Investors who are long and playing the speculative game of the market right now should be careful, said David Tepper, founder of Appaloosa Management.
“It was partyon.com in 1999 that screwed up the shorts and now it’s gangup.inc. It didn’t end well in 1999 when the knitted bubble like appeared. I was there, done that. Old scars,” he said. to Joe Kernen of CNBC Thursday.
The billionaire investor went on to stress that investors need to be cautious amid a frenzy of business activity and high valuations. When things turn, they can turn sharply.
The influence of retail investors, most evident on GameStop, has captivated the street in recent days and speaks to a new class of traders who grew up in the midst of the pandemic.
Individual investors create short pressures by accumulating names against which hedge funds bet, forcing funds to run to cover their losses. Usually, this further increases the shares. Retail investors promote their business on the WallStreetBets Reddit board, which has 3 million members north.
GameStop and AMC have been some of the most popular names. The former is up more than 1,700% this year, while the film chain giant has seen its shares soar more than 800% this year.
In early January, Tepper told CNBC’s Jim Cramer that he had a more positive view of the market as the Covid vaccine continues to be developed. In addition, with the continued support of the Federal Reserve, he said it is difficult to bet on the current market.
“I don’t mean to be tremendously bullish. I’d say it’s very constructive,” Cramer said of his conversation with Tepper. “He saw it coming. He knew how to get out, and now he feels there are pockets where you should be, pockets of very reasonable valuations.”
Last February, Tepper issued a warning about the impact of the pandemic on populations, which turned out to be mandatory.
On Feb. 1, shortly before stocks began to close as the pandemic forced the world to close, Tepper told Cramer that he had become cautious in the market because of the virus. “You have to be careful, because it can be a game changer. So you have to be careful,” Tepper said then.
– Kevin Stankiewicz of CNBC contributed to the reports.