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For the first time in 60 years, Warren Buffett watched someone else lead Berkshire Hathaway's (NYSE: BRKA)(NYSE: BRKB) annual meeting. That doesn't mean Buffett was absent from that May 2 event, though. He was there on the sidelines and had time to field questions in an unofficial capacity.
In a CNBC interview that day, Buffett was asked whether stocks felt expensive. His answer was that he had never seen people more in the mood to gamble and that "prices for an awful lot of things will look very silly."
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Warren Buffett is and always has been a long-term investor. But if things are about to get "silly," should investors adjust their portfolios?
More than 1,000 new exchange-traded funds (ETFs) have launched in 2026 so far. A lot of them involve leverage, ultra-short-term options, and ridiculously high yields. In other words, they're the kinds of products that don't resemble anything that Warren Buffett would consider.
But the biggest reason Buffett considers them gambling is that they're based on time frames measured in days. Options that expire in a day. Leverage that resets daily.
Narratives can take years to play out. What happens during any given day is essentially a coin flip. A stock could go down on a Tuesday simply because more sellers showed up than buyers. That has nothing to do with a company's financials.
The fact that so many people are heavily using these products means that the financial markets are looking less like a place that you go to build long-term wealth and more like a place where you're trying to beat the house.
It's not as exciting as investing in leveraged ETFs or those advertising huge yields, but the answer to Buffett's gambling warning is to focus on quality. These are the companies with strong balance sheets, lots of cash flow, and durable competitive advantages.
One of my favorite ETFs for this is the Pacer U.S. Cash Cows 100 ETF (NYSEMKT: COWZ). It ranks a universe of large-cap companies by their free cash flow yield, which measures the cash a company has left over after paying its bills and reinvesting it in the business. Those that make the top 100 qualify for inclusion in the fund.
The fund's selection criteria produce a very value-oriented portfolio. Four sectors -- energy, technology, industrials, and healthcare -- each get current allocations between 15% and 20%, so you get a unique portfolio allocation that's quite different from the S&P 500.
Not surprisingly, the lack of heavy tech and Magnificent Seven exposure has resulted in some pretty significant underperformance over the past several years. But the Pacer U.S. Cash Cows 100 ETF is beating the S&P 500 by more than 8% year-to-date as the market rally broadens out.
The thing about "silly" stock prices is that they tend to fix themselves eventually, usually when the market least expects it. But if you hold quality stocks in your portfolio, it becomes less of a concern.
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David Dierking has positions in Pacer Funds Trust-Pacer Us Cash Cows 100 ETF. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
Warren Buffett Said 11 Words Warning That "Prices for an Awful Lot of Things Will Look Very Silly." Here's Why His Market Warning Still Matters for Investors. was originally published by The Motley Fool
