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By Teresa Rivas

It looks like it's Warren Buffett's turn to say, "I told you so."

Late last year, the Berkshire Hathaway CEO was busy selling stocks when the S&P 500 logged more than 50 record closes, leading many market observers to scratch their heads.

Now, the answer looks much clearer.

The stock market's 2025 slump proves Berkshire's fourth-quarter trades to be prescient.

Buffett was at odds with the bullish sentiment that marked the end of 2024, according to Berkshire's latest 13-F filing, which tracks its holdings. In the last three months of 2024, Berkshire sold some $5 billion of Bank of America and $3 billion of Citigroup shares, while also slashing its ownership in smaller names like Brazilian fintech NU Holdings, cable operator Charter Communications, and Sirius XM owner Liberty Formula One.

While Buffett left some of his high-profile holdings — like largest position Apple — untouched, spirits maker Constellations Brands was the only notable purchase in the quarter. Overall, Berkshire was a net seller in 2024. The upshot is that the firm now has more cash on hand than any other American company.

After Berkshire's 13-F release in mid-February, Barron's Andrew Bary wrote that "Buffett has been out of step with the markets before, including during the Internet bubble of the late 1990s. He was vindicated then and could be rewarded once again."

It didn't take long for that to happen: Since the 13-F filing's Feb. 14 release, the S&P 500 has tumbled some 5%. In fact, the index has given up all the postelection gains it notched in the fourth quarter and then some. As of the end of Tuesday's trading, the index's close was the lowest value since November 4.

In retrospect, it's easy to see why Buffett was selling even as the market was making new highs. While some money managers have criticized him for being too conservative in his allocations in recent years, there were plenty of signs in the fourth quarter that market choppiness could be ahead. President Donald Trump made no secret of his plans to use tariffs liberally in his second term. While many market observers were quick to claim he didn't mean what he said, it turns out...he did. To investors' dismay, Trump once again has rolled out tariffs, which disrupt global trade and can increase prices — and helped to sink the market in 2018.

Trade tensions were likely on Buffett's radar last quarter, given that over the weekend he called the levies an act of war that would only add to the nation's inflation issue. Even beyond tariffs, the market generally dislikes uncertainty. Abrupt policymaking and chaotic news flow was a hallmark of the first Trump administration — it wouldn't have been a stretch to predict it would be again.

However Buffett's decision likely reflects far more than politics.

Inflation remained stubbornly above the Federal Reserve's 2% target even in the fall — meaning the market was already paring back its expectations for rate cuts by the end of the year. Inflation is a headwind for consumer spending — the main driver of the American economy — and any move toward hawkishness is a concern. And the third-quarter swoon showed how quickly markets could retreat when sentiment turned.

But the biggest driver for Buffett may have been valuations. With the market racing to new highs throughout the fourth quarter, stocks were getting ever more expensive, not only relative to their own history but the rest of the world. They were effectively priced for nothing less than perfection — that's not something a value investor like Buffett ever likes to see.

Likewise, corporate insiders were more aligned with Buffett than the market, selling stock at a rapid clip to take profits during the fourth-quarter rally.

That's not to say that investors should run for the hills. If history is any guide, policies could change on a dime in this administration, which has previously always kept one eye on the stock market. And plenty of strategists still say the S&P 500 can bounce back to end the year well above 6,000 — however long it may take to claw its way back up.

Buffett himself is far from giving up on stocks. "Despite what some commentators currently view as an extraordinary cash position at Berkshire, the great majority of your money remains in equities. That preference won't change," wrote in his letter to shareholders last month.

If nothing else, this market selloff shows the Oracle of Omaha still lives up to the moniker. As for the conservatism of Buffett's investments, his massive fortune means he can afford to be as cautious as he likes.

If only that were true for the rest of us.

Write to Teresa Rivas at teresa.rivas@barrons.com

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