Should you buy stocks at record highs? Here’s what Warren Buffett does.

The S&P 500 The index has soared, confirming its presence in a bull market earlier this year and hitting new records several times. The benchmark is heading for a 22% annual gain today, led by investor optimism about a lower interest rate environment and excitement about the high-growth field of artificial intelligence (AI). Tech players operating in this fast-growing space have skyrocketed, and many may have a lot more room to run in the long run.

This all sounds great, but it has resulted in many stocks trading at record highs – and certain valuations appear quite expensive. This might have you wondering whether you really should be buying stocks at a record high today. And in times like these, it’s a good idea to ask investment expert and billionaire Warren Buffett for advice.

Buffett, as chairman of Berkshire Hathawayhas led the portfolio to an average annual gain of nearly 20% over 58 years – significantly exceeding the S&P 500’s 10% average annual gain. So Buffett has gone through many different market phases and emerged as a winner over time.

Let’s look at what Buffett has done recently as the stock market has soared – and see if there are some moves we should follow.

A rapidly increasing Shiller CAPE ratio

First, a quick look at what I mean by stocks looking expensive. The S&P 500 Shiller CAPE ratio, a valuation measure that takes into account 10 years of earnings and is adjusted for various economic cycles, has risen in recent months. And right now, it’s only the third time the S&P 500 has topped 35 since its debut in the late 1950s.

S&P 500 Shiller CAPE Ratio data from YCharts

Now let’s turn to Buffett. The billionaire investor has been more of a seller than a buyer of stocks lately. For example, he and his team at Berkshire Hathaway sold shares in nine different companies in the second quarter – including one of his favorite stocks, Apple (AAPL 0.36%). (And just recently, Buffett and the team sold shares in another favorite company, Bank of America.)

But it’s important to put this into context. The billionaire also bought two new stocks in the second quarter (Ulta Beauty And Heico), added to some long-held positions such as Occidental Petroleumand retained more than 20 other positions.

We don’t know the exact reasons for each individual buy and sell, but we do have some clues. First, let’s look at sales, particularly Apple. Buffett suggested at Berkshire Hathaway’s shareholder meeting in May that selling a position like Apple was tied to his interest in locking in some of the profits under the current capital gains tax rate – Buffett said he expects that rate to increase.

Buffett’s largest holding

It’s important to note that Apple still remains Buffett’s largest holding by value, suggesting that this move has nothing to do with a loss of confidence in the company. If Buffett believes capital gains tax rates could rise, it also makes sense that he would take some profits on Bank of America, as it is another important long-term member of his portfolio.

As for Buffett’s recent purchases, they show that even if the S&P 500 as a whole is up and some individual stocks are expensive, that doesn’t mean all stocks are too expensive. Ulta, for example, trades at 15 times forward earnings estimates, up from 24 times earlier this year.

Of course, Buffett is known for making deals in downturns and, as he said, “being greedy when others are afraid.” But the billionaire doesn’t stop investing when the market looks expensive, because buying opportunities – quality stocks at reasonable prices – exist in every market environment. Buffett showed us this in the second quarter of this year, because even as the indexes rose, he still saw opportunities to add to existing positions and open new ones.

All of this means that like Buffett, you should continue to invest today and in any market environment. If you carefully examine each company individually, you can always find bargains or at least promising and reasonably priced stocks. That’s why it’s important to stick with investing no matter what the market as a whole is doing. By making these deals year after year and holding on to these top-notch players, you can follow in Buffett’s footsteps and set yourself up for potential profit over the long term.