When you've led the way in creating a trillion-dollar business while personally having a net worth of over $160 billion, people are much more inclined to follow your money moves and listen to what you have to say. That's why Warren Buffett's actions and words are closely followed and analyzed.
One specific action -- Berkshire Hathaway (BRK.A -0.57%) (BRK.B -1.19%) selling its entire stake in the Vanguard S&P 500 ETF (VOO -3.36%) and SPDR S&P 500 Trust ETF (SPY -4.33%) -- has caused panic among investors who took it as a warning sign of incoming stock market troubles.
Considering that the S&P 500 (^GSPC -3.46%) is down for the year and had briefly entered into a correction (when a major index falls 10% to 20% from recent highs), the moves have had a stronger microscope put on them. But does that mean investors should panic and follow Buffett's lead? Let's take a look.
NYSE: BRK.B
Key Data Points
What could be the reasons Buffett sold his S&P 500 shares?
One of the most important parts of this is understanding that a trillion-dollar business and nine-figure net worth manager will have different goals, time horizons, and risk tolerance than your average person. And those affect many investing decisions.
Buffett may have made these moves for a couple of reasons. The first is continuing a trend we saw from Berkshire Hathaway through 2024, with the company selling $134 billion in equities in the year.
These sales brought Berkshire Hathaway's cash pile at the end of 2024 to over $334 billion, nearly double what it ended 2023 with and considerably higher than the value of its stock portfolio.
BRK.B Cash and Short Term Investments (Annual) data by YCharts.
Another reason could be Buffett and Berkshire are preparing to put the cash to work within individual stocks instead of broad exchange-traded funds (ETFs). That has been consistent with the company's philosophy for some time, with over 40% of its stock portfolio just in Apple stocks at one point (it's down to 22.8% now).
Should investors follow Buffet's lead?
The simple answer as to whether investors should follow Buffett's lead and sell their S&P 500 shares is no.
Buffett himself has constantly echoed the point that the average person's best investment strategy is to consistently invest in the S&P 500 and trust its long-term growth. As the U.S. economy grows, the S&P 500 grows, and that's one of the more sure long-term bets you can make in the stock market.
Are there short-term concerns with the U.S. economy and the S&P 500? For sure. There are tariff and trade-war concerns, concerns about the high valuation of the S&P 500, and recession fears. However, this isn't the first time the U.S. economy has faced challenges, and if you're around long enough, you'll see it likely won't be the last.
Time in the market beats timing the market
Despite the S&P 500's tough start to the year, it's not time to hit the panic button. Down periods, corrections, and bear markets are all natural parts of the stock market cycle. You can almost call them inevitable.
One thing investors want to avoid is trying to time the market because it often does more harm than good. You may see Buffett's moves as his way of anticipating the S&P 500 struggle and getting out of his positions before Berkshire Hathaway lost money, but that's not a move that most investors should replicate.
The focus should always be on the long term, and the S&P 500 has shown that's when it's at its best. The index has gone through some of the worst economic periods in American history (Black Monday, dot-com bubble, Great Recession, COVID-19, etc.) and has produced good long-term returns.
If you're paying too much attention to the S&P 500's short-term movements, a good strategy would be dollar-cost averaging. Dollar-cost averaging helps investors avoid trying to time the market because it involves being on a set investing schedule with no regard to stock prices.
It doesn't matter if the S&P 500 is in correction, a bull market, or anything in between; your job with dollar-cost averaging is to stick to your investing schedule no matter what.
You'll buy more shares when prices are falling and less when prices are rising, but it can help mitigate volatility and set you up better in the long run -- and that's what's most important. Remember: Time in the market beats timing the market.
