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Warren Buffett did not become the face of the stock market by accident. Between 1965 and 2025, Berkshire Hathaway, the company he once led, compounded at about 19.7% a year. The S&P 500 (SNPINDEX: ^GSPC), with dividends included, managed a 10.5% return.
This gap might look moderst on paper, but in terms of absolute dollars, it’s enormous. When a person with Buffett’s track record talks about the market, it is usually worth putting the phone down and listening.
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During a recent sit-down with CNBC’s Becky Quick, Buffett put it bluntly: “It’s tough to find values when everybody is preferring gambling.” The Oracle of Omaha has been circling the same idea for months, calling the market a church with a casino attached and saying he has never seen people in more of a gambling mood.
Buffett might be right. Prices look stretched, short-term trading is everywhere, and a lot of money is tied up chasing stories instead of businesses.
How does Warren Buffett think about a business?
Buffett invests in companies that can earn more than they spend for a long time. That is why he spends so much time talking about economic moats and competitive advantages.
A moat is what prevents rivals from stealing customers — brand, scale, switching costs, or a network that gets stronger as more people use it. These advantages generate durable cash flow that companies can use to pay dividends, buy back stock, or reinvest in the business. Over decades, that compounding does the heavy lifting for your portfolio.
Buffett is also a contrarian by nature. He likes to buy stocks when everyone else is bored or scared, not when the story already dominates every homepage. This is why Berkshire Hathaway stayed relatively shy of the artificial intelligence (AI) trade for so long. The frenzy drove up valuations. It wasn’t until about a year ago that Berkshire initiated a position in Alphabet.
The CAPE ratio is flashing yellow
The cyclically adjusted price-to-earnings (CAPE) ratio, or Shiller CAPE ratio, divides the S&P 500’s price by 10 years of inflation-adjusted earnings. The idea is to smooth out boom-and-bust profits so investors are not fooled by one great year or a down year.
Using 155 years of stock market data, economists found that the CAPE ratio has averaged 17.8 over the long run. Right now, it sits at about 41. This is well within shouting distance of the all-time high reading of about 44 during the peak of the dot-com bubble in 2000.
