Warren Buffett's decision to sell two major S&P 500 ETFs, the SPDR S&P 500 ETF Trust (SPY) and the Vanguard S&P 500 ETF (VOO), has sparked anxiety and uncertainty among investors. As the legendary CEO of Berkshire Hathaway, Buffett's move is often seen as a signal of market trends.
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But while interpreting the sale as a warning that it was a big decline, there is good reason to believe that Buffett's actions reflect long-standing ideas of discipline and valuation awareness, rather than panic.
That's why the broader market outlook may not be as terrible as some fears.
But if you are concerned, check out some strategies that investors are using during market turmoil.
Buffett has emphasized patience, discipline and reluctance to chase an overheated market throughout his career. His recent sales fit the script.
“His move now may just be an indicator of selectivity and discipline improvement that he has been talking about for years,” said Eugenia Mykuliak, founder and executive director of B2Prime Group.
Instead of exiting the market, Buffett strategically regrouped capital, which is a key difference.
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One of the possible factors that Buffett decided was the current overvalued US stock market. Indicators like the Shiller P/E ratio (CAPE) are still well above the historical average, suggesting that future returns may be muted.
"If metrics like Shiller P/E (CAPE) remain high for a long time, it may attract attention," Mykuliak explained.
But, she added, valuations today are not as high as they saw before the internet crash, and are not even as surging as the pandemic has surged after the age of 19.
Vince Stanzione, CEO and founder of the First Information, noted that Berkshire Hathaway has been steadily increasing its cash reserves, suggesting that Buffett has seen compelling opportunities at today’s price.
"The reason for the high cash pile may be the lack of opportunities, and it's still an expensive market even after a recent fall," Stanzio said.
While these signals have attracted attention among some investors, experts like Stanzione show that they are more of a difficult environment for returns than necessarily a sign of an imminent market collapse.
While Buffett's move naturally attracted headlines, investors should resist the urge to react emotionally or interpret his strategy as a signal to abandon index investment.
Mykuliak stressed that broad-market index funds like the S&P 500 are still a reliable strategy for long-term investors with more than 10-year time frames.
"A wide range of market index funds such as the S&P 500 are still one of the most effective ways to build long-term wealth," she said.
Still, investors should be aware of the risks of severe S&P 500 exposures today.
"Buyers who buy and hold index funds may take greater risks than they know they know," Stanzione explained.
Diversification to sector ETFs and even gold ETFs can help balance portfolios, especially as more modest returns are brought in over the next decade.
Key points of expert comments: Individual investors are better off focusing on their financial goals and risk tolerance rather than trying to reflect the actions of billion-dollar companies like Berkshire Hathaway.
Warren Buffett's sale of S&P 500 ETF should be seen as a strategic adjustment to market valuation, rather than a harbinger of disaster. Although the market prospects may not be as good as those a few years ago, diversified investment is still the best way to go.
As Mykuliak said, “It’s easy to rest, don’t panic. The market always moves in the cycle.”
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Eugenia Mykuliak, B2Prime Group
Stanzione wins, first message
This article originally appeared on gobankingrates.com: Warren Buffett just sold 2 S&P 500 ETFs - Does this mean bad news for the stock market?