Billionaire investor David Einhorn says Warren Buffett’s recent stock sales show just how overvalued the market is

David Einhorn of Greenlight Capital.

Investors are fueling what looks like the most expensive stock market in decades, billionaire investor David Einhorn wrote in his hedge fund’s quarterly letter. Just consider the fact that Warren Buffett is cashing out of the bull run, it said.

According to the Greenlight Capital letter, equities are the most overvalued since the firm’s founding in 1996.

The fund noted that now is likely not a good time for high equity exposure, and cited Buffett’s stock sales to make this point.

“While Mr. Buffett routinely points out that it is impossible to time the market, we can’t help but observe that he has been one of the best market timers we have ever seen,” Greenlight said.

The famed Berkshire Hathaway investor has been slashing equity positions and electing to hold cash on the sidelines. By mid-August, Buffett had garnered a record cash pile of $189 billion and has since continued to take profits on successful stocks.

Though Greenlight does not interpret Buffett’s actions as a prediction of a coming crash, it cited that the “Oracle of Omaha” has a talent for reducing exposure at the right time. For instance, the letter said, Buffett closed his fund before the market became too frothy in the 1960s and sold off his holdings ahead of the 1987 crash.

“One could argue that sitting out bear markets has been the underappreciated reason for his outstanding long-term returns,” the letter said. “It is therefore noteworthy to observe that Mr. Buffett is again selling large swaths of his stock portfolio and building enormous cash reserves.”

According to Greenlight, these sales signal that high equity exposure might be best be held off until a better opportunity emerges in the not-so-distant future.

That’s not to say the market is in a bubble, the firm said. However, elevated price-to-earnings ratios are concerning despite cyclical highs in corporate earnings. Dividend yields are also low.

While other market observers have also noted the market’s expensiveness, Greenlight says that the problem goes beyond the “nosebleed valuations” of high-profile tech stocks. Even mature, industrial names exposed to cyclical and growth opportunities are trading 30 to 50 times earnings, the letter said.

Greenlight is trading based on these concerns, disclosing that it was conservatively positioned with “very low exposure to equity beta.” The fund reported a third-quarter return of 1.1%, compared to the S&P 500’s 5.9% gains.

The firm, however, is not an outright bear, it said. Though it expects to continue underperforming the rising market for now, its investment in gold and Green Brick Partners were cited as its significant winners this quarter.