Finance

Can Buffett Outsmart the Market? How Berkshire Hathaway Is Investing Despite Overvaluation

Berkshire Hathaway, despite a high “Buffett indicator,” invested in Constellation, Lennar, and Pool Corp.

byAndres Castro

October 26, 2025, 11:39 AM

The Berkshire Hathaway logo on a phone with a green stock chart. By credit: sdx15 / Shutterstock.com.

Executive Summary

The “Buffett indicator,” which measures total stock market capitalization to GDP, is at an all-time high of 219%, surpassing the 200% threshold Warren Buffett identified as a market overvaluation warning.

Despite this elevated market signal, Berkshire Hathaway has continued to make significant investments, actively acquiring shares in three companies from late 2024 into 2025.

Berkshire Hathaway’s recent investments include Constellation Brands, Lennar, and Pool Corp., chosen for their strong fundamentals, attractive valuations, or robust long-term growth prospects, even in a broadly expensive market.

The Story So Far

Despite the “Buffett indicator” signaling that the overall stock market is at an all-time high valuation of 219% (a level Warren Buffett once warned indicated “playing with fire”), Berkshire Hathaway has continued to make significant, selective investments. This strategy focuses on companies with strong fundamentals, durable business models, and long-term growth potential, such as Constellation Brands (due to strong market positions and cash flow), Lennar (benefiting from a housing shortage and potential interest rate cuts), and Pool Corp. (driven by predictable cash flow from repairs and long-term demographic trends).

Why This Matters

Berkshire Hathaway’s continued, selective investments in Constellation Brands, Lennar, and Pool Corp., even as the “Buffett indicator” signals an all-time high in market overvaluation, demonstrate a strategic focus on strong company fundamentals and long-term growth potential over broad market sentiment. This approach suggests that even in an ostensibly expensive market, opportunities can still be found by prioritizing individual business strengths, potentially guiding other investors looking for value amidst high valuations.

Who Thinks What?

Warren Buffett, in a 2001 Fortune article, suggested that a “Buffett indicator” exceeding 200% signals market overvaluation and that investors are “playing with fire.”

Berkshire Hathaway’s current investment strategy indicates a focus on selectively acquiring shares in companies with strong fundamentals, attractive valuations, or robust long-term growth potential, even as the broader market’s “Buffett indicator” reaches an all-time high.

Despite a market valuation indicator that Warren Buffett once suggested signals investors are “playing with fire,” his Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) has continued to make significant investments in three companies. The conglomerate has been actively acquiring shares in Constellation Brands, Lennar, and Pool Corp. through the latter half of 2024 and into 2025, according to an article by Keith Speights published on October 26, 2025.

Buffett Indicator at All-Time High

The “Buffett indicator,” which measures the ratio of total stock market capitalization to gross domestic product (GDP), currently stands at an all-time high of 219%. This level surpasses the 200% threshold that Buffett, in a 2001 Fortune article, identified as a warning sign for market overvaluation.

Despite this elevated market signal, Berkshire Hathaway has selectively increased its positions in several companies. The firm’s investment strategy appears to focus on businesses with strong fundamentals and long-term growth potential, even within a broadly expensive market.

Constellation Brands (STZ)

Berkshire Hathaway initiated a new position in Constellation Brands (NYSE: STZ), a premium beer, wine, and spirits company, in the fourth quarter of 2024. The firm subsequently added more shares in the first and second quarters of 2025, accumulating a 7.7% stake valued at approximately $1.9 billion.

The investment is attributed to Constellation Brands’ strong market positions, particularly its Corona and Modelo premium beers, and its attractive forward price-to-earnings ratio of 12. Additionally, the company’s ability to generate reliable free cash flow, totaling $1.1 billion in the first half of fiscal year 2026, along with its dividend program and stock buybacks, are cited as factors.

Lennar (LEN)

Berkshire Hathaway also acquired both Class A and Class B shares of Lennar (NYSE: LEN), one of the largest homebuilders in the U.S., during the first and second quarters of 2025. This investment aligns with Buffett’s previous experience in the housing sector through Berkshire’s subsidiary, Clayton Homes.

The enduring U.S. housing shortage is seen as a key driver for Lennar’s long-term growth prospects. Furthermore, expectations of potential interest rate reductions by the Federal Reserve, which could lead to lower mortgage rates, and the company’s valuation at under 14 times forward earnings estimates, are noted as motivations for Berkshire’s purchases.

Pool Corp. (POOL)

Pool Corp. (NASDAQ: POOL), the world’s largest wholesale distributor of swimming pool and related outdoor living products, saw Berkshire Hathaway initiate a position in the third quarter of 2024. Berkshire has continued to add to its holdings in every reported quarter since, now holding a 9.3% stake worth over $1 billion.

While Pool Corp.’s valuation of 26.6 times earnings estimates is not considered a bargain, and its recent growth has been modest (1% year-over-year net sales increase and 4% rise in diluted earnings per share in its latest quarter), the investment is attributed to the company’s durable business model and strong market position. Its predictable cash flow, with over 60% of revenue derived from repairs and maintenance, alongside long-term growth prospects from aging pools and migration to warmer climates, are cited as key attractions.

Investment Strategy Amid Market Valuation

These recent acquisitions by Berkshire Hathaway highlight a strategy of selective investment in companies with strong, understandable business models, attractive valuations, or robust long-term growth prospects, even as broader market indicators suggest high overall valuations. The investments reflect a focus on fundamental value rather than a broad market retreat.