David Einhorn warns: Buffett’s stock sales hold key insights for investors

Investing.com — David Einhorn, the founder of Greenlight Capital, issued a cautionary note to investors on Wednesday, highlighting insights from Warren Buffett’s recent stock sales. 

In his Q3 2024 letter to partners, Einhorn pointed out that while Buffett is renowned for his long-term investing prowess, his current actions could signal a shift in market conditions.

Einhorn noted that Greenlight Capital funds returned just 1.1% in the third quarter, lagging behind the ‘s 5.9% gain. 

Despite the quiet period for the firm, Einhorn expressed concern over the current state of the market, stating, “the market isn’t just making all-time highs. It is, by many measures, the most expensive stock market that we have seen since the founding of Greenlight.”

He recalled Buffett’s historical market timing abilities, mentioning how the Oracle (NYSE:) of Omaha previously exited the market during frothy periods and repositioned himself during downturns. 

Einhorn stated, “One could argue that sitting out bear markets has been the underappreciated reason for his [Buffett’s] outstanding long-term returns.”

Einhorn emphasized that Buffett’s recent stock sales and the buildup of cash reserves are not immediate market timing signals but rather reflect a broader, long-term perspective. 

“These stock sales more likely express a long-term view that right now is not a great time to have a lot of equity exposure,” he explained.

Einhorn’s analysis aligns with concerns about the current market environment, where low dividend yields and high price-to-earnings ratios suggest potential headwinds. 

“We will avoid calling this market a bubble, and simply observe that the dividend yield is low and the P/E ratio is elevated despite corporate earnings being cyclically high, if not top-of-cycle,” said Einhorn, adding that the “opportunity set is expected to be better at some point in the not-so-distant future.”