Warren Buffett's Stock Sales Point To Overvalued Market, Says David Einhorn: 'Not A Great Time To Have A Lot Of Equity Exposure'

The stock market is currently at its most expensive in decades, according to David Einhorn, a billionaire investor. This assessment is based on the recent stock sales by another prominent investor, Warren Buffett.

What Happened: Einhorn’s hedge fund, Greenlight Capital, issued a quarterly letter that highlighted the current overvaluation of equities.

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The letter pointed out that this is the highest overvaluation since the fund’s inception in 1996. The letter also suggested that now might not be the best time for high equity exposure, using Buffett’s stock sales as evidence.

Buffett, the renowned investor behind Berkshire Hathaway, has been steadily reducing his equity positions and increasing his cash reserves. By August, Buffett had amassed a record cash pile of $189 billion and had continued to sell off successful stocks.

“Our sense is that Mr. Buffett's portfolio adjustments are not a prediction that the market will fall next week, next month, or even next quarter. Rather, these stock sales more likely express a long-term view that right now is not a great time to have a lot of equity exposure and that the opportunity set is expected to be better at some point in the not-so-distant future.” Einhorn wrote in the letter.

While Greenlight does not interpret Buffett’s actions as a prediction of an impending crash, it does note that Buffett has a knack for reducing exposure at the right time. The letter cited examples of Buffett’s actions before the 1960s market bubble and the 1987 crash.

Greenlight suggests that these sales indicate that high equity exposure might be best avoided until a better opportunity arises in the near future. The firm also noted that despite cyclical highs in corporate earnings, elevated price-to-earnings ratios and low dividend yields are concerning.

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Greenlight is trading based on these concerns and has disclosed that it has a “very low exposure to equity beta.” The fund reported a third-quarter return of 1.1%, compared to the S&P 500’s 5.9% gains.

Why It Matters: This is not the first time Einhorn has raised concerns about the market. In an interview in August, he described the market as “fundamentally broken,” arguing that not enough money is being dedicated to investing in undervalued companies.

Einhorn has also been loading up on gold as a hedge against inflation, a move that could be seen as a response to his concerns about the market.

Meanwhile, Buffett has been making significant moves in the market, including raising $1.9 billion through a Samurai bond sale and trimming his Bank of America position.

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