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Warren Buffett has long recommended a low-fee S&P 500 tracker fund to amateur investors.
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Chamath Palihapitiya says it has become risky as a handful of stocks now dominate the index.
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Buffett stays away from most tech names, but Apple has been his No. 1 stock for years.
Warren Buffett Preachs that picking stocks and timing the market is a fool’s errand for many people. Their best bet is simply to invest in a low-fee S&P 500 index fund and hold it for the long term, he says.
But A A handful of technology stocks They’ve become so incredibly valuable that owning the market-capitalization-weighted S&P 500 is really a bet focused on those risky businesses, not a bet on the stock market as a whole, says Chamath Palihapitiya. the bet
“This needs to be fixed or it’s going to end in disaster,” the venture capitalist and co-host of the “All-In” podcast said in one. X post on Saturday. He was reacting to a chart shared by Kevin Gordon, a senior investment strategist at Charles Schwab, that showed the 10 most valuable S&P 500 companies accounted for 39.9% of the benchmark index’s total market cap as of Dec. 20. .
Apple, Nvidia, Microsoft, Alphabet, Amazon, Meta, Tesla, Broadcom, Berkshire Hathaway, and Walmart are worth about $21 trillion — a large chunk of the S&P 500’s nearly $50 trillion market cap.
“Average Americans buy S&P 500 index ETFs, in part, because Buffett told them to,” Palihapitia said. “They were told they would pay very little and diversify into the 500 best companies on Earth to ride out the storms.”
But Social Capital’s CEO and early Facebook investor said the outsized size of some stocks means that “when you buy an index of 500 companies, you’re really buying 10 companies that include 490 others.”
Palihapitiya said the lack of diversification means that if big tech stocks take a hit, investors could suffer huge losses because the pain to their portfolios won’t be cushioned as much by other holdings. Aspiring buyers face “brutal awareness if it’s not addressed.”
It’s worth noting that Polihpatia has been widely criticized for promoting high-risk special purpose acquisition deals, or SPACs, during the pandemic and showing little remorse for their pricing. cratered.
Buffett, a value investor who tries to stay within the confines of his ability, has largely avoided tech stocks throughout his career because they are expensive and he lacks expertise in what tech companies do.
