Warren Buffett says it's "tough to find values" as markets hit gambling mode — what it means for Canadian investors

While Buffett wasn’t talking about Canada, the same U.S. mega-cap stocks he’s warning about make up a growing share of the index-tracking ETFs millions of Canadians hold inside their registered accounts. Here’s what the warning means and what Canadian investors should actually do about it.

What Buffett is really warning about

Buffett draws a sharp line between investing — buying a business because its economics justify the price — and speculation, or purchasing because the price has been rising. His “gambling” comment falls on the speculation side of that binary.

Berkshire Hathaway was a net seller of stocks for 14 consecutive quarters before reversing course in the second quarter of 2026. That reversal isn’t a call to buy everything; Buffett has said Berkshire would rather hold less cash and more stock, but only once it finds a business worth the price.

Why the valuation numbers back him up

Two gauges support Buffett’s caution. The Buffett indicator, which compares total U.S. stock market value to gross domestic product, sits near 238% — the highest level ever recorded. Buffett himself warned in 2001 that investors were “playing with fire” once that ratio neared 200%, a level last seen near the peak of the dot-com bubble and months before a bear market began in 2021.

The S&P 500’s Shiller cyclically adjusted price-to-earnings (CAPE) ratio, which weighs prices against a decade of inflation-adjusted earnings, is above 41 — a level briefly touched only once before, near the top of the tech bubble. High valuations don’t guarantee a crash and can persist for years. But they typically shrink the returns investors can expect from stocks bought at those prices.

The catch for Canadians holding S&P 500 ETFs

Canadian-listed funds like the Vanguard S&P 500 Index ETF (VFV), the BMO S&P 500 Index ETF (ZSP) and the iShares Core S&P 500 Index ETF (XUS) are among the most common holdings inside Canadian TFSAs and RRSPs. This is largely because they offer access to sectors barely represented on the Toronto Stock Exchange (TSX).

That access comes with a catch. The so-called Magnificent Seven — Apple, Microsoft, Nvidia, Alphabet, Meta, Amazon and Tesla — now make up roughly 30% to 33% of the index’s total weighting. A Canadian who assumes their S&P 500 ETF spreads risk across 500 companies is, in practice, making a concentrated bet on a handful of expensive technology stocks.

Even Buffett found an exception

Buffett’s caution about the broader market didn’t stop Berkshire from buying. Its biggest purchase in the second quarter was Alphabet, which Buffett confirmed he chose personally. At the time, Alphabet traded at roughly 16.8 times forward earnings, well below the S&P 500’s roughly 19.9 times — the cheapest of the Magnificent Seven by that measure.

The lesson isn’t to sell and hide. An expensive market rewards selectivity: Fewer, better-priced holdings instead of broad, indiscriminate buying.

What Canadian investors should do now

Buffett’s warning isn’t a signal to abandon a TFSA or RRSP built around index investing — it’s a reminder to know what’s actually inside that index.

• Check your S&P 500 ETF’s top holdings before assuming it’s diversified — most fund providers publish this online
• Avoid putting all new contributions into U.S. mega-cap tech; consider adding Canadian or international equities to spread the risk
• Keep contributing on a regular schedule instead of trying to time a pullback — dollar-cost averaging softens the impact of a downturn either way
• Revisit your risk tolerance if a 20% to 30% drop in a concentrated position would derail a near-term goal, such as a home purchase or retirement date

None of this means a crash is coming. It means that at a Buffett indicator of 238% and a CAPE ratio above 41, the price a Canadian investor pays today matters more than it has in years — and it’s worth checking exactly what’s inside the fund doing the buying.