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Warning! Warren Buffett thinks shares are overvalued. Time to sell?

Warren Buffett is considered to be one of (if not the) greatest investors of all time.

So it goes without saying that when he provides some commentary on the markets, most investors stop and listen (even if they don’t agree with the Oracle of Omaha).

Of course, if you just look at what Buffett’s doing with his company Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) and its money, you can somewhat gauge what his thinking is at the current time.

Last year, Berkshire was a net seller of stocks (which is unusual for a company). And what’s more, Berkshire is currently sitting on a record pile of cash that totals more than US$128 billion (as of the most recent company filing).

That’s US$128 billion waiting for a new home.

So, why is Buffett adding to this pile instead of spending it? The most obvious Occam’s Razor-style conclusion is that he has nowhere to invest it in today’s markets.

Buffett is famously a ‘value-style’ investor who likes to buy companies ‘on sale’. In more recent decades, Berkshire’s sheer size means Buffett’s investing horizons are confined to large-cap companies and there just simply isn’t a deal out there good enough to pique his interests.

It’s the same strategy he used before the dot-com bubble burst and in the years leading up to the GFC in 2008/09 (maybe he’s giving us a hint?).

What are Buffett’s latest thoughts?

Last week, Buffett released his annual ‘bible’ of investing wisdom for 2020 – his yearly letter to the shareholders of his company Berkshire Hathaway. You can read this letter here.

There were a few telling remarks made in the letter, but I think the most pertinent is this:

“What we can say is that if something close to current rates should prevail over the coming decades and if corporate tax rates also remain near the low level businesses now enjoy, it is almost certain that equities will over time perform far better than long-term, fixed-rate debt instruments.

That rosy prediction comes with a warning: Anything can happen to stock prices tomorrow.

Occasionally, there will be major drops in the market, perhaps of 50% magnitude or even greater. But the combination of The American Tailwind, about which I wrote last year, and the compounding wonders described by Mr. Smith, will make equities the much better long-term choice for the individual who does not use borrowed money and who can control his or her emotions. Others? Beware”

Foolish takeaway

It might just be me, but I think Buffett is subtly warning that the current record-long bull run might be coming to an end. His prescription? Control your emotions and invest out of confidence, not fear. A sentiment I think every investor should hold dear in 2020 and beyond!

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Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short March 2020 $225 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Berkshire Hathaway (B shares). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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