David Tepper, Appaloosa Management Founder, said that investors should be careful if they are long and playing the speculative game going on in the market right now.
“It was partyon.com in 1999 that screwed the shorts and now it’s gangup.inc. It didn’t end well in 1999 when the dot com bubble popped. Been there done that. Old scars,” he told CNBC’s Joe Kernen.
The billionaire investor went on to emphasize that investors who are trading more speculative areas of the market should stay cautious.
The influence of retail investors — most apparent in GameStop — has captivated the Street in recent days, and speaks to a new class of traders who grew up amid the pandemic.
Individual investors are creating short squeezes by piling into names that hedge funds are betting against, forcing the funds to rush to cover their losses. This typically pushes shares even higher. Retail investors are promoting their activity on the WallStreetBets Reddit board, which has north of 3 million members.
GameStop and AMC have been 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 soar more than 800% this year.
Earlier in January, Tepper told CNBC’s Jim Cramer that he has a more positive view on the stock as the Covid vaccine rollout continues. Additionally, with ongoing support from the Federal Reserve, he said it’s hard to bet against the current market.
“I don’t want to say he’s wildly bullish. I would say he’s very constructive,” Cramer said of his conversation with Tepper. “He saw this coming. He knew to get out, and now he feels there are pockets where you should be in, pockets of very reasonable valuations.”
Last February, Tepper issued a warning about the impact of the pandemic on stocks, which proved to be prescient.
On Feb. 1, a little more than two weeks before stocks started to tank in earnest on Covid fears, Tepper told Cramer he had become cautious on the market due to the virus. “You have to be careful, because it may be a game changer. So you’ve just got to be cautious,” Tepper said then.
– CNBC’s Kevin Stankiewicz contributed reporting.
