Investors who are long and play the speculative game currently going on in the market should be careful, said David Tepper, founder of Appaloosa Management.
“It was partyon.com in 1999 that ruined the shorts, and now it’s gangup.inc. It didn’t end well in 1999 when the dot com bubble popped up. Been there, did that. Old scars,” he told Joe Cores of CNBC on Thursday.
The billionaire investor further stressed that investors should exercise caution amid a frenzy of trading activity and high valuations. When things change, they can turn sharply.
The influence of retail investors – most evident in GameStop – has captivated the streets in recent days, appealing to a new class of traders who grew up during the pandemic.
Individual investors create minor bottlenecks by piling up on names that hedge funds bet against, forcing the funds to rush to cover their losses. This typically pushes stocks even higher. Retail investors are promoting their activity on the WallStreetBets Reddit board, which has north of 3 million members.
GameStop and AMC are some of the most popular names. The former is up more than 1,700% this year, while the movie chain giant has seen its stock increase by more than 800% this year.
Earlier in January, Tepper told CNBC’s Jim Cramer that he has a more positive outlook on the market as the rollout of the Covid vaccine continues. In addition, he said, with continued support from the Federal Reserve, that it is difficult to bet against the current market.
“I don’t want to say he’s very bullish. I would say he’s very constructive,” Cramer said of his conversation with Tepper. He saw this coming. He knew he had to get out, and now he feels there are pockets you should be in, pockets with very reasonable ratings. ‘
Last February, Tepper warned about the impact of the pandemic on stocks, which turned out to be prescient.
On Feb. 1, shortly before stocks began to decline as the pandemic forced the world into lockdown, Tepper told Cramer that the virus had caused him to become cautious in the marketplace. “You have to be careful because it could be a game changer. So you just have to be careful,” Tepper said at the time.
– CNBC’s Kevin Stankiewicz contributed to reporting.