LEGENDARY INVESTOR: Buffett's recent stock sell-off shows the market is overvalued!

Billionaire investor David Einhorn (David Einhorn), the head of Greenlight Capital (Greenlight Capital)), wrote in his hedge fund's quarterly report that investors are driving the most expensive US stock upward in decades. He advised investors to think about the fact that Buffett is cashing out of the bull market.

According to Greenlight Capital's letter, the stock market's valuation reached its highest level since the company was founded in 1996. This is probably not a good time to have high equity exposure. Greenlight Capital cites Buffett's stock sell-off to support this view.

Greenlight Capital said, “Although Buffett often points out that it is impossible to predict the timing of the market, we have to admit that he is one of the best market forecasters we've ever seen.”

This famous Berkshire Hathaway investor has been slashing stock positions and choosing to hold cash off the market. As of mid-August, Buffett's cash reserves reached a record $189 billion, and has been profiting from successful stocks ever since.

Greenlight Capital said the “Omaha Prophet” had the talent to reduce risk exposure at the right moment. For example, the letter said that Buffett closed his fund before the market became too bubbly in the 1960s and sold his holdings before the 1987 crash.

The letter reads: “Arguably, avoiding a bear market is one reason for his excellent long-term returns, and investors are not fully aware of this.”

The company added that this is not to say there is a bubble in the market.

However, the market does have worrying issues, such as rising price-earnings ratios and lower dividend yields.

Although other market observers have also noticed that the market price is too high, Green Light Capital said that the problem is not only the “overvaluation” of well-known technology stocks; even for mature industrial stocks with cyclical and growth opportunities, the price-earnings ratio has reached 30 to 50 times.

Based on these concerns, Greenlight Capital adopted a trading strategy, disclosing that it has “extremely low beta exposure to equity.” The fund reported a return of 1.1% for the third quarter, compared to a 5.9% increase in the S&P 500 index.

Although the company expects its current performance to continue to lag behind rising US stocks, its investments in gold and Green Brick Partners are considered the major winners of the quarter.