Billionaire investor David Einhorn says Warren Buffett’s recent stock sales show just how overvalued the market is. Einhorn’s firm, Greenlight Capital, has highlighted that now might not be the optimal time for high equity exposure, given the market conditions. In a letter from Greenlight Capital, it was noted that even non-tech stocks are trading at 30 to 50 times earnings.
The firm underscored Buffett’s actions, suggesting that his decision to cash out of the market reflects an overextended bull run. According to Greenlight, the stock market is the most overpriced it has been since the firm’s founding in 1996. Einhorn cited Buffett’s unparalleled market timing skills as a point of emphasis.
Despite Buffett’s assertion that timing the market is impossible, his track record suggests otherwise. Notably, Buffett has been reducing his equity positions and increasing cash reserves, actions that are noteworthy given his historical success in similar conditions.
Buffett’s strategic market adjustments
For instance, Buffett sold his holdings before the market crash of 1987 and closed his fund before the 1960s market became overly frothy. This pattern of avoiding bear markets has been crucial to his long-term success, Einhorn’s letter suggested. Greenlight Capital stated that such significant sales of stocks by Buffett likely indicate it may be prudent to avoid high equity exposure until better market opportunities arise.
The firm noted that although the market is not necessarily in a bubble, the elevated price-to-earnings ratios and low dividend yields are concerning amidst high corporate earnings. The concerns raised by Greenlight extend beyond highly valued tech stocks, touching even mature industrial names exposed to cyclical growth opportunities. In light of these worries, Greenlight has opted for a conservative trading position with very low exposure to equity beta.
The fund reported a third-quarter return of 1.1%, in stark contrast to the S&P 500’s 5.9% gains. Despite the current market outlook, Greenlight maintains that it is not entirely bearish. While expecting to continue underperforming in the short term, the firm cited investments in gold and other commodities as significant winners in the latest quarter.
