How to Invest When Stocks are Overpriced: Warren Buffett

If we take a step back & look at what’s been going on with the stock market over the long term, we see some interesting things. Ever since the 2008 market crash, we’ve seen one of the greatest bull runs in history. Now this has left a lot of investors wondering what is the best way to invest with high stock prices. As always when it comes to investing I lie to go to Warren Buffett to see what he thinks & see what he is doing.

Buffett’s Strategy

There is a clear strategy that Buffett employs. The main game of Warren Buffett is to find stocks that are undervalued.
Ever since he picked up Benjamin Graham’s book, The Intelligent Investor, when he was 19 years old he’s invested that way. Find stocks that are cheaper than their intrinsic value.
In today’s market, there’s hardly any of these deals floating about. Buffett’s strategy in these times is very unique. He’s got a huge cash pile of over $100 billion, he could buy any stock. But he’s purposely choosing to wait just letting that cash pile build up.
He’s waiting for a business to come along at an attractive price. Buffett doesn’t pay any attention to these high-priced stocks, he only focuses on the parts of the market that are worthwhile.

Let’s go back to 2008 to look at how Buffett’s strategy works. In 2006, 2007 the market was very pricey. Buffett is struggling to find deals. So, he kept his money in short-term treasury bonds which is considered the same as cash.
In 2007 Buffett with Berkshire had $45 billion of cash on him ready to deploy. At that time that was a lot of money for his investing business. Then we all know the great financial crisis hit & stocks fell off a cliff. Buffett started buying up stocks like mad. By 2009 that cash pile has reduced to $24 billion. Almost half of what it had been in 2007.

Buffett is one of the most patient investors that there is. If there are no bargains out there he’s prepared to let his cash pile build up until one comes along. As he said in an interview he used to try shorting stocks when they were overvalued but it didn’t work out.

You just don’t know how long stocks can run for even if they are overpriced. Buffett said it’s tough to make money shorting stocks. What he does like to do when he feels that the market is overpriced is to look for those particular sectors that may offer some opportunity.