Few investors have been more successful than Warren Buffett. Over the past six decades, he turned Berkshire Hathaway (BRK.A 0.24%) (BRK.B 0.38%) into one of the largest conglomerates in the world through a series of savvy acquisitions and prudent stock purchases. Consequently, since he took control of Berkshire in 1965, its share price has increased at 20% annually.
Buffett oversees the vast majority of Berkshire's stock portfolio, and he recently made an interesting capital allocation decision. He -- or fellow investment managers Ted Weschler and Todd Combs -- sold the company's entire stake in the Vanguard S&P 500 ETF (VOO 0.56%). In fact, Berkshire sold the only two index funds in its portfolio, both of which tracked the S&P 500 (^GSPC 0.61%).
That decision was somewhat surprising, because Buffett has often argued that S&P 500 index funds are the best way for most nonprofessional investors to get exposure to U.S. stocks. In addition, equity analyst Tom Lee at Fundstrat Global Advisors thinks the S&P 500 will reach 15,000 by 2030. That implies 160% upside from its current level of 5,768.
Here's what investors should know.
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Warren Buffett sold his S&P 500 index funds, but he hasn't lost confidence in U.S. stocks
The S&P 500 is commonly regarded as the best benchmark for the overall U.S stock market. That's because it measures the performance of 500 large companies that account for about 80% of U.S. equities by market value. Warren Buffett has described the index as a "Who's Who of American business," and he sees that as a compelling investment thesis.
"I recommend the S&P 500 index fund and have for a long, long time to people," Buffett said at Berkshire's annual meeting in 2021. But he seemingly contradicted himself in the fourth quarter by selling both S&P 500 index funds in Berkshire's portfolio. Does that mean Buffett has lost confidence in U.S. stocks?
I don't think so. He recently told CBS, "A majority of any money I manage will always be in the United States." In addition, Buffett has been so vocal in advocating S&P 500 index funds that I believe he would have made it abundantly clear if his opinion on the subject had changed. But he said nothing to that effect in his most recent shareholder letter.
So why did Buffett sell Berkshire's S&P 500 index funds? I believe the answer lies in his goals for the business. He wrote in his 2010 shareholder letter, "Our job is to increase per-share intrinsic value at a rate greater than the increase (including dividends) of the S&P 500." In other words, Buffett aims to beat the S&P 500. Owning S&P 500 index funds will not help him achieve that goal.
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Key Data Points
Tom Lee says millennials and AI will drive the S&P 500 to 15,000 by 2030
Tom Lee at Fundstrat thinks two catalysts will drive the S&P 500 to 15,000 by the 2030. First, the millennial population exceeds that of any other living generation, and that generation is entering its peak earnings years. That should boost economic growth through the end of the decade.
Second, the global labor shortage is forecast to reach 80 million workers by 2030. That should create demand for artificial intelligence (AI) as a means of automating workflows. In turn, technology stocks should perform well through the end of the decade, and the technology sector accounts for nearly one-third of the S&P 500.
Lee has justified his outlook with historical data:
Between 1948 and 1967 there was a global labor shortage and technology stocks went parabolic. And between 1991 and 1999 there was global labor shortage and technology stocks went parabolic. So, this is what's happening today.
Here's the bottom line: Warren Buffett sold Berkshire's S&P 500 index funds in the fourth quarter, but investors should not interpret that as a condemnation of the U.S stock market. Tom Lee makes a good case for robust returns through the end of the decade. And with the S&P 500 currently 6% below its high, the Vanguard S&P 500 ETF is an attractive investment idea right now.
