Investors should put Buffett’s recent capital allocation decisions in context. Namely, Berkshire is worth $1 trillion, so buying stock in small companies would hardly move the needle. Beyond that, Buffett has admitted to avoiding technology stocks because he doesn’t understand the sector. Taken together, those restrictions leave Berkshire with limited investment options.

Buffett highlighted that problem in his latest shareholder letter. “There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others,” he wrote. Buffett also discussed international stocks in his analysis. “Outside the U.S., there are essentially no candidates that are meaningful options for capital deployment at Berkshire. All in all, we have no possibility of eye-popping performance.”

Here is the big picture: Many stocks are historically expensive, so compelling investment options have become increasingly difficult to find. Berkshire being a net seller of stocks in the last seven quarters is proof of that. But retail investors have more opportunities to deploy capital than a trillion-dollar company like Berkshire.

So, Warren Buffett’s $150 billion warning should not be viewed as a mandate to avoid the market, but rather as a reminder that valuations always (eventually) matter. In that context, the current environment undoubtedly warrants caution. The slightest bump in the economic or political landscape could send the S&P 500 into a correction or bear market. But I think it would be a mistake to avoid the market entirely right now.

I’ll close with this quote from legendary investor Peter Lynch. “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

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American Express is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, FactSet Research Systems, and JPMorgan Chase. The Motley Fool has a disclosure policy.

Warren Buffett Sends a $150 Billion Warning to Stock Investors as the S&P 500 Races Past Record Highs was originally published by The Motley Fool