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Tim Melvin
Tim Melvin
Articles (54)  | Author's Website |

Listening to the Smart Guys: Be Cautious

May 20, 2014 | About:

Hedge fund manager David Tepper (Trades, Portfolio) shook up the markets this week when he announced at the SALT Conference in Las Vegas that he was nervous about the market.

Tepper told attendees, in a shot heard round the world thanks to the Internet, that this was a pretty good time to hold some cash. In his words: “I'm not saying go short, just don't be too friggin' long.”

He subsequently told CNBC that he had cut his equity exposure from 100 percent to just 60 percent in the past six months. Tepper had been a raging bull advising investors not to fight the Fed, so his pullback scared some folks and there was pretty strong selling on Thursday.

Related: Make The World Better: David Rubenstein Discusses China, US Economy At SALT 2014

Investors need to take a look at the tone of the entire conference, as well as remarks made by other very smart investors recently.

Tepper's call has made the most impact, but some other intelligent managers with solid track records have expressed concerns about the current valuation and price level of the stock market. Everyone from short-term day traders to long-term private equity leaders said that the market looks overly rich to them and suggested caution may be in order.

David Rubenstein has been in the investment game for a long time. He was one of the co-founders of the private equity giant Carlisle (CG) back in 1987 and has racked up an impressive track record over the past 27 years. He also has a pretty good track record when it comes to calling the economy and markets.

Back in early 2006, he commented in a Reuters article, “Right now we're operating as if the music's not going to stop playing and the music is going to stop. I am more concerned about this than any other issue.”

A year later he proved to be spectacularly right when the credit crisis hit in its full fury.

Rubenstein is urging caution again as the stock market flirts with all-time highs. According to CNBC, he told the conference attendees, “The markets are not cheap. In the buyout world right now it's actually difficult to find deals. Companies that are publicly traded are at their highs, and they have a lot of cash.”

He thinks that Europe and China both have more attractive opportunities than the U.S. right now. He also pointed out that deal multiples are right back up at 2007 levels and there is actually more leverage being used by private equity and buyout funds. High prices and debt levels have not historically been a recipe for success, so investors should take note of Rubenstein's call for caution.

Related: 2014 SALT Conference Kicks Off In High Gear With Ken Langone

Leon Cooperman (Trades, Portfolio) of Omega Partners was a bit more positive than the other speakers, but even his views are tepid at best. He seems to feel that stocks are the best asset class in comparison to other alternatives like bonds.

He compared buying Treasuries to picking up dimes in front of a bulldozer and said that being invested in stocks made more sense. He later clarified his remarks, saying, “I don't believe it will go below 1,700 and I don't think we get above 2,000. At the end of the day, as I said around the turn of the year, I think we could have a high single digit return for the year."

He referred to his stance on the markets as positive but with a lowercase 'p' — that is hardly a ringing endorsement for the market.

There are many smart people suggesting that asset prices are too high relative to the level of economic activity. Being aggressive in the market right now means ignoring the advice of people like David Tepper (Trades, Portfolio), Leon Black, Seth Klarman (Trades, Portfolio), Carl Icahn (Trades, Portfolio), David Rubenstein and other smart investors who have suggested a more cautious approach might be in order.

History suggests that individual investors have not done very well following their own thoughts and instincts about the markets. It might be wise to follow the advice of those who have made billions in the stock market. The industry continues to present opportunities for value-investors who can weed through the daily noise of the market. A perfect example is the 3 Low Risk, High Yield Stocks that Tim Melvin identifies as the trades of the decade.

© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

About the author:

Tim Melvin
Tim Melvin is a value investor, money manager and writer. He has spent the last 27 years as in the financial services and investment industry as a broker, adviser and portfolio manager. He has also written and lectured extensively on the markets with his work appearing on RealMoney.com, DailySpecualtion.com, Benzinga.com as well as several print publication including Active Trader and the Wall Street Digest.

Visit Tim Melvin's Website

Rating: 3.6/5 (8 votes)



Asawhneyy - 3 years ago    Report SPAM

Do not trust Mr 220---listen yourself--they are collecting money from you. I will not pay any attention. Everybody is selling everybody,look at everybody's top holding-spinoff or take over,they are all in business to make a cut. Forget about proven record.

Invest,systematically,what you understand.

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