(MONEY Magazine) – Warren Buffett, the smartest man on Wall Street and consequently the richest man in America, believes his Berkshire Hathaway stock has become overpriced. Apparently, he feels so strongly about his ballooning stock, which is up 62% since last March, that he would advise friends and relatives not to touch it at anything like its current price of $36,000 a share. In other words, though this legendary value investor currently owns $17 billion worth of Berkshire, he wouldn't buy it today.

But so what? Plenty of stocks have become overinflated in the recent market run-up (so have some funds, as we explain on page 146). And, from time to time, some chief executives--though not nearly enough--even warn shareholders about the hot air in their stock. So why are we on a tuffet about Buffett?

Because Buffett himself, plus at least one securities firm, is about to offer you a chance to buy into his Omaha-based holding company for an affordable $1,000 or so. If you are like most small investors who've watched from the sidelines as Berkshire stock soared 33% a year since the last time it traded for that little back in 1983, you may get awfully tempted to jump in. If you do, we offer this advice: Don't do it. Let us explain.

For starters, allow us to introduce the real Mr. Buffett. He's far more of a tough, calculating businessman than you might ever guess from his cultivated image as the folksy, cherry-Coke-sipping friend of the small investor. Fact is, the so-called Oracle of Omaha has long been outspokenly disdainful of the vast majority of investors (small, large and professional included). He believes all but a few tend to disrupt businesses by trading in and out of stocks for shortsighted reasons. Or as he once put it: "Manic-depressive personalities produce manic-depressive valuations." As a result, he has always tried instead to attract what he calls partners--truly long-term investors who invest in Berkshire the same way his holding company worth $43 billion acquires stakes in other firms. "We don't buy stocks," he likes to say. "We buy pieces of businesses."

But screening out the rabble is no easy task, as Buffett acknowledged in his 1983 annual report. Striking a somewhat elitist tone, he wrote: "Mrs. Astor could select her 400, but anyone can buy any stock." He added: "Entering members of a shareholder 'club' cannot be screened for intellectual capacity, emotional stability, moral sensitivity or acceptable dress. Shareholder eugenics, therefore, might appear to be a hopeless undertaking."

However, he had a plan. He figured he could appeal to the right sort (while turning away undesirables) just like a country club might do it. He would keep raising his membership fees.

As his soaring stock became ever more unaffordable, he adamantly refused to, say, issue two shares for the price of one. "Were we to split the stock," he wrote in his '83 report, "we would attract an entering class of buyers inferior to the exiting class of sellers." Even when the stock roared past $10,000 a share in 1992, Buffett rebuffed his own loyal investors, who protested that they could no longer give away even one share without facing gift taxes. (Only gifts of $10,000 or less can change hands tax-free.) In his 1992 annual report, he justified his decision with his contamination theory: "There is no way that our shareholder group would be upgraded by the new shareholders enticed by a split. Instead, we believe that modest degradation would occur."

So why is he about to sell cheapo $1,000 shares now? Especially when Berkshire's price is inflated by press hype and investor frenzy? In short, Buffett, who declined to be interviewed for this story, thinks he has no choice. Specifically, he sees no better way of stopping two enterprising investment outfits from turning a buck on his company's record and his personal reputation. Last fall, the firms, Nike Securities of Lisle, Ill. and Five Sigma Investment Partners of Bala Cynwyd, Pa., unveiled plans to buy Berkshire shares and resell them through commission brokers in bite-size $1,000 bundles called unit trusts. The investors would pay up-front fees of as much as 5% or so and then either hold the units until maturity in 10 years or trade them at any time on the New York Stock Exchange.

Buffett and his vice chairman Charles T. Munger consider the fee-heavy trusts an outrage. In a remarkably blunt letter to Five Sigma dated last Dec. 20, Munger wrote: "Your trust.would entice many small investors into an investment unsuitable for them and overwhelmingly likely to leave large numbers feeling disappointed and abused."

One of Munger's themes was that it is extremely risky to invest in Berkshire at current prices. Publicly, about the strongest comment Buffett has made on that point is this quote from his mid-February press release announcing the stock offering: "Management does not believe that the company's stock is undervalued." But in the five-page, single-spaced December letter, which Money obtained, Munger spelled out just how overvalued he and Buffett thought the stock was. At a time when Berkshire was trading at $32,900 a share, Munger wrote:

"Berkshire's stock price is now risky because [of] dramatic appreciation.since 1992 at a rate far higher than any increase in the stock's intrinsic value.If he were asked by a friend or family member whether he advised a new purchase of Berkshire shares at the current price, Mr. Buffett would answer, 'No.'"

