In 1965, Warren Buffett took control of Berkshire Hathaway (BRK.A -0.58%) (BRK.B -0.64%). The stock has since returned 19.9% annually, while the S&P 500 (^GSPC -1.71%) has compounded at 10.4% annually. That outperformance is due in large part to shrewd investments made by Buffett, which makes his recent capital allocation decisions a dire warning to Wall Street:

• Berkshire sold $143 billion in stock in 2024, while purchasing only $9 billion. That brings its net sales to $134 billion last year. Berkshire has never been a net seller on that magnitude at any point in its history.
• Berkshire had $334 billion in cash and equivalents on its balance sheet, as of December 2024. That figure doubled in the past year, and it represents a new record for the company.

Importantly, in his most recent shareholder letter, Buffett wrote, "Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses." That implies Buffett struggled to find good stocks at reasonable prices last year, which itself is a clear warning to Wall Street.

Here's what investors should know.

History says the S&P 500 will have a below-average year in 2025

Looking back to 2010, Berkshire Hathaway has been a net seller of stocks -- meaning the value of stock sold exceeded the value of stock purchased -- in eight years. As mentioned, one of those years was 2024, when Berkshire's net stock sales amounted to a record $134 billion.

There is no way to know for certain how the stock market will perform in 2025, but we can make an educated guess by considering the performance of the S&P 500 -- widely considered to be the single best gauge for the overall U.S. stock market -- following the last seven years in which Berkshire was a net seller.

The chart lists the seven years in which Berkshire was last a net seller. It also details how the S&P 500 performed in the next year. For instance, as shown in the first row, Berkshire sold more stock than it purchased in 2010, and the S&P 500 returned 0% in 2011.

Data source: YCharts. Table by author.

Since 2010, the S&P 500 has returned an average of 11% during the 12-month period following a year in which Berkshire was a net seller. Comparatively, the S&P 500 recorded an average annual return of 13% during the entire period. That means Berkshire has usually been a net seller of stocks before below-average years in the market.

That speaks to Warren Buffett's capabilities as an investor. And because Berkshire was a net seller in 2024, investors should be prepared for a below-average year in 2025.

Investors should not misinterpret Buffett's $134 billion warning

As mentioned, Berkshire's net stock sales totaled $134 billion in 2024. That is a particularly dire warning to Wall Street when considered alongside the record amount of cash and equivalents on the company's balance sheet. In short, despite having plenty of capital, Buffett and fellow investment managers Todd Combs and Ted Weschler struggled to find compelling investments.

However, Berkshire still has $272 billion invested across about 40 stocks, and the company has purchased at least some stock in each year since 2010. So, Berkshire's $134 billion in net sales last year is not a warning to avoid the market altogether, but rather a warning to be particularly cautious in the current environment.

To make my point, consider the S&P 500's cumulative return over the 14-year period since 2010 under three different circumstances:

• The S&P 500 returned a cumulative 141% during years in which Berkshire had been a net buyer of stocks in the previous year.
• The S&P 500 returned a cumulative 93% during years in which Berkshire had been a net seller of stocks in the previous year.
• The S&P 500 returned 425% during the entire 14-year period.

So, an investor who held an S&P 500 index fund for the full period would have outperformed investors who selectively owned the same index fund based on whether Berkshire had been a net buyer or seller of stocks in the prior year. In that sense, avoiding the stock market at any point in the last 14 years could have been a costly mistake, and the same is true of 2025.