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The stock market is the costliest it has been in a long time, said billionaire David Einhorn.
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Warren Buffett’s stock sales indicate that now is just not time to be heavily invested in equities, his firm Greenlight Capital said in a letter.
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Even non-tech stocks are trading 30 to 50 times earnings, Greenlight said.
Investors are fueling what looks like the costliest stock market in a long time, billionaire investor David Einhorn wrote in his hedge fund’s quarterly letter. Just consider the undeniable fact that Warren Buffett is cashing out of the bull run, it said.
In accordance with the Greenlight Capital letter, equities are essentially the most overvalued because the firm’s founding in 1996.
The fund noted that now is probably going not a very good time for top equity exposure, and cited Buffett’s stock sales to make this point.
“While Mr. Buffett routinely points out that it’s not possible to time the market, we will not help but observe that he has been top-of-the-line market timers we have now ever seen,” Greenlight said.
The famed Berkshire Hathaway investor has been slashing equity positions and electing to carry money on the sidelines. By mid-August, Buffett had garnered a record money pile of $189 billion and has since continued to take profits on successful stocks.
Though Greenlight doesn’t interpret Buffett’s actions as a prediction of a coming crash, it cited that the “Oracle of Omaha” has a talent for reducing exposure at the fitting time. As an example, the letter said, Buffett closed his fund before the market became too frothy within the Sixties and sold off his holdings ahead of the 1987 crash.
“One could argue that sitting out bear markets has been the underappreciated reason for his outstanding long-term returns,” the letter said. “It’s subsequently noteworthy to watch that Mr. Buffett is again selling large swaths of his stock portfolio and constructing enormous money reserves.”
In accordance with Greenlight, these sales signal that prime equity exposure could be best be held off until a greater opportunity emerges within the not-so-distant future.
That is to not say the market is in a bubble, the firm said. Nevertheless, elevated price-to-earnings ratios are concerning despite cyclical highs in corporate earnings. Dividend yields are also low.
While other market observers have also noted the market’s expensiveness, Greenlight says that the issue goes beyond the “nosebleed valuations” of high-profile tech stocks. Even mature, industrial names exposed to cyclical and growth opportunities are trading 30 to 50 times earnings, the letter said.
Greenlight is trading based on these concerns, disclosing that it was conservatively positioned with “very low exposure to equity beta.” The fund reported a third-quarter return of 1.1%, in comparison with the S&P 500’s 5.9% gains.
The firm, nevertheless, is just not an outright bear, it said. Though it expects to proceed underperforming the rising marketplace for now, its investment in gold and Green Brick Partners were cited as its significant winners this quarter.
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