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Hedge fund manager David Neuhauser, who has made a name for himself by betting against some of the market’s most popular stocks, shared with CNBC his tips for young investors.
Speaking on the latest CNBC Pro Talks, Neuhauser suggested that investors should be wary of big-name technology stocks that have seen “explosive growth” over the past couple of years amid the coronavirus pandemic.
Even so, Neuhauser said it would still be worthwhile for young people to put their money into certain technology stocks because it’s invested in the market for a long timescale. This means any major highs and lows would be more likely to even out over time, in theory.
The Livermore Partners founder and chief investment officer said he preferred smaller technology companies “because the potential for those companies to grow is actually there.”
Neuhauser said it was “much more difficult” to find long-term growth opportunities among the “mammoth” companies that are already valued in the trillions of dollars, or even upward of $800 billion.
In addition to factoring in company valuations, Neuhauser said it was important for young investors to focus on the effect that rising interest rates could have on stocks.
Neuhauser said that he didn’t think younger investors were paying enough attention to this as both a headwind for markets and as a potential buying opportunity.
He said that the youngest cohort of investors have “never seen a bear market, they’ve never seen a recession, they’ve never seen a contraction, even in earnings, where a company is still growing, but their earnings have contracted for a while, and those are usually typically the times to be buying those stocks.”
In the more-than 25 years that he’s been investing, Neuhauser said that he’d often made money after identifying a stock that was out of favor as the economic cycle was “just about to turn.”
Betting against tech stocks
Neuhauser shorted (betted against) some major market names last year, including Meta (formerly Facebook) and Tesla. Livermore Partners had also previously shorted the ARK Innovation exchange-traded fund, which is run by investment guru Cathie Wood.
During the latest CNBC Pro Talks, Neuhauser maintained the view that the valuations of some bigger technology companies were more likely to come under pressure going forward.
He explained that amid the pandemic these companies had benefitted from increased demand for technology, like software-as-a-service, along with the Federal Reserve’s emergency economic support measures.
However, Neuhauser expects this demand to slow down. In addition, he said the Fed’s plans to raise interest rates this year, and pull back other supportive measures, would make capital expenditure — the cost of maintaining certain internal investments — more expensive for these companies.
Philadelphia Fed President Patrick Harker told CNBC last week he could see as many as four interest rate hikes this year. Many investors believe that the central bank could enact the first rate hike in March.
The mounting anticipation of rate hikes, and overall tighter monetary policy, has seen a choppy start to the year for markets, with sell-offs led by technology stocks. The technology-heavy Nasdaq index is down nearly 8% year-to-date, according to Refinitiv data.