Warren Buffett wrote to Berkshire Hathaway shareholders in 2014 that most investors shouldn’t try to pick individual stocks to buy because they couldn’t “predict their future earnings power.”
Instead, he recommended that the typical investor buy a “low-cost S&P 500 index fund”.
Why did Buffett sell investments he’s recommended millions of others buy? He hasn’t explained the decision publicly, but several possible reasons exist.
Let’s start with possible reasons behind Buffett’s sales of the SPDR S&P 500 ETF Trust and Vanguard S&P 500 ETF that are unlikely.
Perhaps the easiest one to scratch off the list is that Berkshire needed to raise cash. Although that’s sometimes a reason to sell stocks and ETFs, it doesn’t hold water in this case.
Berkshire ended the third quarter of 2024 with over $325 billion in cash, cash equivalents, and short-term investments in U.S. Treasury bills. Selling the two S&P 500 ETFs wouldn’t add much to this total.
Could Buffett have sold these funds because he expects a stock market crash?
I seriously doubt it. For one thing, the legendary investor wrote in a 2008 New York Times op-ed, “Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month or a year from now.”
Buffett has never changed his stance on his lack of ability to forecast what the stock market will do over the near term.
In his 2022 letter to Berkshire Hathaway shareholders, he wrote that he believed “that near-term economic and market forecasts are worse than useless.”
We could be on to something with valuation, though. Buffett is a value investor, and the S&P 500 isn’t cheap right now. In fact, the S&P 500 Shiller CAPE ratio, one of the best valuation metrics for the widely followed index, is near its second-highest level in history
Berkshire’s portfolio included two low-cost S&P 500 index exchange-traded funds (ETFs) for several years: the SPDR S&P 500 ETF Trust (NYSEMKT: SPY) and the Vanguard S&P 500 ETF (NYSEMKT: VOO). But the conglomerate doesn’t own the ETFs anymore. Buffett exited Berkshire’s positions in both S&P 500 funds in the fourth quarter of 2024.
