Warren Buffett Called Today's Stock Market 'a Church with a Casino Attached,' Warning That 'We've Never Had People in a More Gambling Mood Than Now.' Does History Say Investors Should Pull Back?

Warren Buffett, the former CEO of Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB), is one of the world's most famous investors. In fact, his long-term success as an investor earned him the nickname the Oracle of Omaha. So investors should pay attention when he issues a warning about elevated risk, as he recently did by suggesting there's a gambling mentality on Wall Street today. However, Wall Street's long-term history still has an important story to tell, too.

The gambling mentality is on full display

Buffett lamented that "we've never had people in a more gambling mood than now," in an interview with Fortune. He even invoked the notion of religious fervor, opining that Wall Street is like a church with a casino attached. That is a very negative view of the market environment, but it isn't unrealistic.

Image source: The Motley Fool.

After rushing headlong into cryptocurrencies, droves of people have now taken up prediction markets. Cryptocurrencies have no intrinsic value and are worth only what their owners are willing to pay. And prediction markets, by definition, have binary outcomes based on time-limited events. That predicting the outcome of a sports event (effectively gambling) can now take place at the same broker a person uses to buy stock in a company should be pretty shocking. And yet it is the norm today for many discount brokers.

^SPX data by YCharts

However, even if you are as worried as Buffett, that doesn't mean you should dump your long-term investment approach. As the chart above highlights, the market has recovered after every bear market in history. In fact, the S&P 500 index (SNPINDEX: ^GSPC) has gone on to achieve new highs after every single downturn in history so far. It is highly likely that this trend will continue, even if investment risk is high today.

Find something that works for you and stick with it

What's interesting is that if you had simply bought the S&P 500 index and kept buying it, ignoring Wall Street and famous investors (including Warren Buffett), you would have done fairly well as an investor. The real story here, however, is picking an investment approach that you can stick to and, well, stick to it through the inevitable good and bad times you'll face as an investor. History suggests Buffett is probably correct about elevated risk, and that, despite his concerns, you probably shouldn't change your long-term investment approach.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.