Naive investors are getting dangerously caught up in a speculative bubble, all-star investor Rich Bernstein warns

Environment

Institutional Investor Hall of Famer Richard Bernstein warns retail investors will pay a big price for getting caught up in speculative trades.

Bernstein, who has spent decades on Wall Street, cites the democratization of the market as a critical contributor to the excessive euphoria. He worries naiveté will ultimately put amateurs in difficult positions.

“Bubbles show up in a number of different formats, and this is a classic,” the Richard Bernstein Advisors CEO and CIO told CNBC’s “Trading Nation” on Wednesday. “You’re basically playing with fire.”

He also attributes tremendous amounts of liquidity due to Federal Reserve policies and the increase of leverage for the risk taking backdrop. According to Bernstein, the mania talks to a bifurcated market where one part ridiculously speculative while the other is virtually ignored.

‘We really have a bubble going on’

“Trading volumes are up pretty dramatically,” he said. “We really have a bubble going on in that half of the market.”

This year, a handful of stocks including GameStop, has staged an epic performances. But they’re divorced from fundamentals due to short squeezes.

“If you’re worried about what’s going on… you should be a seller,” said Bernstein. “Will fundamentals win? Always.”

The short squeezes emerged after Reddit chat boards encouraged retail investors to quickly drive up the price of a handful of stocks to push out those betting against them. As a result, hedge funds shorting these stocks were forced to jump back in and buy them to cover losses.

In GameStop’s case, the stock is up more than 1,700% so far this year as of Wednesday close.

Bernstein believes the craze isn’t a market-wide phenomenon and sees the short squeezes are sparking significant opportunities in areas garnering less attention. The key, according to Bernstein, is patience.

He likes stocks tied to the economic recovery best, particularly energy.

“The most attractive part of the equity markets right now globally is the energy sector,” Bernstein said. “If the global economy recovers, and I think most people agree it will over the next year or so, you’re going to see increased demand for carbon fuels. The energy sector is dramatically under-owned. It’s hugely disliked.”

The group is down 27% over the past 52-weeks.

Disclaimer

Products You May Like

Articles You May Like

UK to scrap warships, helicopters and drone fleet despite growing threats abroad
Google could be forced to sell its Chrome browser over internet search monopoly claims
Embattled COP29 climate summit strikes last ditch deal on funding for vulnerable countries
First inflation rate increase in three months as energy bills rise
Minister’s assisted dying intervention is explosive – and potentially embarrassing for PM

Leave a Reply

Your email address will not be published. Required fields are marked *