In addition, Munger stated that he fears any aggressive trust sales effort would act like "gasoline poured on a fire" and propel the stock to unsustainable heights. "Wretched excess is inevitable," wrote Munger. He added that, starting with its $38 billion December stock market value, Berkshire could not "even remotely" match its past rate of return. Therefore, the new small investors would end up getting hurt.

The two firms see it differently. In a September letter to Buffett, Five Sigma's managing partner Sam Katz wrote of his firm's commitment "to making your...legendary skills available to working people who have the will but not the means to invest with the best." And Nike's senior vice president Carlos Nardo told MONEY: "Buffett didn't want us to sell it [Berkshire units] to widows and orphans. That said, they are now making the [Berkshire] securities available to widows and orphans. I got kind of a crossed message there."

In October, Nike blinked. It shelved its original trust and subsequently decided to sell another called Market Leaders Growth Trust. It will invest only 25% of its assets in Berkshire stock and 75% in nine companies where Buffett holds big stakes.

However, by February, when it became obvious that Five Sigma would not back off--and that securities regulators were not likely to block the trust either--Buffett announced his stock offering as an alternative. If the Securities and Exchange Commission and Berkshire shareholders approve the plan as expected in May, the company will offer $100 million worth of new equity to the public. At today's prices, for $1,200 invested through your broker, you will get a new class-B Berkshire share--a Buff Light.

But despite that relatively low price tag, Buffett has done about all he can to make sure B doesn't stand for bargain. For openers, though the Bs will be worth 1/30 of a fully priced class-A share (so 30 Bs equal a regular $36,000 A share today), the B will carry only 1/200 of a normal share's voting power. What's more, he has imposed another restriction intended to prevent B shares from trading at a premium price compared with the A. The B shareholders will not be allowed to convert their stock into A shares. But A shareholders will be able to convert into B. Therefore, if the lower-cost Bs start shooting up, A shareholders will surely rush in to capture the premiums by swapping for Bs, thereby quickly driving down the B price. Buffett has vowed to keep issuing as many B shares as needed to facilitate this leveling process.

So assuming you are not one of Berkshire's 25,000 presumably contented current shareholders, what should you do, if anything? Here are your main choices. You could invest in one or both of the trusts, though the fees involved don't make them particularly attractive. Or you could nibble at Berkshire directly through the $1,200 Bs, or swallow a $36,000 share whole. Or, finally, you could simply walk away.

All logic points to the last option. Berkshire Hathaway has been overpriced for at least a year, as we pointed out in our April 1995 story, "Here's Why You Should Not Buy Berkshire Hathaway." At that time, two well-respected financial pros, Michael Murphy, editor of the Overpriced Stock Service newsletter in Half Moon Bay, Calif., and Oak Value Capital Management's George Brumley, estimated that the stock was trading for 25% more than you should pay. As we have noted, of course, the stock defied reason and kept rising. But that 64% advance from $22,000 then doesn't make Berkshire any safer at $36,000 today. Quite the opposite. The additional run-up means it's an even riskier buy. Investment professionals now say Berkshire is overpriced by anywhere from 40% to 60%.

There is a delicious irony in the fact, as well. Despite Buffett's strenuous efforts throughout the years to limit his shares to what he calls the small minority of "rational shareholders," his followers have become increasingly irrational about his infallibility and therefore his company's prospects. Buffett's Berkshire Hathaway isn't just a company anymore. It's a cult. "Basically, the groupies are holding it up at this level," says Murphy.

Perhaps Munger had the groupies in mind when he noted in his letter to Five Sigma that no investor should expect Berkshire to even approach its past performance. Berkshire is now a $43 billion elephant. And as anyone who's been to a circus knows, elephants don't dance; they just stomp around in a circle. Consider this: If Buffett did duplicate his 30-year performance at Berkshire, by the year 2026, the company would be worth more than $50 trillion, or about seven times more than this nation's current gross domestic product.

And further, in 2026, Warren Buffett would be 95 (and Munger would be 102). Think of Berkshire today as a kind of closed-end fund selling for upwards of 40% more than its underlying assets are worth and being managed by a 65-year-old man who has not groomed a young successor. Does that sound like a good long-term investment to you?

After reading all this, if you are still feeling as though you can't bear to pass up a chance to get into Berkshire for a mere grand or two, ask yourself this one last question: If the smartest man on Wall Street is selling shares, are you sure you should be buying them?