The FTSE 100 hit fresh all-time highs back in May, but is currently less than 200 points away from that level, trading above 8,300 points. With several constituents at all-time highs (or at least at 52-week highs), some investors might feel cautious about buying now.

Legendary investor Warren Buffett’s built his multi-billion portfolio through many decades. Here’s what he has to say on this matter.

Finding undervalued ideas

One piece of advice I’m imitating is from his comment that “whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down”.

Buffett’s desire to find undervalued stocks means he’s often looking for shares that aren’t trading at all-time highs. For UK investors, this doesn’t mean there aren’t any opportunities right now. Rather, it just means being more selective in where to look.

For example, the average price-to-earnings ratio of the FTSE 100 is 15.5. Yet I can filter for companies with lower ratios, which can help me to find good-value potential. Stocks including GSK, Rio Tinto and Hiscox all have ratios below 10 as we currently stand.

Stocks with room to run

Buffett once said to “be fearful when others are greedy and greedy when others are fearful”. In relation to the stock market, this indicates to me that I want to be cautious about buying stocks that are at record highs, as some of this buying could be fuelled by greed rather than fundamental reasoning. Rather, I can look for stocks that are rallying, but are still a way from historical highs.

For example, I really like Fresnillo (LSE:FRES). At the moment I’m seriously thinking about buying the stock soon. The stock’s up 21% over the past year but is still a way off 52-week highs.

It’s done well largely due to the rise in precious metal prices. As the world’s largest silver producer, Fresnillo has been able to ride the wave of higher end selling prices. This has boosted revenue and profit. EBITDA jumped from $351m in H1 2023 to $544.2m in H1 this year.

Based on my view that gold and silver should keep rallying in 2025, due to lower interest rates and higher geopolitical tensions, I expect the share price to do the same. Given that the current stock price doesn’t look overvalued, in my eyes, there’s room for it to head higher still.

Some investors might be concerned about the impact of natural disasters, given the impact of heavy rains earlier this year on the Herradura gold mine. However, this is something that can’t really be diversified away.

Learnings from Buffett

With the stock market climbing, it’s ultimately good news for investors. There’s nothing to say the FTSE 100 can’t push towards 9,000 points next year. Yet I feel that Buffett has good points relating to where to look during these periods.

Following them can help me to avoid buying overvalued stocks that might not have much more room to grow.