Warren Buffett is the CEO of Berkshire Hathaway (BRK.A 1.51%) (BRK.B 1.68%) and one of the most closely watched investors on Wall Street. Changes to Berkshire Hathaway’s investment portfolio are scrutinized heavily, with investors attempting to glean some guidance from his actions. One fourth-quarter 2024 move that garnered a lot of attention was the company’s decision to sell out of two exchange-traded funds (ETFs).
What Warren Buffett did in the fourth quarter
At the end of the third quarter of 2024, Buffett owned around $22.7 million worth of the Vanguard S&P 500 ETF (VOO -1.31%) and $22.6 million worth of the SPDR S&P 500 Index Trust ETF (SPY -1.33%). Both exchange-traded funds do the same exact thing: track the performance of the S&P 500 index (^GSPC -1.39%).
Totaling up to a little over $45 million, these two positions are huge (individually and combined) compared to what most investors have saved in their nest eggs. But Berkshire Hathaway isn’t most investors. It’s a gigantic conglomerate with a $1 trillion market cap. The truth is that $45 million isn’t even a rounding error for Berkshire Hathaway, with each of these positions accounting for less than 0.01% of the company’s common stock portfolio.
At the end of Q4 2024, both of those positions had been sold down to zero. Despite the very small size of these investments relative to Berkshire Hathaway’s portfolio and business, much was made of the move in the financial press.
It’s totally possible that Buffett and his team decided that the S&P 500 index had risen too high and was overvalued. That would mean that selling was an effort to lock in gains and protect against potential losses in a bear market. But it’s just as possible that selling was an attempt to clean up small positions that were little more than a distraction to Buffett and his team. There’s no way to know, but the size of the headlines around this move seems exaggerated when you consider the small size of those ETF positions.
What does Buffett say?
There’s one more small wrinkle here. Investors look to Warren Buffett as a fount of investment wisdom. Given the incredible success he has achieved as an investor, that makes a lot of sense. He isn’t called the Oracle of Omaha for nothing. But he also hasn’t been shy about what he believes most investors should be doing with their hard-earned savings.
At Berkshire Hathaway’s 2020 annual meeting, he laid out his investment recommendation quite clearly: “And in my view, for most people, the best thing to do is to own [an] S&P 500 index fund.” Just a few sentences later, he made clear that his company buys individual stocks and, often, entire companies. But Berkshire Hathaway is not most people. It’s a giant business with huge sums of capital. Warren Buffett isn’t most people, either — he spends all his time focused on investing and has a proven track record of success.
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Most people have lives and families and jobs. Picking stocks and tracking them isn’t the only thing they do, and it probably isn’t the primary thing they do. At best, investing is likely to be a hobby for most people. The reality is that focusing on saving money will probably be more important to the size of most people’s nest eggs than the stocks they pick. Thus, simply buying and holding a broad-based index fund, via an investment like an S&P 500 index ETF, is very good financial advice for most people.
Don’t change your plan because of Buffett’s S&P 500 exit
The S&P 500 index will rise and fall over time, just like the market it is meant to track. So don’t go in thinking that it’s “safe,” per se. But history suggests that the value of the S&P 500 index has increased over time, even though it goes through the occasional correction and bear market.
Instead of focusing solely on Buffett’s insignificant investment choice, contemplate the overall picture of your life and financial plan. If you’re like most retail investors, sticking with the S&P 500 index through its inevitable ups and downs is probably going to work out well for you over the long term. And that’s exactly what the Oracle of Omaha has specifically suggested.
Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
