David Einhorn: Where to Find Value in Today’s Expensive Market

During his recent interview with CNBC, David Einhorn acknowledges that the current stock market as the most expensive he’s seen, with many companies overvalued.

However, he isn’t outright bearish, as overpriced markets can persist for extended periods, citing past examples like negative interest rates.

While he doubts this is an ideal entry point for long-term investors, he sees no immediate trigger for a market downturn. Einhorn emphasizes a bottom-up approach, finding value in overlooked, undervalued companies while being cautious about deteriorating, overvalued ones.

He remains balanced, recognizing opportunities in unloved stocks while acknowledging the risks in a pricey, potentially unsustainable market environment.

Here’s an excerpt from the interview:

Einhorn: Yeah, we’re not outright bearish and it is the most expensive market of all time, as far as I can see, at least since I’ve been managing. There’s plenty of businesses that are pretty ordinary.

You know, they grow GDP or GDP+1 or 2, and they’re trading at, you know, 45 times earnings and stuff like this. And then there’s other businesses that have a little more excitement than that, and they’re trading at, you know, 45 times revenues, and things like that.

This is a really, really, really pricey environment, but it doesn’t necessarily make me bearish. Asset prices can trade at the wrong price and they can trade at the wrong price for a long period of time.

You know, a few years ago we had trillions and trillions of debt around the world that was trading at negative interest rates, which of course made no sense.

It didn’t make sense then, but just because it began trading at negative rates didn’t mean it couldn’t persist for several years. Now there’s very little debt that trades at negative interest rates. So if you bought and you held all the way through, then you probably have a bad outcome.

But you didn’t know if this was going to be, you know, three years of negative interest rates, ten years of negative interest rates, so an overvalued stock market, that’s not necessarily a bear market and it doesn’t necessarily mean it has to go down anytime soon.

And so I’m not particularly bearish. I can’t really see what’s going to break the market at this point. Not that you always can. But there doesn’t seem to be anything obvious to me.

So I just observe that it’s a really expensive market that if you buy and hold for a very long period of time, I doubt that this is a great — you’ll look back and say this was a great entry point of all of the entry points that you could have. But that being said, there’s no reason why the market can’t continue to do fine for a long period of time.

Host: What does that mean for your appetite to hedge?

Einhorn: Well, I try to manage most of the portfolio from the bottom up, so we find a few things that still make sense. I think the market has companies that are literally, you know, hated and forgotten about and stuff like that, and they trade actually at reasonable values.

They’re just not exciting and you probably don’t want to talk about them very much on CNBC and stuff like that, and they’re not necessarily going to go up in the next day or month or something like that. But there are things that are truly despised and hated and cheap on an absolute basis that I think make sense to own.

And on the other side of that I think there’s plenty of things that are probably overvalued and deteriorating that we can use to be a bit more cautious.

You can watch the entire interview here: