Warren Buffett Just Sold 2 of Berkshire's Most Surefire Investments -- the Time to Be Fearful When Others Are Greedy Has Arrived

For some Americans, Feb. 14 (Valentine's Day) represents the ideal opportunity to show your significant other how much you care about them. But for the investing community. Feb. 14 marked one of the most important data releases of the first quarter: Form 13F deadline day.

A 13F is a required filing no later than 45 calendar days following the end to a quarter for institutional investors with at least $100 million in assets under management (AUM). These filings allow investors to look over the proverbial shoulders of Wall Street's leading money managers to see which stocks they bought and sold in the latest quarter.

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Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.

There isn't a 13F filing that garners more attention than that of Berkshire Hathaway's (NYSE: BRK.A)(NYSE: BRK.B) billionaire CEO Warren Buffett. The aptly named "Oracle of Omaha" oversees nearly $299 billion in AUM and has absolutely run circles around the benchmark S&P 500 (SNPINDEX: ^GSPC) during his 60-year tenure as Berkshire's chief.

Professional and everyday investors have taken Buffett's advice to heart when putting their money to work on Wall Street -- and this includes being "fearful when others are greedy, and greedy when others are fearful."

The Oracle of Omaha just dumped Berkshire's stake in two historically surefire investments

Warren Buffett and his top advisors, Ted Weschler and Todd Combs, were busy bees during the December-ended quarter. Five existing positions were added to, one new purchase was made, nine existing positions were reduced, and three holdings were given the heave-ho.

While some investors are likely to focus on the biggest-dollar moves made in the fourth quarter, such as the continued aggressive selling of No. 3 holding, Bank of America, the more telling action might be Berkshire's complete exit from the Vanguard S&P 500 ETF (NYSEMKT: VOO) and SPDR S&P 500 ETF Trust (NYSEMKT: SPY).

These two index funds, which attempt to mirror the performance of the benchmark S&P 500, weren't large holdings. At the end of September, they combined to account for a little north of $45 million in market value for Berkshire Hathaway's portfolio.

However, these two index funds have historically been surefire investments for long-term investors. While Buffett shies away from giving specific investment advice, he proclaimed during Berkshire's 2020 annual shareholder meeting that, "In my view, for most people, the best thing to do is to own the S&P 500 index fund."

According to an extensive analysis from Crestmont Research, buying and holding an S&P 500 index fund has been a pathway to riches. Crestmont's analysts calculated the rolling 20-year total return (including dividends) of the S&P 500 dating back to 1900. Even though the S&P was incepted until 1923, its components were tracked in other major indexes back to 1900. The end result was 106 rolling 20-year periods, with ending years ranging from 1919 to 2024.

What Crestmont Research found was that all 106 rolling 20-year periods produced a positive total return. Hypothetically, if an investor had purchased an S&P 500-tracking index at any point since 1900 and simply held this position for 20 years, they'd have generated a positive total return.

But despite being historically flawless investments, Berkshire's chief dumped the Vanguard S&P 500 ETF and SPDR S&P 500 ETF Trust in the December-ended quarter.

Image source: Getty Images.

The time to be fearful has arrived

The eyebrow-raising move to jettison two undeniably successful investment vehicles is part of a bigger theme of selling activity for Warren Buffett. Even though the Oracle of Omaha remains an unwavering long-term optimist and would never bet against America, he's now been a net seller of stocks for nine consecutive quarters (dating back to Oct. 1, 2022).

Excluding the fourth quarter of 2024, Buffett has overseen $166.2 billion more in stocks sold than purchased over a two-year span.

During Berkshire Hathaway's annual meeting in 2024, Buffett alluded to the corporate income tax rate being unusually low as an impetus for locking in some of his company's sizable unrealized gains in Apple. While tax-advantaged selling might account for some of this greater-than-$166 billion in cumulative selling since October 2022, what's far more likely is we're witnessing the Oracle of Omaha being fearful when others are greedy.

In addition to never betting against America, Warren Buffett is an unwavering value investor. No matter how wonderful or time-tested the company, he's not going to buy if he doesn't believe he's getting a good deal. At the moment, the stock market is at one of its priciest valuations in history, when back-tested 154 years.

Whereas most investors focus on the traditional price-to-earnings (P/E) ratio, the S&P 500's Shiller P/E Ratio, which is also known as the cyclically adjusted P/E Ratio, or CAPE Ratio, is a far better measure of value and allows for apples-to-apples comparisons.

S&P 500 Shiller CAPE Ratio data by YCharts.

The S&P 500's Shiller P/E, which is based on average, inflation-adjusted earnings over the previous 10 years, closed Feb. 14 at a multiple of 38.54. To put this figure into context, it's a stone's throw from the highest reading (38.89) during the current bull market, more than double the average reading of 17.21 since January 1871, and the third-highest reading during a continuous bull market spanning 154 years.

When back-tested to January 1871, there have only been six instances, including the present, where the Shiller P/E Ratio has surpassed 30 for any notable length of time. Following the prior five occurrences, the S&P 500 and/or Dow Jones Industrial Average lost 20% to 89% of their value.

Likewise, the "Buffett Indicator" recently hit an all-time high. Named after the Oracle of Omaha himself, the Buffett Indicator divides the total market cap of all publicly traded companies into U.S. gross domestic product. While this ratio has averaged 85% (0.85) since 1970, it reached an all-time peak of 207% in January 2025.

In other words, Buffett is selling historically surefire index funds because the stock market is historically pricey and value is becoming difficult to find.

If there's a silver lining here, it's that Berkshire's chief has regularly used short-lived periods of panic and price dislocations as an opportunity to put his company's capital to work. This tried-and-true method of waiting until valuations make sense has been working for decades -- and Buffett has plenty of dry powder at the ready to take advantage of the next meaningful stock market correction.

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Bank of America is an advertising partner of Motley Fool Money. Sean Williams has positions in Bank of America. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.