Warren Buffett, the CEO of Berkshire Hathaway, recently exited two low-cost S&P 500 index exchange-traded funds (ETFs) that he had recommended to investors in the past. The ETFs in question are the SPDR S&P 500 ETF Trust and the Vanguard S&P 500 ETF.
In 2014, Buffett wrote to Berkshire Hathaway shareholders that most investors should not try to pick individual stocks to buy because they couldn’t “predict their future earnings power.” Instead, he recommended investing in a “low-cost S&P 500 index fund,” which includes these two ETFs. The ETFs were part of Berkshire’s portfolio for several years and were also recommended by Buffett as a way for typical investors to invest in the US stock market.
However, Buffett exited his positions in both funds in the fourth quarter of 2024. So why did he sell investments that he had previously recommended? There are several possible reasons, but some may be unlikely or disputed.
One reason that is unlikely is that Berkshire needed to raise cash. According to Berkshire’s financial statements, the company ended the third quarter of 2024 with over $325 billion in cash, cash equivalents, and short-term investments. Selling these ETFs would not have added much to this total.
Another reason that may be disputed is that Buffett expects a stock market crash. However, Buffett has never changed his stance on his lack of ability to forecast what the stock market will do over the near term. In fact, he has written that “near-term economic and market forecasts are worse than useless.”
A more plausible reason for Buffett’s decision may be related to valuation concerns. As a value investor, Buffett is concerned about whether stocks are undervalued or overvalued. However, this concern does not seem to apply to Berkshire’s other individual stock holdings, such as Apple.
The most likely reason for Buffett’s decision is that he and his investment managers were doing a little “clean-up” of Berkshire’s portfolio. The two S&P 500 ETFs were small positions worth around $22 million at the end of the third quarter of 2024. This decision may be part of a broader effort to review and adjust Berkshire’s holdings.
Buffett’s original advice remains sound, however. He still recommends investing in low-cost S&P 500 index funds as a way to invest in the US stock market in aggregate. His advice is based on his long-term experience with the market and his expectation that American business will continue to do well over time.
Source: https://finance.yahoo.com/news/why-did-warren-buffett-just-105200353.html