#2: Berkshire Hathaway
While most investors know what Berkshire Hathaway (BRK.A, BRK.B) is, many investors don’t fully understand how it’s priced. It’s not exactly a mutual fund, not exactly a stock, and not exactly an ETF … yet has qualities of all three. That’s not even the tricky part about pinning down a value for this investment fund, however.

The real wrench in the works is the fact that some of the holdings in Berkshire aren’t publicly traded stocks. Geico and See’s Candies are a couple of these privately-held names. They still need to be valued, however, so Berkshire shareholders can get a grip on what the underlying portfolio is actually worth; think net-asset-value, like a mutual fund. The wrench is, those valuations are made by accountants and auditors rather than the market, which means the NAV or book value is ultimately just a guess, and may or may not factor in changing economic conditions the way stocks do in the real world.

Why does that make Berkshire so vulnerable now? Because thanks to the rally since early November, Berkshire’s “A” shares say the fund is worth $147,086 per share, up 32% from the end of the third quarter, when each share’s net asset value was calculated to be worth $111,718 per share. That run came after Warren Buffett announced a huge buyback in A shares back in December at $131,000, meaning they’re currently well above the premium Buffett paid for them.

And Buffett is cheap.

Make no mistake -- Buffett and his protégés are some of the best stock pickers in the world; the companies that make up Berkshire Hathaway are all rock-solid. Just bear in mind that the S&P 500’s year-over-year earnings growth for Q4 so far has been a paltry 0.1% for a reason. Even if Berkshire is holding only the best companies in the world, it’s tough to believe they’re worth 32% more than they were just one quarter ago.

It’s a bit of a disconnect that unfortunately is apt to reconnect at a much lower valuation.

#3: The Home Depot
There’s no denying that Home Depot (HD) has been one of the heroes of the rebound in the construction market. Housing starts have grown from an annualized rate of 518,000 in February 2011 to 954,000 per year as of December. During that time, HD shares have appreciated by 81%, reflecting an equally impressive rise in the company’s bottom line.
There’s just one problem, though: The stock’s growth has far outpaced Home Depot’s earnings growth, making the stock the most expensive it has been (on a P/E basis) since 2002. As of my last look, shares are trading at 23.6 times earnings.

It’s a great company to be sure, but with so much pent-up profit-taking potential, even the smallest of stumbles could pull the selling trigger on this very frothy stock.