As the investment community prepares for a significant transition in leadership at Berkshire Hathaway, attention has turned to the firm’s strategic decisions over the past year, particularly a notable move made at the end of 2024. Warren Buffett, who has guided Berkshire for nearly six decades, will hand over the reins to Greg Abel in 2026. Investors are now reevaluating Buffett’s recent actions, especially his decision to divest from S&P 500 exchange-traded funds (ETFs).
Buffett built much of his investment philosophy around the S&P 500, advocating for its advantages in diversification and exposure to a range of industry sectors. The S&P 500 encompasses a balanced mix of blue-chip, growth, and dividend stocks, making it a staple recommendation for investors. Berkshire had previously enhanced its portfolio by investing in two prominent S&P 500 ETFs: the Vanguard S&P 500 ETF and the SPDR S&P 500 ETF Trust.
However, the landscape shifted with Berkshire’s 13F filing released in February 2025, revealing that the firm sold its positions in both ETFs late in 2024. This decision raised questions among investors, especially as the market continued to climb, leading many to ponder whether they should follow Buffett’s lead.
While the exact reasoning behind Buffett’s exit from the ETFs is not explicitly clear, analysts have posited that his contrarian approach played a key role. Buffett has historically avoided following market trends and hype, and the end of 2024 presented a particularly elevated market environment. The S&P 500’s Shiller CAPE ratio, a metric that adjusts earnings over a decade against stock prices, was around 37 — a level not seen since significant market downturns in the past. This ratio had only reached such heights twice before: during the late 1920s and the early 2000s. Following both instances, substantial market corrections occurred.
The market’s current trajectory, driven primarily by a select group of high-cap technology stocks benefiting from advancements in artificial intelligence, prompted speculation that Buffett perceived the market as overly inflated. Despite the S&P 500 on track for a third consecutive year of double-digit gains in 2025, the question remains whether Buffett’s timing was poor.
Observing his investment strategy, it appears Buffett’s decision to sell was not merely reactionary but rather a calculated choice. With a growing emphasis on sound valuation, the Berkshire chief likely opted to capitalize on gains while transitioning into safer assets like Treasury bills and accumulating cash reserves rather than investing in an overheated market.
Currently, the CAPE ratio is approaching 40, suggesting the market is even warmer than it was at the end of the previous year, lending credence to concerns about a correction. Nonetheless, historical trends demonstrate that investing in the S&P 500, regardless of market peaks or troughs, yields positive long-term results, reinforcing Buffett’s long-standing advocacy for the index.
Amid this context, investors are encouraged to consider their strategies carefully. Emulating Buffett’s moves precisely may not always be necessary, given the S&P 500’s robust historical performance. As the market continues its upward momentum, there is little cause for alarm as investors approach 2026. The focus should remain on long-term perspectives rather than short-term fluctuations.
