For more than six decades, Warren Buffett, Berkshire Hathaway’s legendary CEO, has consistently outperformed the market. Under his leadership, Berkshire’s Class A shares have delivered a return of 5,884,143% as of June 18. To put that into perspective, the S&P 500 has gained around 40,000%, including dividends, since the mid-1960s. This unmatched success has not come from luck or risky speculation. Buffett has followed a disciplined, value-driven investment philosophy that is rarely wavered. But today, despite sitting on an unprecedented $347.7 billion in cash and U.S. Treasuries, he has been selling, not buying. And the reason lies in one investing rule he refuses to break.
Buffett’s golden rule: Never overpay
Warren Buffett is famous for saying, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” This philosophy is at the heart of his investment strategy and it is why he has been a net seller of stocks for 10 straight quarters, unloading $174.4 billion worth of equities since October 2022. Why? Because in Buffett’s eyes, the current market is simply too expensive.
Buffett has long championed the market cap-to-GDP ratio, also known as the “Buffett Indicator,” as a reliable barometer of market valuation. Historically, the total value of public companies typically equals 85% of U.S. GDP. But today, that ratio is nearing 201%, just shy of the all-time high of 205.55% reached in February 2021. In Buffett’s view, that makes this one of the most overpriced markets in history, and a dangerous time to invest heavily.
Buffett has admitted that the occasional short-term trade, like Berkshire’s stake in Activision Blizzard, which was meant as a merger arbitrage opportunity during Microsoft’s acquisition. But even then, Buffett reduced the stake before the deal was finalised. He also made an unusual move by investing heavily in Occidental Petroleum, despite the company’s sizeable debt load. However, this bet was likely based on strategic control and oil price forecasts rather than classic value metrics.
Buffett’s investment playbook is clear, buy great businesses at reasonable prices and hold them for the long term. His success stories, Coca-Cola, American Express, and Moody’s, are proof of the same. But he refuses to chase inflated stocks, no matter how promising the business. That is why, despite Berkshire’s mountain of cash, Buffett is sitting on the sidelines. He is waiting patiently, for a market correction or pricing dislocation, just as he did with Bank of America in 2011. Buffett’s decision to stay out of the market is not a sign of panic, it’s a warning. He sees the market as dangerously overvalued, and rather than risk capital, he is choosing caution. It is a reminder that discipline and patience, not hype or fear of missing out, are what make a great investor.