Warren Buffett's "Gambling" Alert Rings True as Stocks Face Their Sternest Challenge in 155 Years

Warren Buffett’s record explains why his warning deserves attention. As Berkshire Hathaway’s longtime leader, he transformed a textile company into an investment conglomerate. From 1965 through 2025, Berkshire’s market value compounded at 19.7% annually, versus 10.5% for the S&P 500 (SNPINDEX: ^GSPC). Buffett has observed that attractive opportunities at reasonable prices are increasingly difficult to find as investors favor short-term speculative growth stocks and day trading over long-term ownership. That concern is reinforced by the cyclically adjusted price-to-earnings ratio, or CAPE, developed by economist Robert Shiller. It compares current prices with average inflation-adjusted earnings over the previous 10 years, smoothing temporary economic-cycle distortions. The CAPE ratio is now near 41, more than double its roughly 17 long-run average across approximately 155 years of data. Only the late-1990s extreme was higher, when CAPE exceeded 44 in late 1999. The S&P 500 peaked in early 2000 before suffering a prolonged drawdown through 2002 as technology and growth-stock premiums collapsed. High CAPE readings do not identify the precise timing of a decline, but they indicate limited margin for error and historically muted subsequent gains. If expectations continue diverging from economic reality, valuations may contract through falling prices or faster earnings growth. Investors can prepare through asset-class diversification, blue-chip companies with durable competitive advantages and predictable cash flow, and a cash reserve that provides flexibility when bargains return. Remaining invested also matters: the S&P 500 has advanced to new highs after bottoming. Patience and discipline are more dependable than trying to identify the exact peak. The Motley Fool Stock Advisor team identified 10 stocks it considers best buys now; the S&P 500 Index was not included. Its examples include Netflix, where $1,000 invested after the December 17, 2004, recommendation would have reached $396,758, and Nvidia, where $1,000 invested after April 15, 2005, would have reached $1,300,820. Stock Advisor’s average return was 939%, versus 211% for the S&P 500, as of August 5, 2026. Adam Spatacco holds none of the mentioned stocks. The Motley Fool owns and recommends Berkshire Hathaway.