• The stock market is the most expensive it’s been in decades, the billionaire David Einhorn says.

• His firm, Greenlight Capital, said Warren Buffett’s stock sales show now isn’t the time for high equity exposure.

• Greenlight said even non-tech stocks were trading 30 to 50 times earnings.

Investors are fueling what looks like the most expensive stock market in decades, the billionaire investor David Einhorn wrote in his hedge fund’s quarterly letter. Just consider the fact that Warren Buffett is cashing out of the bull run, it said.

The Greenlight Capital letter said equities were the most overvalued since the firm’s founding in 1996.

Now is probably not a good time for high equity exposure, the fund added, citing Buffett’s stock sales to make this point.

“While Mr. Buffett routinely points out that it is impossible to time the market, we can’t help but observe that he has been one of the best market timers we have ever seen,” Greenlight said.

The famed Berkshire Hathaway investor has been slashing equity positions and electing to hold cash on the sidelines. By mid-August, Buffett had garnered a record cash pile of $189 billion, and he has since continued to take profits on successful stocks.

Though Greenlight didn’t interpret Buffett’s actions as a prediction of a coming crash, it noted that the “Oracle of Omaha” has a talent for reducing exposure at the right time. For instance, the letter said, Buffett closed his fund before the market became too frothy in the 1960s 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 is therefore noteworthy to observe that Mr. Buffett is again selling large swaths of his stock portfolio and building enormous cash reserves.”

Greenlight said these sales signaled it might be best for high equity exposure to be held off until a better opportunity emerges in the not-so-distant future.

That’s not to say the market is in a bubble, the firm said. It did note, however, that elevated price-to-earnings ratios are concerning despite cyclical highs in corporate earnings and that dividend yields are also low.

While other market observers have also noted the market’s expensiveness, Greenlight said the problem went beyond the “nosebleed valuations” of high-profile tech stocks. The letter said that even mature, industrial names exposed to cyclical and growth opportunities were trading 30 to 50 times earnings.

Story continues

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

But the firm said it wasn’t an outright bear. Though it said it expected to continue underperforming the rising market for now, its investments in gold and Green Brick Partners were cited as its significant winners this quarter.

Read the original article on Business Insider