What $184 Billion in Stock Sales Reveals About 2026: The Buffett Thesis and Market Valuation Risk

The Mysterious Cash Pile: Why Is Berkshire Hathaway Sitting on Record Reserves?

For decades, watching Warren Buffett’s investment moves felt like reading market tea leaves. The legendary investor built Berkshire Hathaway from a struggling textile mill into a trillion-dollar powerhouse partly through his relentless appetite for stocks. Yet something shifted dramatically after Q4 2022.

Over the past 12 consecutive quarters, Buffett’s investment team—including fellow managers Ted Weschler and Todd Combs—has been continuously offloading equities. By September 2025, these sales had reached $184 billion. What makes this pattern extraordinary is timing: Berkshire held a record $382 billion in cash and cash equivalents during this same period.

Here’s the disconnect that should concern investors: Buffett and his peers weren’t forced sellers managing losses. They chose to sit on massive liquidity while the market rallied. In 2018, Buffett remarked to CNBC that it was rare for Berkshire to go even a single month without purchasing stocks. Today’s behavior represents an inversion of that historical pattern—one that demands explanation.

The Valuation Puzzle: Why Buffett Struggles to Find Deals

The most straightforward answer lies in pricing. The S&P 500 entered December 2025 with a cyclically adjusted price-to-earnings ratio (CAPE) hovering near 39.4—a threshold the index has crossed in only 3% of its 68-year history since 1957. The last time valuations reached these extremes was October 2000, right before the dot-com crash.

A CAPE ratio above 39 has occurred just 25 times since the index’s inception. Each instance offers a revealing historical pattern. When the S&P 500 trades at these elevated pricing levels, subsequent 12-month returns paint a sobering picture:

• Average return over the following year: -4%
• Best-case scenario: +16%
• Worst-case scenario: -28%

Extending the analysis beyond one year reveals even starker findings. The S&P 500 has never achieved positive returns during the three-year period following a CAPE ratio spike above 39. Instead, the index has averaged a 30% decline across those three years.

From One Year to Three: The Historical Precedent for 2026-2028

If current market conditions mirror historical averages, the outlook for the next two years deserves serious consideration. By December 2026, the S&P 500 could decline 4% if past performance holds. More dramatically, by December 2028, extended weakness could compound to approximately a 30% loss.

This isn’t inevitable doom—past results don’t guarantee future outcomes. Artificial intelligence could accelerate earnings growth and expand profit margins faster than analysts currently anticipate, potentially justifying elevated valuations. However, the historical evidence suggests caution is warranted.

A Practical Path Forward: Review, Don’t Panic

The real takeaway isn’t “exit the market immediately.” Rather, this moment presents an opportunity for portfolio review. Consider whether you hold positions you’d feel comfortable maintaining through a significant market correction. Identify stocks where conviction remains strong enough to hold through a 20-30% drawdown.

Warren Buffett’s $184 billion in continuous selling, paired with record cash reserves, appears less like a market-timing maneuver and more like strategic positioning for an uncertain 2026. The CAPE ratio’s historic levels echo that caution—suggesting investors revisit their allocation strategies before potential turbulence emerges.