Investors who are long and playing the speculative frenzy in the market should be really careful, billionaire investor David Tepper told CNBC on Thursday
"It was 'party on dot-com' in 1999 that screwed the shorts, and now it's 'gang up inc.' It didn't end well in 1999 when the dot-com bubble popped. Been there, done that. Old scars," Tepper told CNBC's Joe Kernen on "Squawk Box."
The founder of the Appaloosa Management hedge fund emphasized that investors need to exercise caution amid a frenzy of trading activity and heighted valuations. When things turn, they can turn sharply.
The influence of retail investors — most apparent in GameStop — has captivated the Street in recent days, and speaks to a new class of traders who grew up amid the pandemic.
Individual investors are creating short squeezes by piling into names that hedge funds are betting against, forcing the funds to rush to cover their losses. This typically pushes shares even higher. Retail investors are promoting their activity on the WallStreetBets Reddit board, which has more than 3 million members.
GameStop and AMC Entertainment have been some of the most popular targets. The former is up more than 1,700% this year, while the movie chain giant has seen its stock soar more than 800% this year.
Earlier in January, Tepper told CNBC's Jim Cramer that he had a more positive view on the market because of the Covid vaccine. Additionally, with ongoing support from the Federal Reserve, he said it's hard to bet against the current market.
"I don't want to say he's wildly bullish. I would say he's very constructive," Cramer said of his conversation with Tepper. "He saw this coming. He knew to get out, and now he feels there are pockets where you should be in, pockets of very reasonable valuations."
A year ago, Tepper issued an early warning about the impact of the pandemic on stocks, which proved to be prescient.
On Feb. 1, shortly before stocks began to tank as the pandemic forced the world into lockdown, Tepper told Cramer he had become cautious on the market due to the virus. "You have to be careful, because it may be a game changer. So you've just got to be cautious," Tepper said then.
- CNBC's Kevin Stankiewicz contributed reporting.