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 selling its entire stake in the Vanguard S&P 500 ETF (NYSEMKT: VOO) and SPDR S&P 500 Trust ETF (NYSEMKT: SPY) — has caused panic among investors who took it as a warning sign of incoming stock market troubles.
Considering that the S&P 500 (SNPINDEX: ^GSPC) is down for the year and has entered correction territory (when a major index falls 10% to 20% from its most recent high), Berkshire’s moves have had a stronger microscope put on them. However, the bigger question for us to consider is: Should investors panic and follow Buffett’s lead? Let’s take a look.
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 differences 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).
The simple answer is no. Investors should not follow Buffett’s lead and sell their investments in ETFs tracking the S&P 500.
The legendary investor himself has constantly echoed the point that the average person’s best investment strategy is to consistently invest in broad market indices, such as the S&P 500, and trust their long-term growth. Essentially, as the U.S. economy grows, the S&P 500 grows, and that’s one of the safer 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.
