One of the world's most respected investors has raised the alarm over a looming asset price bubble, calling out "nosebleed valuations" in technology shares like Netflix and Tesla Motors and warning of the potential for a brutal correction across financial markets. Seth Klarman, the publicity shy head of the $27 billion Baupost Group whose investment opinions have attracted a near cult-like following, said that investors were underplaying risk and were not prepared for an end to central banks reversing a five-year experiment in ultra-loose money. (Read more: Candy Crush?WhatsApp? Sure looks like a bubble)

Seth Klarman Daniel Acker | Bloomberg | Getty Images

While noting that he could not predict exactly when a significant market correction would occur, Mr Klarman wrote in a private letter to clients: "When the markets reverse, everything investors thought they knew will be turned upside down and inside out. 'Buy the dips' will be replaced with 'what was I thinking?' . . . Anyone who is poorly positioned and ill-prepared will find there's a long way to fall. Few, if any, will escape unscathed. Baupost, which is closed to new investment, returned $4bn to clients last year. More from the Financial Times:

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The warning by Mr Klarman, who has won a devoted audience for his highly cautious, value-driven approach, and whose out-of-print book on investment sells second-hand for as much as $2,900 on Amazon, comes after US shares surged by almost a third last year. Many well known technology companies, such as Facebook, more than doubled.