Stop Listening to Billionaires

Last week saw bearish comments from two of Wall Street’s most well-known hedge fund managers send the market falling. Should we be listening to them?

We saw a sudden return of a bearish sentiment across the market last week. The S&P 500 (NYSEARCA:VOO) and the Dow (NYSEARCA:DIA) both fell more than 2%, while even the high-flying Nasdaq’s (NASDAQ:QQQ) wings were clipped. Big tech stocks like Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL), which have become such a cornerstone of the indices, stayed flat for the week while the banking, airline, and retail industries took further damage.  

An accumulation of dour economic data, as well as a warning of a prolonged recession from Fed Chairman Jerome Powell (perhaps aware of the impact of his words, Powell went on the air last night doubling down on the Fed’s willingness to protect the economy) were big factors in the dip along with one other catalyst: bearish comments from two of Wall Street’s most well-known hedge fund managers. 

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Stanley Druckenmiller of Duquesne Capital and David Tepper of Appaloosa Management are legends in investing circles. With a combined net worth of almost $17 billion, it’s fair to say they’ve got a knack for this kind of stuff. Druckenmiller said on Tuesday, “the risk-reward for equity is maybe as bad as I’ve seen it in my career”, while Tepper — whose fund recently picked up some shares in Tesla (NASDAQ:TSLA), Twitter (NYSE:TWTR) and Netflix (NASDAQ:NFLX) amongst others — donned today’s market as “the second-most overvalued stock market I’ve ever seen”. He went on to say that big tech stocks like Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB), and Google (NASDAQ:GOOG), which have been spearheading the market’s rally, may be “fully valued”.  

It’s no secret that the market is overvalued right now, nor is anyone (bar perhaps the most bullish amongst us) under the impression that the fallout from the global pandemic has been and gone on Wall Street. Yet the two veterans’ words carry significant weight and certainly added to the speed of descent of the market last week. However, I may implore you to take them with a pinch of salt, whether you agree with them or not. 

What’s in it for them?

Both Tepper and Druckenmiller are well aware of the impact their words can have. Whenever a market-mover comes out with such a strong opinion like either of these hedge fund managers, be aware that there may be a goal they are trying to achieve. I’m reminded of Pershing Square Manager Bill Ackman in March, who stated that “hell is coming” and “America will end as we know it”. Ackman made $2.6 billion shorting the market during the coronavirus-induced sell-off. Just three weeks after these comments, the fund manager had changed his tune and tweeted he was “beginning to get optimistic”. 

Hedge funds and retail investors are worlds apart

While names like Tepper, Druckenmiller, and Ackman are rightfully seen as thought-leaders and market movers, they are playing a completely different game to the average retail investor. In Peter Lynch’s ‘One Up on Wall Street’ (if you haven’t read this yet, do!), he outlines the litany of advantages the average retail investor has over their institutional counterpart. We don’t have quarterly and annual targets to meet, we don’t have to report our moves to anyone, and we’re allowed to take risks and look foolish without losing our jobs. 

There is a big difference between trying to get rich and trying to stay rich. 

Retail investors have the luxury of doing nothing, fund managers don’t. So when the next suit and tie comes on CNBC telling you your Shopify (NYSE:SHOP) shares are overvalued, you need to bank profits on AMD (NASDAQ:AMD), or Nvidia’s (NASDAQ:NVDA) becoming too expensive, my advice is to sit back and do exactly that: nothing. There is safety in thinking long-term, and the daily ebb and flow of the market should not affect your outlook. Buy what you believe in and hold for the long term. It’s a simple equation, but it works.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in stocks mentioned above. Read our full disclosure policy here.