Warren Buffett propelled Berkshire Hathaway to six decades of market-beating returns, so it’s no surprise that retail investors around the world look to him for advice. The billionaire aims to select quality companies when they’re undervalued, then benefit over time as their earnings grow and the stock prices take off. Buffett has invested throughout market environments, from bull markets to bear markets, and has experienced market crashes — and over time, he’s scored a clear win by sticking to his investing principles.
Buffett no longer leads the investing decisions at Berkshire Hathaway — he handed that role over to his hand-picked successor, Greg Abel, at the start of the year and just this week turned the chairman position over to his son, Howard Buffett. However, Warren Buffett, now chairman emeritus, has continued to speak publicly about investing. And we also may refer to his past words of advice, which continue to ring true today.
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In fact, one comment from Buffett looks particularly interesting right now, given certain elements of uncertainty that have weighed on the market recently, from higher inflation to worries about spending on artificial intelligence (AI). Buffett says many investors make this one mistake. Let’s find out what it is and consider how to avoid this common — and costly — error.
Image source: The Motley Fool.
The S&P 500’s performance
First, though, we’ll start with a few more words about the current market environment and about Buffett’s investing strategy.
The S&P 500 has soared over the past few years and has continued to climb this year, too. But the recent path hasn’t been without hurdles. Investors have worried about turmoil in Iran, rising prices in the U.S., and the fast pace of spending by tech giants on the AI build-out. On top of this, in recent days, AI executives have spoken of the subject of AI safety, with Anthropic even advising a slowdown in the advancement of new models.
Meanwhile, stocks remain near record valuation levels, as we can see through the S&P 500 Shiller CAPE ratio, an inflation-adjusted metric that looks at stock prices and earnings.
S&P 500 Shiller CAPE Ratio data by YCharts
Against this backdrop of uncertainties and with stocks trading at high levels, some investors worry that a decline in stock prices may be right around the corner. And this leads me to the subject of Buffett.
