Warren Buffett Thinks Investors Are "Gambling" Right Now. Here's What Happened the Last Time He Uttered Those Words.

"It's tough to find values when everybody is preferring gambling."

That was Warren Buffett's blunt message in an interview with CNBC's Becky Quick in mid-July. Those words echoed his statements in another CNBC interview during Berkshire Hathaway's (NYSE: BRKA) (NYSE: BRKB) annual shareholder meeting in May. The legendary investor said then that the stock market had become like "a church with a casino attached," adding that "we've never had people in a more gambling mood than now."

But Buffett has also used the gambling metaphor before. And what happened with stocks the last time he spoke about how investors were gambling could be a warning sign for today.

Image source: The Motley Fool.

Why Buffett thinks the stock market has become a casino

One reason Buffett likened the stock market to a casino in 2026 was the surge in options trading. S&P 500 (SNPINDEX: ^GSPC) 0DTE (zero days to expiration) option volume has exploded in recent years. He also brought up the use of call options in his 2022 condemnation of Wall Street, calling the stock market "a gambling parlor."

Buffett didn't specifically refer to leveraged exchange-traded funds (ETFs). These funds use financial derivatives (which Buffett has criticized in the past) to boost returns. Leveraged ETFs now make up around 40% of total ETF trading volume.

Another key factor behind Buffett's believe that investors are gambling is the stock market's valuation. A valuation metric that he made famous, the ratio of total stock market capitalization to U.S. GDP (now known as the "Buffett indicator"), is now close to 237% -- its highest point ever. In 2001, Buffett stated that whenever this metric approaches 200%, investors are "playing with fire."

Anyone looking for confirmation that Buffett views the stock market as overvalued only needs to check out Berkshire Hathaway's cash position. The conglomerate's cash, cash equivalents, and short-term investments in U.S. Treasuries totaled $397.4 billion as of March 31, 2026. That's the largest corporate cash stockpile in U.S. history.

The last time Buffett used the gambling analogy

At Berkshire Hathaway's annual shareholder meeting on April 30, 2022, Buffett also used the word "gambling" to describe the stock market. His longtime business partner, the late Charlie Munger, said that the market was "almost a mania of speculation."

Both men's words proved prophetic. Less than two months later, the S&P 500 entered into a correction. The index finished the year down 19%.

But there are some key differences between the last time Buffett used the gambling analogy and today. For one thing, stock valuations are considerably higher now than they were then. The S&P 500 Shiller CAPE (cyclically adjusted price-to-earnings) ratio was under 34 in April 2022. It's now over 41 -- more than 20% higher.

Another important distinction between then and now is what Buffett's doing (and not doing). Back in 2022, he was deploying Berkshire's cash to scoop up stocks at attractive prices. In 2026, Buffett and his successor as CEO, Greg Abel, are hoarding cash.

Ignore Buffett at your peril.

There's a reason why Buffett was nicknamed "the Oracle of Omaha." His warnings have often proven to be prescient.

When one of the greatest investors of all time (and one of the greatest students of the stock market ever) compares current market dynamics to a casino or gambling parlor, it's wise to pay attention. You might even want to take some of the same actions that Buffett has, including raising cash and being highly selective about which stocks you buy.

The last time Buffett said that investors were gambling, the stock market declined sharply. Whether or not history repeats itself, ignore Buffett's warnings at your peril.

Keith Speights has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.