline even after it appeared undervalued.

“What I describe here is almost exactly WBD,” Burry added.

The Cost Of Holding Through Losses

According to Bury, an investor who continued holding through a sharp decline would benefit from the eventual rebound, while those who sell during periods of market stress miss much of the upside.

Burry said that the investor could have sold at 8 or exited at 5 as the decline deepened, but instead remained invested until the stock recovered to 30.

WBD Recovery Takes Center Stage

Burry said the scenario played out in Warner Bros. Discovery and added that the recovery did not take a decade, “because it usually doesn’t.”

Shares of Warner Bros. Discovery are down about 8% year-to-date but roughly 150% higher over the past 12 months.

The comments come as Paramount Skydance Corp (NASDAQ:PSKY) cleared a major regulatory hurdle in its proposed $110 billion acquisition of Warner Bros. Discovery with the approval from the U.S. Department of Justice last week.

Price Action: Shares of WBD fell 0.15% on Thursday, at $26.20 and fell further 0.31% in extended trading.

Benzinga edge rankings show WBD has a Momentum score in the 89th percentile and a Value score in the 18th percentile.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Photo Courtesy: Proxima Studio on Shutterstock.com