What prompted billionaire investor Warren Buffett to divest from holdings he previously advocated for millions of others to acquire?
Warren Buffett, the renowned investor at Berkshire Hathaway, penned a letter to shareholders in 2014, advising typical investors against trying to pick individual stocks due to their inability to predict their future earnings power. Instead, he suggested buying a low-cost S&P 500 index fund. For several years, Berkshire held two such low-cost S&P 500 index funds: the SPDR S&P 500 ETF Trust (SPY) and the Vanguard S&P 500 ETF (VOO). However, Buffett embarked on selling Berkshire's positions in these S&P 500 funds in the fourth quarter of 2024.
Unlikelier reasons for Buffett's move include the necessity to raise cash or anticipation of a stock market crash. Buffett himself has consistently denied his ability to predict market movements, and the stock market's valuation at the time was not significantly higher than Berkshire's precious Apple stock.
The most likely scenario is that Buffett and his investment managers were simply tweaking Berkshire's portfolio. These two S&P 500 index funds represented only minor positions in Berkshire's expansive portfolio, accounting for a measly $45.3 million altogether. Buffett and his investment duo, Todd Combs and Ted Weschler, have made similar decisions in the past, shedding smaller positions for the sake of streamlined management.
Despite his sale, Buffett's belief in the merit of low-cost S&P 500 index funds remains unaffected. He maintains that investing in American business en masse remains a sound strategy. By purchasing S&P 500 ETFs, you can easily invest in this American business aggregate. Buffett's advice — accumulate shares over a long period as costs stay minimal — still stands, maintaining its relevance more than a decade later.
In the broader context, Buffett's decision to exit these S&P 500 ETFs may indicate his struggle in finding suitable investment opportunities, his concerns about the high market valuations, or a shift in his investment strategy. The reasons, however, are speculative and not officially confirmed by Warren Buffett.
- Despite selling Berkshire's positions in S&P 500 index funds in 2024, Warren Buffett continues to advocate for the merit of low-cost S&P 500 index funds, such as the SPDR S&P 500 ETF Trust (SPY) and Vanguard S&P 500 ETF (VOO).
- Buffett's decision to exit these S&P 500 ETFs could be seen as a signal of his search for more profitable finance opportunities or his concerns about the current market's high valuations.
- In his 2014 letter to shareholders, Buffett cautioned typical investors against trying to predict individual stocks' future earnings power, advising instead to invest in low-cost S&P 500 index funds, like the ones managed by Berkshire Hathaway at the time.
- Buffett's approach to investing in American business en masse, which can be replicated by purchasing low-cost S&P 500 index funds like SPY and VOO, remains a well-established strategy, recognized for its long-term profitability and low-risk nature.