The Warning Signs of a Tech Bubble Like Einhorn, I've been warning about Big Tech names, special purpose acquisition companies (SPACs), electric vehicle companies and profitless momentum stocks recently. And in his third quarter letter to Greenlight Capital investors, Einhorn lays out a list of new warning signs... Initial public offering mania High valuations and new metrics for valuation Market concentration in a single sector and a few stocks S&P 500-type market capitalizations for second-tier stocks that most people haven't heard of A situation where the more fanciful and distant the narrative, the better the stock performs Outperformance of companies suspected of fraud based on the belief that there is no enforcement risk, without which "crime pays" Outsized reaction to economically irrelevant stock splits Increased participation of retail investors, who appear focused on the best-performing names Incredible trading volumes in speculative instruments, like weekly call options and worthless common stocks A parabolic ascent toward a top.
Like Einhorn, I have my eyes wide open to the risk that the bubbly areas of the market present. We also know that opportunities exist in other areas of the market... When You Hear From Me Next I am an avid reader of the quarterly letters from the top investors like Einhorn. I watch what these super-smart folks are buying and selling. After I read Einhorn's third quarter letter, I read a letter from another elite investor who is sounding the same warning signal. When these smart guys start cautioning the same things, we should pay attention. This other investor, however, is also pounding the table on a sector of the market that he believes represents a generational buying opportunity. As is often the case, risk in one area of the market opens up opportunity in another. When you next hear from me, I'll name that other investor and lay out exactly which sector he thinks is appealing and why. Until then... Good investing, Jody | 
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