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The stock market is the most expensive in decades, says billionaire David Einhorn.
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Warren Buffett’s stock sales indicate that now is not the time to invest heavily in stocks, his firm Greenlight Capital said in a letter.
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Even non-tech stocks trade at 30 to 50 times earnings, according to Greenlight.
Investors are fueling what looks like the most expensive stock market in decades, billionaire investor David Einhorn wrote in his hedge fund’s quarterly letter. Just think of the fact that Warren Buffett is benefiting from the bull run, the report said.
According to the Greenlight Capital letter, shares are the most overvalued since the company was founded in 1996.
The fund noted that this is probably not a good time for high equity exposure and cited Buffett’s stock sales to emphasize the point.
“While Mr. Buffett routinely points out that it is impossible to time the market, we can’t help but conclude that he has been one of the best market timers we have ever seen,” Greenlight said.
The famed Berkshire Hathaway investor has cut his stock holdings, opting to keep cash on the sidelines. By mid-August, Buffett had amassed a record amount of cash of $189 billion and has continued to take profits on successful stocks ever since.
While Greenlight doesn’t interpret Buffett’s actions as a prediction of a coming crash, it did note that the “Oracle of Omaha” has a knack for reducing exposure at the right time. For example, the letter said that Buffett closed his fund before the market got too frothy in the 1960s and sold his investments before the 1987 crash.
“You could argue that the lack of bear markets has been the underappreciated reason for its excellent long-term returns,” the letter said. “It is therefore remarkable to see Mr. Buffett once again selling large parts of his stock portfolio and building up huge cash reserves.”
According to Greenlight, these sales indicate that high equity exposure may be best postponed until better opportunities arise in the not-so-distant future.
That does not mean that the market is in a bubble, according to the company. However, the high price-to-earnings ratios are worrying, despite the cyclical highs in corporate earnings. Dividend yields are also low.
While other market observers have also noted the market’s expensiveness, Greenlight says the problem goes beyond the “nosebleed valuations” of high-profile tech stocks. Even mature, industrial names exposed to cyclical and growth opportunities trade at 30 to 50 times earnings, the letter said.
Greenlight is trading on these concerns, disclosing that it was conservatively positioned with “very low equity beta exposure.” The fund reported a third-quarter return of 1.1%, compared with the S&P 500’s gain of 5.9%.
However, the company is not an outright bear, according to the company. While it expects to continue to underperform the rising market for now, its investments in gold and Green Brick Partners were cited as the key gainers this quarter.
Read the original article on Business Insider
