As Warren Buffett Enters Retirement, An Overlooked Berkshire Trade From Last Year Is Back in Focus. Should Investors Be Worried Heading Into 2026?

Core Viewpoint - Warren Buffett will step down as CEO of Berkshire Hathaway at the end of 2025, marking the end of an era for the investment firm he has led for nearly 60 years [1][2]. Group 1: Leadership Transition - Greg Abel, a long-time steward under Buffett, will take over as CEO starting in 2026 [2]. - The investment community is reflecting on Berkshire's significant decisions over the past year as Buffett's tenure approaches its conclusion [2]. Group 2: Investment Strategy - Berkshire Hathaway previously held positions in two S&P 500-themed ETFs: the Vanguard S&P 500 ETF and the SPDR S&P 500 ETF Trust [5]. - In its Q4 2024 13F filing, Berkshire disclosed that it sold its positions in both S&P 500 ETFs late last year [6]. Group 3: Market Analysis - The S&P 500 Shiller CAPE ratio was around 37 at the end of 2024, indicating a potentially overvalued market [9]. - Historical data shows that the CAPE ratio has only reached similar levels twice before, leading to significant market corrections [10]. - The current CAPE ratio is approaching 40, suggesting the market may be increasingly heated and raising concerns about a potential correction [15]. Group 4: Buffett's Investment Philosophy - Buffett is known for his contrarian approach and typically avoids chasing market hype [8]. - The decision to sell the S&P 500 ETFs may reflect Buffett's view that the market was unsustainably frothy, particularly due to the influence of a few mega-cap stocks benefiting from AI advancements [12]. - Despite the S&P 500 being on track for its third consecutive year of double-digit gains, Buffett's decision to exit the ETFs may not have been poorly timed, as he prioritizes finding attractively valued stocks [13][14]. Group 5: Long-term Investment Outlook - Investing in the S&P 500 has historically proven to be profitable, regardless of market timing [15]. - There is no immediate need for investors to panic or strictly follow Buffett's investment moves, given the robust long-term average returns of the S&P 500 [16].