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Warren Buffett has long recommended a low-fee S&P 500 tracker fund for amateur investors.
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Chamath Palihapitiya says it has become more serious as a group of stocks now dominate the index.
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Buffett mostly avoids technology names, but Apple has been his No. 1 stock for years.
Warren Buffett He preaches that stock picking and market timing are fool’s errands for the vast majority of people. Their best bet, he says, is to simply invest in a low-fee S&P 500 index fund and hold it for the long term.
But a A handful of technology stocks Stocks have become so valuable that owning the market-cap-weighted S&P 500 is essentially a concentrated bet on those risky companies, not a bet on the stock market as a whole, says Chamath Palihapitiya.
“This has to be fixed or it will end in disaster,” the venture capitalist and co-host of the “All-In” podcast said in a statement. Share X on saturday. He was reacting to a chart shared by Kevin Gordon, a senior investment strategist at Charles Schwab, which showed that the 10 most valuable companies in the S&P 500 represented 39.9% of the total market capitalization of the benchmark index on December 20.
Apple, Nvidia, Microsoft, Alphabet, Amazon, Meta, Tesla, Broadcom, Berkshire Hathaway, and Walmart together are worth about $21 trillion, a significant portion of the S&P 500’s market capitalization of roughly $50 trillion.
“Ordinary Americans are buying S&P 500 ETFs, in part because Buffett told them to,” Palihapitiya said. “They were told they would pay very little and get diversification into the top 500 companies on Earth to weather the storms.”
But the huge weighting to a small number of stocks means that “when you buy an index of 500 companies, you’re actually buying 10 companies along with 490 other companies,” said the CEO of Social Capital and an early investor in Facebook.
The lack of diversification means that if big tech stocks take a hit, investors could suffer huge losses because the pain to their portfolios will not be mitigated much by other holdings, Palihapitiya said. He added that amateur buyers face a “ruthless awakening if this is not addressed.”
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 declines. The hole.
Buffett, a value investor who strives to stay within his circle, has largely avoided technology stocks throughout his career because they tend to be expensive and he lacks experience with what technology companies do.
However, Apple has been considered Berkshire’s largest position ever for the better part of a decade, though that bet has been pared back in recent quarters. The famous investor and Berkshire CEO also paid tribute alphabet and dead As extraordinary actions.
On the other hand, Berkshire Very diverseowns dozens of companies including Geico, See’s Candies, and Pilot Travel Centers. It also holds $1 billion stakes in listed companies such as Coca-Cola and Bank of America.
Buffett has previously ignored shareholder concerns about his portfolio being too concentrated in Apple. But he may feel less comfortable now than in the past with amateur investors buying an index dominated by a few big technology names.
Read the original article on Business insider