Warren Buffett dumped 2 US-based investments he's long recommended — should you follow his lead?

Why Buffett just dumped the S&P 500

Buffett didn't explicitly say why his company chose to completely exit two established S&P 500 ETFs last quarter. But there are a number of reasons why he may have gone this route.

"... this could indicate concerns about market valuations, increased volatility, or even a shift toward individual stock selection over broad index exposure," said Daniel Milks, founder of Fiduciary Organization & Woodmark Advisors, to etf.com.

Just because Buffett recommends that the typical investor put their money into the S&P 500 doesn't mean that's the strategy he needs to utilize. Buffett knows a lot more about investing and analyzing businesses than the typical person. So he doesn't need to fall back on the broad market the same way an investor with minimal knowledge might.

Also, the shares of S&P 500 ETFs that Buffett dumped were, collectively, a pretty small position for Berkshire. It's possible Buffett and team have exited small positions that don't have a major impact on performance as a means of cleaning up their company's portfolio, something they've reportedly done before.

"Given Warren Buffett's history of emphasizing long-term investing, this isn't necessarily a warning sign for retail investors to panic," Milks explained. "Instead, it may reflect Berkshire's preference for direct stock holdings or a belief that certain sectors within the S&P 500 are overvalued."

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Should Buffett’s S&P 500 exit sound alarms about a market crash?

Buffett dumping his company's S&P 500 ETFs and other stocks, as well as his growing cashpile, may cause investors to worry he's anticipating a near-term market crash. Last quarter, Berkshire sold its entire stake in Ulta Beauty, and trimmed its stakes in Bank of America, Citigroup, Nu Holdings, Charter Communication and Capital One.

"What's more notable is that Berkshire sold significant stakes in individual companies that make up a large portion of these ETFs and the broader indices they track. That's where the real attention should be," Melissa Caro, founder of My Retirement Network, told etf.com. "Selling SPY and VOO doesn't necessarily imply a bearish market outlook, but trimming major individual holdings could signal something about Berkshire's view on specific stocks or sectors."

In a recent BofA Global Fund Manager Survey, 89% said U.S. stocks are overvalued, representing a 24-year high.

But Buffett has long acknowledged that no one can predict where the stock market is going in the near term. So rather than give into fears, his advice to investors is to hold onto investments with good fundamentals for decades, relying on the fact that the stock market, broadly speaking, has a long history of recovering from downturns and rewarding investors who stick with it.

If you’re worried about a near-term stock market crash, rather than panic, remind yourself of your long-term investing goals and make sure your portfolio suits your investment horizon.

If you’re investing for a retirement that’s 20 or 30 years away, there’s no sense in reacting to any sort of near-term market event – hypothetical or actual. What you should do, though, is make sure your portfolio is well-diversified and balanced. The nice thing about adding index funds is that they give you instant diversification. Just make sure you don't have much portfolio overlap.

Sources

1. etf.com: Buffett's Berkshire Sold Off SPY, VOO Holdings in Q4, by DJ Shaw (Feb 21, 2025)

2. Axios: Investor fears on overvalued U.S. stocks at 24-year high, BofA says, by Ben Berkowitz (Feb 18, 2025)