David Tepper, founder of Appaloosa Management, said Thursday that investors who are buying and playing the speculative game that is happening in the market now must be careful.
“It was partyon.com in 1999 that ruined the shorts and is now gangup.inc. It didn’t end well in 1999, when the dot-com bubble burst. I already did that. Old scars,” he told Joe Kernen of CNBC.
The billionaire investor went on to emphasize that investors need to be cautious amid a frenzy of trading and high valuations. When things change, they can turn abruptly.
The influence of retail investors – most apparent on GameStop – has captivated Street in recent days and speaks to a new class of traders who grew up in the midst of the pandemic.
Individual investors are creating restrictions by accumulating names that hedge funds are betting against, forcing funds to rush to cover their losses. This generally increases the stock even more. Retail investors are promoting their activities on the board of WallStreetBets Reddit, which has about 3 million members.
GameStop and AMC are some of the most popular names. The former increased more than 1,700% this year, while the film giant saw its stock rise more than 800% this year.
In early January, Tepper told Jim Cramer of CNBC that he has a more positive view of the market as the launch of the Covid vaccine continues. In addition, with continued support from the Federal Reserve, he said it is difficult to bet against the current market.
“I don’t want to say that he is extremely optimistic. I would say that he is very constructive,” said Cramer of his conversation with Tepper. “He saw it coming. He knew how to get out, and now he feels that there are pockets where you should be, pockets with very reasonable ratings.”
Last February, Tepper issued a warning about the pandemic’s impact on stocks, which proved prescient.
On February 1, just before stocks began to plummet when the pandemic forced the world to block, Tepper told Cramer 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 just have to be cautious,” said Tepper then.
– Kevin Stankiewicz from CNBC contributed reporting.