In the investment world, few names carry as much weight as Warren Buffett. When the CEO of Berkshire Hathaway makes a significant move, financial analysts and everyday investors alike take notice. Recently, Buffett made headlines by completely divesting Berkshire’s holdings in two major ETFs that track the S&P 500 index—the Vanguard S&P 500 ETF and the SPDR S&P 500 Trust ETF.
This decision has sparked debate among investors worldwide, including here in New Zealand. With the S&P 500 experiencing a correction—defined as a decline of at least 10% from recent peaks—many are wondering if Buffett’s move signals deeper troubles ahead and whether they should adjust their own portfolios accordingly.
One striking aspect of Berkshire Hathaway’s recent strategy has been its accumulation of cash. Through 2024, the conglomerate sold approximately $134 billion in equities, bringing its cash reserves to a staggering $334 billion by year-end—roughly double what it held at the close of 2023.
This substantial liquidity might indicate that Buffett and his team are positioning themselves for significant opportunities, perhaps preparing to acquire entire companies or make major investments in individual stocks when they identify compelling valuations.
New Zealand investors must recognise that Berkshire Hathaway operates with priorities and capabilities that differ dramatically from individual investors. The company has historically preferred concentrated positions in businesses where Buffett sees exceptional value. At one point, Apple alone represented over 40% of Berkshire’s equity portfolio (though this has since reduced to roughly 23%).
This approach stands in stark contrast to what Buffett has consistently advocated for regular investors. Even as Berkshire exits these index funds, Buffett himself continues to recommend that everyday investors—including those in New Zealand—regularly invest in low-cost index funds tracking broad markets like the S&P 500.
For New Zealand investors, direct equivalents to American ETFs like VOO and SPY aren’t always available, but similar exposure can be gained through local offerings. Funds such as the Smartshares US 500 Fund provide Kiwi investors with access to the same basket of top US companies.
Additionally, New Zealand investors must navigate specific regulatory considerations like the Foreign Investment Fund (FIF) tax rules when investing in international markets—a factor that doesn’t influence Buffett’s strategy but could affect yours.
A common investor mistake is attempting to time market entries and exits based on predictions or the actions of prominent figures. While it’s tempting to follow Buffett’s lead and sell S&P 500 holdings, this approach presents significant challenges.
Successful market timing requires correctly predicting not only when to sell but also when to repurchase—a notoriously difficult feat even for investment professionals. Research consistently shows that investors who attempt to time markets typically underperform those who maintain consistent positions.
Historical analysis demonstrates that missing even a handful of the market’s strongest days can substantially diminish long-term returns. Studies indicate that an investor who missed just the 10 best trading days over a 20-year period would have seen their overall performance reduced by approximately 50% compared to someone who remained fully invested.
For most New Zealand investors, a strategy of regular, consistent investments—regardless of market conditions—has proven more effective than reactive trading. This approach, known as dollar-cost averaging, involves investing fixed amounts at regular intervals.
The principal advantage of this method is that it removes emotion from the equation and automatically results in purchasing more shares when markets are down and fewer when they’re up. Over time, this tends to lower your average cost basis and reduce the psychological stress associated with market volatility.
Despite Buffett’s recent actions, his fundamental investment wisdom remains unchanged. He continues to emphasise the importance of long-term thinking, minimal trading, and understanding that market fluctuations—including corrections and bear markets—are normal components of the investment journey.
Throughout history, markets have demonstrated remarkable resilience. The S&P 500 has navigated numerous significant downturns, including the 1987 crash, the early-2000s tech bubble collapse, the 2008 financial crisis, and the COVID-19 market shock. Despite these challenges, it has delivered solid long-term returns to patient investors. Similarly, New Zealand’s NZX has shown resilience across extended timeframes despite periodic setbacks.
For the typical New Zealand investor saving for retirement through KiwiSaver or building wealth via regular investments in diversified funds, maintaining discipline with your established strategy likely makes more sense than reacting to the portfolio adjustments of billionaire investors.
It’s worth noting that Buffett himself has instructed his trustees that after his passing, they should invest 90% of his wife’s inheritance in an S&P 500 index fund—perhaps the strongest endorsement possible for the approach he recommends to everyday investors.
The time-tested wisdom remains valid: consistent participation in markets over time typically yields better results than attempts to anticipate market movements. This principle holds true regardless of what even the most successful investors might be doing with their specialised portfolios at any given moment.
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