Warren Buffett has been sounding the alarm bell for quite some time now. Twelve quarters to be exact. That’s the number of consecutive quarters that the billionaire has been a net seller of stocks, meaning his selling has outweighed his buying. On top of this, Buffett, as chairman and chief executive of Berkshire Hathaway, has been building cash to reach record levels — in the third quarter, cash topped $381 billion.
The famous investor hasn’t explained the reason for his moves, but we can gather clues from comments he’s made in the past and from what we know about his investment strategy. For example, in his letter to shareholders last year, Buffett explained that buying opportunities aren’t generally abundant. “Often, nothing looks compelling,” he wrote. And, over time, Buffett has emphasized the importance of buying stocks for reasonable valuations — and not overpaying for a stock just because it’s popular.
Considering all of this, Buffett may be worried about the rising valuations of stocks — and that’s why his warning to Wall Street has reached deafening levels. With this in mind, here are three things you should do before 2026.
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As mentioned, S&P 500 valuations have climbed, with the S&P 500 Shiller CAPE ratio reaching 40, a level it’s only reached once before. This is an inflation-adjusted measure of stock prices in relation to earnings, and it suggests that stocks today are at one of their priciest levels ever.
And investors have worried most specifically about the prices of artificial intelligence (AI) stocks. Some market participants have even said an AI bubble might be forming, though AI companies’ earnings reports may suggest otherwise — showing growth and ongoing demand.
It’s impossible to predict with 100% accuracy whether a bubble is on the way or if AI stocks will continue to climb well into the future. But, in either situation, you may win if your portfolio is well diversified across stocks and industries. This way, even if one of those stocks or sectors falters, others may compensate.
Now, as you consider your holdings and strategy heading into a new year, it’s a great time to evaluate your portfolio — and if you lack diversification and have the cash to put to work, tackle the problem. If high valuations lead to a dip in the stock market, a diversified portfolio may help you weather the storm.
Though stocks have advanced quite a bit in recent years, this doesn’t mean that buying opportunities don’t exist. Even though Buffett has primarily sold stocks for several quarters, he’s also found some great deals — in the third quarter, for example, he opened a position in Alphabet, one of the cheapest of the Magnificent Seven tech stocks.
So, it’s always important to be on the lookout for a good buy, even at times when the market is difficult or stocks seem expensive. You might pick up shares of a stock that’s soared but recently has pulled back, offering a fresh buying opportunity — CoreWeave comes to mind, particularly if you’re an aggressive investor. Or you may turn to a potential recovery story like UnitedHealth Group — Buffett opened a position in the health insurance giant in the second quarter.
Finally, when possible, it’s always a smart idea to set aside some cash that you might dig into when new buying opportunities arise. As Buffett’s moves from quarter to quarter show, even at times when he isn’t a major buyer of stocks, he still has managed to pick up some good deals. It’s important to be prepared so you won’t miss out.
The level of cash you set aside depends on your budget, and the good news is that any amount can help you along the path to wealth. So, you don’t have to set aside thousands of dollars — or billions like Buffett — to start investing or add to your current positions. You can accomplish a lot with $100 or even less if you invest wisely and regularly. Over time, you might add to that cash pile and progressively invest it as needed.
So, if your budget allows, before the New Year, follow in Buffett’s footsteps by setting aside even a small amount of cash to deploy at just the right moment in 2026.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Berkshire Hathaway. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.
