The Legendary Investor's Final Move: Why 2026 Could Mark a Turning Point for U.S. Stocks

A $184 Billion Signal No One Should Ignore

Warren Buffett’s recent announcement to step down as CEO of Berkshire Hathaway at year-end 2025 marks the end of an era. But before he hands over the reins, his investment decisions are sending a louder message than any farewell speech: the stock market may be pricing in more optimism than fundamentals warrant.

The evidence is staring everyone in the face. Despite sitting on a record $382 billion in cash and short-term investments as of September 2025, Berkshire Hathaway has been a consistent net seller of equities for the past three years. The numbers don’t lie—the company has offloaded $184 billion in stock holdings over the last four years alone, even as investment managers Ted Weschler and Todd Combs joined Buffett in the selling spree.

This represents a dramatic reversal from Buffett’s historical playbook. In 2018, he remarked to CNBC that it was “hard to think of very many months when we haven’t been a net buyer of stocks.” For decades, that buying appetite defined Berkshire’s strategy and rewarded patient investors handsomely. The company’s Class A shares have delivered gains exceeding 6,100,000% since Buffett took control in 1965, vastly outpacing the S&P 500’s roughly 46,000% return over the same period.

The Valuation Question That Explains Everything

Why would one of history’s greatest investors deliberately sit on the sidelines? The answer lies in how expensive the most expensive share prices have become relative to earnings.

The S&P 500 currently trades with a cyclically adjusted price-to-earnings (CAPE) ratio of 39.4—a level not seen since the dot-com bubble peak in October 2000. To put this in perspective, since the index’s inception in 1957, valuations have exceeded this threshold for merely 25 months out of the past 68 years. That’s just 3% of trading history.

When you’re buying at prices this stretched, the margin of safety shrinks dramatically. Buffett’s legendary discipline demands waiting for opportunities where the reward-to-risk equation tilts decisively in the buyer’s favor. The current environment simply doesn’t meet that threshold, hence the mountain of uninvested capital gathering dust on Berkshire’s balance sheet.

Historical Precedent: What Happens After Peak Valuations?

Data compiled from Robert Shiller’s research reveals a sobering pattern. On the 25 occasions when the S&P 500’s monthly CAPE ratio exceeded 39, the index’s subsequent one-year performance averaged a 4% decline. While that may sound modest, consider the distribution: at best, these periods preceded a 16% rally, but at worst, investors faced a 28% drawdown.

The picture darkens over longer timeframes. Remarkably, the S&P 500 has never finished higher three years after recording a CAPE ratio above 39. Instead, the average three-year loss reached approximately 30%.

If current market conditions follow those historical patterns, the S&P 500 could drop roughly 4% by December 2026, with greater losses materializing through 2028. These aren’t predictions of certainty—markets are messier than historical data suggests. Artificial intelligence developments and unexpected earnings growth could theoretically justify today’s valuations. Yet the statistical baseline tells a cautionary tale.

What This Means for Your Portfolio Right Now

The question isn’t whether to panic-sell everything you own. Rather, it’s time for a disciplined portfolio review. Identify positions you wouldn’t feel comfortable holding through a 25-30% correction. Trim or exit those names now, when prices are elevated rather than depressed.

Buffett’s $184 billion in dry powder isn’t a prediction of disaster—it’s a declaration of patience. He’s positioning Berkshire to deploy capital when prices become more attractive. Individual investors might consider a similar mindset: maintain adequate cash reserves, avoid overweighting at peak valuations, and prepare to act decisively when fear returns to financial markets.

The greatest wealth creation often happens not during bull markets, but in the years immediately following them. Buffett’s legendary career proves that discipline during good times creates opportunity during uncertain ones.