Warren Buffett warns US stock market is becoming a 'gambling hall'

Berkshire Hathaway Chairman Warren Buffett has warned that the US stock market is becoming a place for gambling rather than investing.

Motley Fool, a US investment media outlet, reported Wednesday that Buffett expressed concern about overheating in financial markets at this year's Berkshire Hathaway annual shareholder meeting.

"There has never been a period quite like the current one, where people have fallen into a gambling mindset," he said.

Buffett drew a distinction between long-term value investing and short-term speculation, comparing them to a church and a casino, respectively. "Long-term value investing is like a church, while speculation aimed at short-term gains is a casino," he said. "The casino has become far too attractive to people. What we have now is not investing or speculation — it is gambling."

On asset prices, Buffett said "many assets are priced far above their actual value."

Key valuation indicators also point to an overheated market.

The Buffett Indicator — which divides the total market capitalization of US stocks by GDP — has surged to 232%, its highest level in history.

Buffett had previously said that when the indicator approaches 200%, it is "playing with fire."

The Shiller CAPE ratio, a widely used measure of whether US stocks are overvalued, has remained above 40 since May. The only prior instance of the ratio staying consistently above that level was just before the dot-com bubble in 2000.

Motley Fool cautioned that overheating signals do not necessarily lead directly to a broad market decline, adding that a long-term strategy of holding companies with fair valuations and solid fundamentals matters more than short-term price swings.