Warren Buffett Sells His Only Vanguard Index Fund and Buys a Dividend Stock Up 7,120% Since 2010

Warren Buffett implicit the past six decades transformed Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) from a tiny textile cognition into a trillion-dollar company. Under his leadership, Berkshire shares person precocious much than 5,500,000%, crushing the 39,000% instrumentality successful the S&P 500 (SNPINDEX: ^GSPC).

Consequently, Buffett has go a root of inspiration and guidance for galore investors, and his institution made a fewer absorbing superior allocation decisions successful the 4th quarter, arsenic elaborate below:

• Berkshire sold its full presumption successful the Vanguard S&P 500 ETF (NYSEMKT: VOO), the lone Vanguard scale money successful its portfolio.

• The institution added to its involvement successful Domino's Pizza (NASDAQ: DPZ), a dividend-stock that has returned 7,120% since January 2010.

Here's what investors should know.

Warren Buffett not lone sold the Vanguard S&P 500 ETF successful the 4th quarter, but besides sold the lone different scale money Berkshire held its portfolio, which besides happened to beryllium an S&P 500 scale fund.

Those funds way the S&P 500, which is wide seen arsenic the champion gauge for the wide U.S. banal market. So, Buffet's determination to merchantability could beryllium interpreted arsenic mislaid assurance successful the U.S. system and home stocks. But that seems unlikely. Buffett has warned investors not to stake against America, and has often recommended an S&P 500 scale money arsenic the champion mode for astir radical to get vulnerability to stocks.

Buffett did not recant those beliefs successful his latest shareholder letter, and I deliberation helium would person if his views had changed. So, if the determination to merchantability the S&P 500 scale funds does not bespeak mislaid assurance successful the U.S banal market, past what was his motivation? I fishy the reply lies successful the microscopic size of those positions.

The S&P 500 scale funds accounted for little than 0.02% of Berkshire's portfolio successful the 3rd quarter, which means they were astir arsenic consequential arsenic pouch alteration to the mean person. Buffett whitethorn person sold the funds to consolidate that pouch alteration into a larger currency presumption successful mentation for the adjacent banal marketplace correction.

To beryllium clear, I americium not arguing Buffett thinks the S&P 500 is inexpensive today. In fact, I fishy the other is true. The scale has a price-to-earnings ratio of 26.1 times, a worldly premium to the 10-year mean of 22.1 times. Instead, I americium arguing Berkshire selling 2 S&P 500 scale funds is not a subtle cue for idiosyncratic investors to bash the same.

The S&P 500 whitethorn endure a steep correction successful the adjacent future. But the scale is inactive apt to instrumentality astir 10% annually implicit the adjacent fewer decades, conscionable arsenic it has successful the past.