Most Americans think the stock market is heading for a massive crackup – Warren Buffett tells investors how they should prepare

Three in four Americans fear the stock market’s spectacular run is coming to an end – but Warren Buffett has a simple warning for anyone tempted to panic and sell.

‘We’ve never had people in a more gambling mood than now,’ the billionaire investor said earlier this year, warning that ‘prices for an awful lot of things will look very silly.’

Buffett’s point was not that investors should flee the stock market, but that they should be careful about getting carried away by soaring prices and speculative bets.

That advice could prove particularly relevant now, with 74 percent of Americans saying recent market highs are unsustainable and a correction could be looming, according to a new Allianz Life survey.

Almost two-thirds – 63 percent – also said they are putting off financial decisions because the economic outlook feels too unpredictable.

Just 27 percent said they feel comfortable with current market conditions and are ready to invest.

The nervousness comes after a remarkable run for stocks, with the S&P 500 up around 80 percent over the past five years and the Nasdaq roughly 91 percent higher.

Simply putting money into a broad stock market fund would therefore have been enough to produce eye-catching gains without having to pick the next superstar company.

Warren Buffett  warns that investors should be careful about getting carried away by soaring prices and speculative bets

But after years of rising prices, investors are now asking whether Wall Street has got ahead of itself.

The latest rally has been powered in large part by excitement over artificial intelligence, with investors pouring money into companies expected to benefit from the huge sums being spent on chips, data centers and AI technology.

Nvidia has been one of the biggest winners, becoming a poster child for the extraordinary AI-fuelled boom.

The worry is that companies may eventually struggle to live up to the enormous expectations investors have placed on them.

Capital Economics has warned that the AI investment boom could eventually lose steam, while other Wall Street figures have questioned whether parts of the technology sector have become too expensive.

Just this week, investor Michael Burry warned that the AI boom was running on one giant loop and the market was already heading for a potential crash if industry spending slowed down.

There are also concerns about higher borrowing costs and rising government bond yields, which can make stocks look less attractive compared with safer investments.

But Buffett has seen this movie before. During the dot-com frenzy in 2000, when investors were throwing money at technology companies, he warned that the party would eventually end.

He famously compared investors to Cinderella staying at the ball after knowing that midnight was coming, even though nobody knew exactly when it would arrive.

After years of rising prices, investors are asking whether Wall Street has got ahead of itself

The important point is that Buffett did not respond by selling everything and hiding his money under the mattress.

Instead, he stuck to his basic strategy of looking for companies he understood, with strong businesses and the ability to make money over many years.

He has also repeatedly warned that trying to predict the perfect moment to sell and then buy back in is a dangerous game.

An investor who sells because they fear a crash still has to work out when to get back into the market – and could miss a sudden rebound while waiting for prices to fall further.

Susannah Streeter, head of money and markets at Wealth Club, echoed that warning, telling the Daily Mail: ‘Investors who react emotionally to volatility, switching and ditching investments or chasing hot stocks on average do worse than those who keep calm and carry on and allow quality investments time to mature.’ 

That is why a correction – which simply means a fall of at least 10 percent from a recent peak – does not automatically spell disaster for someone investing for the long term.

The bigger danger for everyday investors may be allowing fear to turn a temporary fall into a permanent loss by selling at the worst possible moment.

Rather than attempting to predict the next crash, Buffett’s approach suggests taking a look at what you actually own and asking whether you would still be happy holding it if prices fell sharply tomorrow.

That could mean being wary of fashionable stocks whose prices depend on enormous future profits rather than what the businesses are making today.

It could also mean making sure a portfolio is spread across different investments rather than betting everything on one hot sector such as AI.

Buffett’s Berkshire Hathaway has itself amassed a huge cash reserve, giving it the flexibility to pounce if attractive companies become cheaper during a downturn.

But that does not mean ordinary investors should copy Buffett by selling everything and waiting for the crash that so many Americans now fear.

The billionaire’s most useful lesson may be a much less exciting one: stay patient, avoid the hype, focus on quality and remember that even the stock market’s biggest falls do not last forever.