Warren Buffett Sells Vanguard Index Fund: Analyst Predicts 160% Growth

Few investors have achieved the success of Warren Buffett. Over the last sixty years, he has transformed Berkshire Hathaway (BRK.A 0.49%) (BRK.B 0.54%) into one of the largest conglomerates globally through a series of smart acquisitions and wise stock purchases. As a result, since he took control in 1965, Berkshire's share price has seen an annual increase of 20%.

Recently, Buffett made a notable decision regarding capital allocation. He, along with investment managers Ted Weschler and Todd Combs, sold the company's entire holdings in the Vanguard S&P 500 ETF (VOO 0.20%). This included both of Berkshire's S&P 500 index funds.

This choice was unexpected, as Buffett has long advocated for S&P 500 index funds as the best way for most non-professional investors to gain exposure to U.S. stocks. In fact, analyst Tom Lee from Fundstrat Global Advisors believes the S&P 500 might hit 15,000 by 2030, suggesting a potential upside of 160% from its current level of 5,768.

Buffett's Decision: Not a Sign of Doubt in U.S. Stocks

The S&P 500 is widely viewed as the most reliable indicator of the overall U.S. stock market. It tracks the performance of 500 large companies representing about 80% of the total U.S. market value. Buffett has often referred to the index as a "Who's Who of American business," making it a strong investment option.

Buffett has publicly supported S&P 500 index funds for many years. However, his decision to sell Berkshire's S&P 500 holdings in the last quarter may raise questions about his confidence in the U.S. market.

That said, I believe Buffett's actions are not indicative of doubt in U.S. stocks. He stated in a recent CBS interview, "A majority of any money I manage will always be in the United States." Given his history of promoting S&P 500 funds, if he had changed his mind, he would have communicated that clearly in his recent shareholder letter.

So, what prompted Buffett to sell the index funds? One reason may lie in his long-held ambition to outperform the S&P 500. As he noted in his 2010 letter to shareholders, "Our job is to increase per-share intrinsic value at a rate greater than the increase (including dividends) of the S&P 500." Putting money into S&P 500 index funds would counter that goal.

Analyst's Outlook for the S&P 500: Catalysts for Growth

Analyst Tom Lee believes that two main factors could propel the S&P 500 to reach 15,000 by 2030. First is the millennial demographic, which is the largest living generation and is now entering its peak earning years. This should contribute significantly to economic growth over the next decade.

The second factor is the projected global labor shortage, expected to reach 80 million workers by 2030. This will likely lead to a surge in demand for artificial intelligence (AI) technologies aimed at streamlining operations, particularly benefiting the technology sector that constitutes nearly one-third of the S&P 500.

Lee supports his bullish outlook with historical evidence; during similar labor shortages in the past—such as from 1948 to 1967 and 1991 to 1999—technology stocks experienced remarkable growth.

In conclusion, despite Warren Buffett selling Berkshire's S&P 500 index funds, this should not be seen as a negative assessment of the U.S. market. Tom Lee's predictions indicate strong potential for stock growth through the end of the decade. With the S&P 500 currently 6% below its previous high, the Vanguard S&P 500 ETF appears to be a compelling investment option at this time.

Warren, Buffett, Investing