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    Home » Warren Buffett tells people to buy an S&P 500 index fund. A celebrity tech investor says they face a ‘rude awakening.’
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    Warren Buffett tells people to buy an S&P 500 index fund. A celebrity tech investor says they face a ‘rude awakening.’

    userBy userDecember 31, 2024No Comments3 Mins Read
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    Warren Buffett, the CEO of Berkshire Hathaway.REUTERS/Rick Wilking
    • Warren Buffett has long recommended a low-fee S&P 500 tracker fund to amateur investors.

    • Chamath Palihapitiya says it’s become riskier as a handful of stocks now dominate the index.

    • Buffett mostly steers clear of tech names but Apple has been his No. 1 stock for years.

    Warren Buffett preaches that picking stocks and timing the market are fool’s errands for the vast majority of people. He says their best bet is to simply invest in a low-fee S&P 500 index fund and hold it for the long term.

    But a handful of technology stocks have become so incredibly valuable that owning the market-capitalization-weighted S&P 500 is basically a concentrated bet on those risky businesses, not a wager on the stock market as a whole, Chamath Palihapitiya says.

    “This needs to be fixed or it will end in disaster,” the venture capitalist and cohost of the “All-In” podcast said in an X post on Saturday. He was reacting to a chart shared by Kevin Gordon, a senior investment strategist at Charles Schwab, which showed the 10 most valuable S&P 500 companies accounted for 39.9% of the benchmark index’s total market cap on December 20.

    Apple, Nvidia, Microsoft, Alphabet, Amazon, Meta, Tesla, Broadcom, Berkshire Hathaway, and Walmart are worth around $21 trillion together — a big chunk of the S&P 500’s roughly $50 trillion market cap.

    “Average Americans buy S&P 500 index ETFs, in part, because Buffett told them to,” Palihapitiya said. “They were told they would pay very little and get diversification in the 500 best companies on earth to ride out storms.”

    But the Social Capital CEO and early Facebook investor said the outsize weighting of a few stocks means that “when you buy an index of 500 companies, you’re really buying 10 companies with 490 others thrown in.”

    Palihapitiya said the lack of diversification means that if Big Tech stocks take a hit, investors could suffer huge losses as the pain to their portfolios won’t be tempered much by other holdings. Amateur buyers face a “rude awakening if this isn’t addressed,” he added.

    It’s worth noting that Palihapitiya has been widely criticized for promoting high-risk special purpose acquisition deals, or SPACs, during the pandemic and showing little remorse when their value cratered.

    Buffett, a value investor who strives to remain within his circle of competence, has largely eschewed tech stocks throughout his career as they tend to be expensive and he lacks expertise in what tech companies do.

    Yet he’s counted Apple as Berkshire’s largest position by far for the better part of a decade, despite paring that wager in recent quarters. The famed investor and Berkshire CEO has also hailed Alphabet and Meta as extraordinary businesses.

    On the other hand, Berkshire is extremely diversified, owning scores of businesses including Geico, See’s Candies, and Pilot Travel Centers. It also holds billion-dollar stakes in listed companies such as Coca-Cola and Bank of America.

    Buffett has previously shrugged off shareholders’ concerns about his stock portfolio being overly concentrated in Apple. But he might feel less comfortable now than in the past with amateur investors buying an index so dominated by a few Big Tech names.

    Read the original article on Business Insider



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